Waste Management 2008 Annual Report Download - page 107
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Please find page 107 of the 2008 Waste Management annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Tax-exempt bond funds — We obtain funds from the issuance of industrial revenue bonds for the construction
of collection and disposal facilities and for equipment necessary to provide waste management services. Proceeds
from these arrangements are directly deposited into trust accounts, and we do not have the ability to use the funds in
regular operating activities. Accordingly, these borrowings are excluded from financing activities in our Statement
of Cash Flows. At the time our construction and equipment expenditures have been documented and approved by
the applicable bond trustee, the funds are released and we receive cash. These amounts are reported in the Statement
of Cash Flows as an investing activity when the cash is released from the trust funds. Generally, the funds are fully
expended within a few years of the debt issuance. When the debt matures, we repay our obligation with cash on hand
and the debt repayments are included as a financing activity in the Statement of Cash Flows.
Debt service funds — Funds are held in trust to meet future principal and interest payments required under
certain of our tax-exempt project bonds.
Derivative financial instruments
We primarily use derivative financial instruments to manage our risk associated with fluctuations in interest
rates and foreign currency exchange rates. We use interest rate swaps to maintain a strategic portion of our debt
obligations at variable, market-driven interest rates. In prior periods, we have also entered into interest rate
derivatives in anticipation of our senior note issuances to effectively lock in a fixed interest rate. Foreign currency
exchange rate derivatives are used to hedge our exposure to changes in exchange rates for anticipated cash
transactions between WM Holdings and its Canadian subsidiaries.
We obtain current valuations of our interest rate and foreign currency hedging instruments from third-party
pricing models. The estimated fair values of derivatives used to hedge risks fluctuate over time and should be
viewed in relation to the underlying hedged transaction and the overall management of our exposure to fluctuations
in the underlying risks. The fair value of derivatives is included in other current assets, other long-term assets,
accrued liabilities or other long-term liabilities, as appropriate. Any ineffectiveness present in either fair value or
cash flow hedges is recognized immediately in earnings without offset. There was no significant ineffectiveness in
2008, 2007 or 2006.
•Interest rate derivatives — Our interest rate swaps have been designated as fair value hedges for accounting
purposes, which results in derivative assets being accounted for as corresponding increases in the carrying
value of our underlying debt obligations and derivative liabilities being accounted for as corresponding
decreases in the carrying value of our underlying debt instruments. These fair value adjustments are deferred
and recognized as an adjustment to interest expense over the remaining term of the hedged instruments. The
impacts of our use of interest rate derivatives on the carrying value of our debt and interest expense are
discussed in Note 7.
•Foreign currency derivatives — Our foreign currency derivatives have been designated as cash flow hedges
for accounting purposes, which results in the unrealized changes in the fair value of the derivative
instruments being recorded in “Accumulated other comprehensive income” within the equity section of
our Consolidated Balance Sheets. The associated balance in other comprehensive income is reclassified to
earnings as the hedged cash flows occur. In each of the periods presented, these derivatives have effectively
mitigated the impacts of the hedged transactions, resulting in immaterial impacts to our results of operations
for the periods presented.
Self-insurance reserves and recoveries
We have retained a significant portion of the risks related to our health and welfare, automobile, general
liability and workers’ compensation insurance programs. The exposure for unpaid claims and associated expenses,
including incurred but not reported losses, generally is estimated with the assistance of external actuaries and by
factoring in pending claims and historical trends and data. The gross estimated liability associated with settling
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WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)