Waste Management 2008 Annual Report Download - page 74
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Please find page 74 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.drive our periodic interest obligations under our active swap agreements. Our periodic interest obligations under
these agreements are based on a spread from the three-month LIBOR, which was as low as 1.43% in late 2008 and as
high as 5.62% in the second half of 2007. In 2008, the year-over-year change in the impact of interest rate swaps is
also due to our terminated swaps, which caused a $42 million reduction in interest expense in 2008 compared with a
$37 million reduction in interest expense in 2007. Our terminated interest rate swaps are expected to reduce interest
expense by $18 million in 2009, $11 million in 2010, and $5 million in 2011.
Interest Income
When comparing 2008 with 2007, the decrease in interest income is primarily due to (i) significant declines in
market interest rates; (ii) the recognition of $7 million in interest income during the first quarter of 2007 for the
favorable resolution of a disposal tax matter in our Eastern Group; and (iii) a decrease in our average cash and
investment balances. When comparing 2007 with 2006, the decrease in interest income is primarily due to (i) a
decrease in our average cash and investment balances; and (ii) $14 million of interest income realized in 2006 on tax
refunds received from the IRS for the settlement of several federal audits.
Equity in Net Losses of Unconsolidated Entities
During the reported periods, our “Equity in net losses of unconsolidated entities” was primarily related to our
equity interests in two coal-based synthetic fuel production facilities. The equity losses generated by the facilities
were offset by the tax benefit realized as a result of these investments as discussed below within Provision for
income taxes.
Our equity in the losses of these facilities was $3 million for the year ended December 31, 2008, $42 million for
the year ended December 31, 2007 and $41 million for the year ended December 31, 2006. The significant decline
in these losses in 2008 as compared with the prior year periods is due to the expiration of our investments at the end
of 2007. The comparability of the losses incurred in 2007 and 2006 is primarily affected by (i) the impact of the
partial phase-out of Section 45K credits during each year on our contractual obligations associated with funding the
facilities’ losses; (ii) the temporary suspension of operations at the facilities in 2006; and (iii) the recognition of a
cumulative adjustment necessary to appropriately reflect our life-to-date obligations to fund the costs of operating
the facilities and the value of our investment, which was recognized in 2006. Refer to Note 8 for additional
information related to the impact of these investments.
Minority Interest
On December 31, 2003, we consolidated two limited liability companies that own three waste-to-energy
facilities operated by our Wheelabrator Group as a result of our implementation of FIN 46(R). Our minority interest
expense for 2008, 2007 and 2006 is primarily related to the other members’ equity interest in the earnings of these
entities. Additional information related to these investments is included in Note 19 to the Consolidated Financial
Statements.
Provision for Income Taxes
We recorded a provision for income taxes of $669 million in 2008, $540 million in 2007 and $325 million in
2006. These tax provisions resulted in an effective income tax rate of approximately 38.1%, 31.7% and 22.1% for
each of the three years, respectively. At current income levels, we expect that our 2009 recurring effective tax rate
will be approximately 40%. The comparability of our reported income taxes for the years ended December 31,
2008, 2007 and 2006 is primarily affected by (i) increases in our income before taxes; (ii) differences in the impacts
of tax audit settlements; and (iii) the impact of non-conventional fuel tax credits, which expired at the end of 2007.
The impacts of tax audit settlements and non-conventional fuel tax credits, which are the items that had the most
significant impacts on the comparability of our effective tax rate during the years ended December 31, 2008, 2007
and 2006, are summarized below:
•Tax audit settlements — When excluding the effect of interest income, the settlement of various tax audits
resulted in a reduction in income tax expense of $26 million for the year ended December 31, 2008
(representing a 1.5 percentage point reduction in our effective tax rate), $40 million for the year ended
40