Waste Management 2008 Annual Report Download - page 87
Download and view the complete annual report
Please find page 87 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.retrospectively for all periods presented. The adoption of SFAS No. 160 will not have a material impact on our
consolidated financial statements. However, it could impact our accounting for future transactions.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
In the normal course of business, we are exposed to market risks, including changes in interest rates, Canadian
currency rates and certain commodity prices. From time to time, we use derivatives to manage some portion of these
risks. Our derivatives are agreements with independent counterparties that provide for payments based on a notional
amount, with no multipliers or leverage. As of December 31, 2008, all of our derivative transactions were related to
actual or anticipated economic exposures although certain transactions did not qualify for hedge accounting. We are
exposed to credit risk in the event of non-performance by our derivative counterparties. However, we monitor our
derivative positions by regularly evaluating our positions and the creditworthiness of the counterparties, all of
whom we either consider credit-worthy, or who have issued letters of credit to support their performance.
We have performed sensitivity analyses to determine how market rate changes might affect the fair value of our
market risk sensitive derivatives and related positions. These analyses are inherently limited because they reflect a
singular, hypothetical set of assumptions. Actual market movements may vary significantly from our assumptions.
The effects of market movements may also directly or indirectly affect our assumptions and our rights and
obligations not covered by the sensitivity analyses. Fair value sensitivity is not necessarily indicative of the ultimate
cash flow or the earnings effect from the assumed market rate movements.
Interest Rate Exposure. Our exposure to market risk for changes in interest rates relates primarily to our debt
obligations, which are primarily denominated in U.S. dollars. In addition, we use interest rate swaps to manage the
mix of fixed and floating rate debt obligations, which directly impacts variability in interest costs. As of
December 31, 2008, 33% of our total debt is at variable interest rates, compared with 34% at December 31,
2007. An instantaneous, one percentage point increase in interest rates across all maturities and applicable yield
curves would have decreased the fair value of our combined debt and interest rate swap positions by approximately
$595 million at December 31, 2008 and $445 million at December 31, 2007. As disclosed in Note 7 to the
Consolidated Financial Statements, there have not been any material changes in the amount or type of debt or
derivatives outstanding since December 31, 2007; nor has there been a material change in the extent of our exposure
to variability in interest rates. Accordingly, the significant increase when comparing the effect of the one percentage
point increase at December 31, 2008 with December 31, 2007 can be attributed to a substantial decline in risk-free
interest rates, which are used in the discounted cash flow analysis performed to support this disclosure. This analysis
does not reflect the effect that increasing interest rates would have on items other than our outstanding debt and
interest rate derivatives, nor the unfavorable impact they would have on interest expense and cash payments for
interest.
We are also exposed to interest rate market risk because we have $381 million and $418 million of assets held
in restricted trust funds and escrow accounts primarily included within long-term “Other assets” in our Consol-
idated Balance Sheets at December 31, 2008 and 2007, respectively. These assets are generally restricted for future
capital expenditures and closure, post-closure and environmental remediation activities at our disposal facilities and
are, therefore, invested in high quality, liquid instruments including money market accounts and U.S. government
agency debt securities. Because of the short terms to maturity of these investments, we believe that our exposure to
changes in fair value due to interest rate fluctuations is insignificant.
Currency Rate Exposure. From time to time, we have used currency derivatives to mitigate the impact of
currency translation on cash flows of intercompany Canadian-currency denominated debt transactions. Our foreign
currency derivatives have not materially affected our financial position or results of operations for the periods
presented. In addition, while changes in foreign currency exchange rates could significantly affect the fair value of
our foreign currency derivatives, we believe these changes in fair value would not have a material impact to the
Company.
53