Waste Management 2011 Annual Report Download - page 166

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
commodity derivatives to mitigate the variability in our revenues and cash flows caused by fluctuations in the
market prices for electricity.
We obtain current valuations of our interest rate, foreign currency and electricity commodity 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 2011, 2010 or 2009.
‰Interest Rate Derivatives — Our “receive fixed, pay variable” interest rate swaps associated with
outstanding fixed-rate senior notes have been designated as fair value hedges for accounting purposes.
Accordingly, derivative assets are accounted for as an increase in the carrying value of our underlying
debt obligations and derivative liabilities are accounted for as a decrease 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. Treasury locks and forward-
starting swaps executed in 2009 were designated as cash flow hedges for accounting purposes. Unrealized
changes in the fair value of these derivative instruments are 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. The
impacts of our use of interest rate derivatives on the carrying value of our debt, accumulated other
comprehensive income and interest expense are discussed in Note 8.
‰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 affect earnings. 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. The financial statement impacts of our foreign currency
derivatives are discussed in Note 8.
‰Electricity Commodity Derivatives — Our “receive fixed, pay variable” electricity commodity swaps
have been designated as cash flow hedges for accounting purposes. The effective portion of the electricity
commodity swap gains or losses is initially reported as a component of “Accumulated other
comprehensive income” within the equity section of our Consolidated Balance Sheets and subsequently
reclassified into earnings when the forecasted transactions affect earnings. The financial statement
impacts of our electricity commodity derivatives are discussed in Note 8.
Insured and Self-Insured Claims
We have retained a significant portion of the risks related to our health and welfare, automobile, general
liability and workers’ compensation claims 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
unpaid claims is included in “Accrued liabilities” in our Consolidated Balance Sheets if expected to be settled
within one year, or otherwise is included in long-term “Other liabilities.” Estimated insurance recoveries related
to recorded liabilities are reflected as current “Other receivables” or long-term “Other assets” in our Consolidated
Balance Sheets when we believe that the receipt of such amounts is probable.
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