Waste Management 2011 Annual Report Download - page 175

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest Rate Derivatives
Interest Rate Swaps
We use interest rate swaps to maintain a portion of our debt obligations at variable market interest rates. As
of December 31, 2011, we had approximately $6.1 billion in fixed-rate senior notes outstanding. The interest
payments on $1 billion, or 16%, of these senior notes have been swapped to variable interest rates to protect the
debt against changes in fair value due to changes in benchmark interest rates. As of December 31, 2010, we had
approximately $5.4 billion in fixed-rate senior notes outstanding, of which $500 million, or 9%, had been
swapped to variable interest rates. The significant terms of our interest rate swap agreements as of December 31,
2011 and 2010 are summarized in the table below (in millions):
As of Notional Amount Receive Pay Maturity Date
December 31, 2011 .... $1,000 Fixed 5.00%-7.125% Floating 0.38%-6.11% Through March 15, 2018
December 31, 2010 .... $ 500 Fixed 5.00%-7.65% Floating 0.10%-4.69% Through March 15, 2018
The increase in the notional amount of our interest rate swaps from December 31, 2010 to December 31,
2011 was due to the execution of $600 million of interest rate swaps in March 2011 partially offset by the
scheduled maturity of $100 million of interest rate swaps in March 2011.
We have designated our interest rate swaps as fair value hedges of our fixed-rate senior notes. Fair value
hedge accounting for interest rate swap contracts has increased the carrying value of our debt instruments by
$102 million as of December 31, 2011 and $79 million as of December 31, 2010. The following table
summarizes the fair value adjustments from interest rate swap agreements at December 31 (in millions):
Increase in Carrying Value of Debt Due to Hedge Accounting for Interest Rate Swaps
December 31,
2011 2010
Senior notes:
Active swap agreements .................................................. $ 73 $38
Terminated swap agreements .............................................. 29 41
$102 $79
Gains or losses on the derivatives as well as the offsetting losses or gains on the hedged items attributable to
our interest rate swaps are recognized in current earnings. We include gains and losses on our interest rate swaps
as adjustments to interest expense, which is the same financial statement line item where offsetting gains and
losses on the related hedged items are recorded. The following table summarizes the fair value adjustments from
interest rate swaps and the underlying hedged items on our results of operations (in millions):
Years Ended December 31, Statement of Operations Classification Gain (Loss) on Swap
Gain (Loss) on
Fixed-Rate Debt
2011 Interest expense $ 35 $(35)
2010 Interest expense $ 6 $ (6)
2009 Interest expense $(60) $ 60
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