Waste Management 2011 Annual Report Download - page 203

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash Equivalents
Cash equivalents are reflected at fair value in our Consolidated Financial Statements based upon quoted
market prices and consist primarily of money market funds that invest in U.S. government obligations with
original maturities of three months or less.
Available-for-Sale Securities
Available for-sale securities are recorded at fair value based on quoted market prices. These assets include
restricted trusts and escrow accounts invested in money market mutual funds, equity-based mutual funds and
other debt and equity securities. The fair value of our restricted trust and escrow accounts approximates our cost
basis in the investments.
Interest Rate Derivatives
As of December 31, 2011, we are party to (i) fixed-to-floating interest rate swaps that are designated as fair
value hedges of our currently outstanding senior notes; and (ii) forward-starting interest rate swaps that are
designated as cash flow hedges of anticipated interest payments for future fixed-rate debt issuances. Our
fixed-to-floating interest rate swaps and forward-starting interest rate swaps are LIBOR-based instruments.
Accordingly, these derivatives are valued using a third-party pricing model that incorporates information about
LIBOR yield curves for each instrument’s respective term. The third-party pricing model used to value our interest
rate derivatives also incorporates Company and counterparty credit valuation adjustments, as appropriate.
Counterparties to our interest rate derivatives are financial institutions who participate in our $2.0 billion revolving
credit facility. Valuations of our interest rate derivatives may fluctuate significantly from period-to-period due to
volatility in underlying interest rates, which are driven by market conditions and the scheduled maturities of the
derivatives. Refer to Note 8 for additional information regarding our interest rate derivatives.
Foreign Currency Derivatives
Our foreign currency derivatives are valued using a third-party pricing model that incorporates information
about forward Canadian dollar exchange prices as of the reporting date. The third-party pricing model used to value
our foreign currency derivatives also incorporates Company and counterparty credit valuation adjustments, as
appropriate. Counterparties to these contracts are financial institutions who participate in our $2.0 billion revolving
credit facility. Valuations may fluctuate significantly from period-to-period due to volatility in the Canadian dollar
to U.S. dollar exchange rate. Refer to Note 8 for additional information regarding our foreign currency derivatives.
Electricity Commodity Derivatives
As of December 31, 2011, we are party to fixed-to-floating electricity commodity derivatives to hedge the
variability in revenues and cash flows caused by fluctuations in the market prices for electricity. These derivative
instruments are valued using third-party pricing models that incorporate forward power curves published by
Platts, as well as congestion rates where appropriate. The third-party pricing models also incorporate Company
and counterparty credit valuation adjustments, as appropriate. Counterparties to our electricity commodity
derivatives are either power marketing arms of investor-owned utilities or power trading desks at various
financial institutions. Valuations of the Company’s electricity commodity derivatives may fluctuate significantly
from period-to-period due to volatility in the market price of electricity caused by factors such as demand and
supply movements, changes in the price of natural gas, and weather related events, among others. Refer to Note 8
for additional information regarding our electricity commodity derivatives.
Fair Value of Debt
At December 31, 2011 the carrying value of our debt was approximately $9.8 billion compared with
approximately $8.9 billion at December 31, 2010. The carrying value of our debt includes adjustments for both
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