Waste Management 2011 Annual Report Download - page 208

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Significant Unconsolidated Variable Interest Entities
Investment in Refined Coal Facility — In January 2011, we acquired a noncontrolling interest in a limited
liability company, which was established to invest in and manage a refined coal facility. Along with the other equity
investor, we support the operations of the entity in exchange for a pro-rata share of the tax credits it generates. Our
initial consideration for this investment consisted of a cash payment of $48 million. At December 31, 2011, our
investment balance was $35 million, representing our current maximum pre-tax exposure to loss. Under the terms
and conditions of the transaction, we do not believe that we have any material exposure to loss. Future contributions
will commence once certain levels of tax credits have been generated and will continue through the expiration of the
tax credits under Section 45 of the Internal Revenue Code, which occurs at the end of 2019. We are only obligated
to make future contributions to the extent tax credits are generated. We determined that we are not the primary
beneficiary of this entity as we do not have the power to individually direct the entity’s activities. Accordingly, we
account for this investment under the equity method of accounting and do not consolidate the entity. Additional
information related to this investment is discussed in Note 9.
Investment in Federal Low-income Housing Tax Credits — In April 2010, we acquired a noncontrolling
interest in a limited liability company established to invest in and manage low-income housing properties. We
support the operations of the entity in exchange for a pro-rata share of the tax credits it generates. Our target
return on the investment is guaranteed and, therefore, we do not believe that we have any material exposure to
loss. Our consideration for this investment totaled $221 million, which was comprised of a $215 million note
payable and an initial cash payment of $6 million. At December 31, 2011, our investment balance was
$178 million and our debt balance was $176 million. We determined that we are not the primary beneficiary of
this entity as we do not have the power to individually direct the entity’s activities. Accordingly, we account for
this investment under the equity method of accounting and do not consolidate the entity. Additional information
related to this investment is discussed in Note 9.
Trusts for Final Capping, Closure, Post-Closure or Environmental Remediation Obligations — We have
significant financial interests in trust funds that were created to settle certain of our final capping, closure, post-
closure or environmental remediation obligations. We have determined that we are not the primary beneficiary of
certain of these trust funds because power over the trusts’ significant activities is shared.
The deconsolidation of these variable interest entities as of January 1, 2010, in accordance with the new
FASB guidance discussed in Note 2, decreased our restricted trust and escrow accounts by $109 million;
increased investments in unconsolidated entities by $27 million; increased receivables, principally long-term,
by $51 million; and decreased noncontrolling interests by $31 million. Beginning in 2010, our interests in
these variable interest entities have been accounted for as investments in unconsolidated entities and
receivables. These amounts are recorded in “Other receivables” and as long-term “Other assets” in our
Consolidated Balance Sheet. Our investments and receivables related to the trusts had an aggregate carrying
value of $105 million as of January 1, 2010, $103 million as of December 31, 2010 and $107 million as of
December 31, 2011. We continue to reflect our interests in the unrealized gains and losses on
available-for-sale securities held by these trusts as a component of accumulated other comprehensive income.
The deconsolidation of these variable interest entities has not materially affected our financial position, results
of operations or cash flows for the periods presented.
As the party with primary responsibility to fund the related final capping, closure, post-closure or
environmental remediation activities, we are exposed to risk of loss as a result of potential changes in the fair
value of the assets of the trust. The fair value of trust assets can fluctuate due to (i) changes in the market value of
the investments held by the trusts and (ii) credit risk associated with trust receivables. Although we are exposed
to changes in the fair value of the trust assets, we currently expect the trust funds to continue to meet the statutory
requirements for which they were established.
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