Waste Management 2013 Annual Report Download - page 161

Liquidity Impacts of Income Tax Items
Bonus Depreciation — The American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013
and included an extension for one year of the bonus depreciation allowance. As a result, 50% of qualifying
capital expenditures on property placed in service before January 1, 2014 were depreciated immediately. The
acceleration of deductions on 2013 qualifying capital expenditures resulting from the bonus depreciation
provisions had no impact on our effective income tax rate for 2013 although it reduced our cash taxes.
The acceleration of depreciation deductions related to qualifying capital expenditures in 2013 decreased our
2013 cash taxes by approximately $70 million. However, taking accelerated depreciation deductions results in
increased cash taxes in subsequent periods when the depreciation deductions related to the capital expenditures
would have otherwise been taken. Overall, the effect of all applicable years’ bonus depreciation programs results
in increased cash taxes of $40 million in 2013. Separately, our tax payments in 2013 were $145 million higher
than the tax payments made in 2012.
Uncertain Tax Positions — We have liabilities associated with unrecognized tax benefits and related
interest. These liabilities are included as a component of long-term “Other liabilities” in our Consolidated
Balance Sheets because the Company does not anticipate that settlement of the liabilities will require payment of
cash within the next 12 months. We are not able to reasonably estimate when we would make any cash payments
required to settle these liabilities, but we do not believe that the ultimate settlement of our obligations will
materially affect our liquidity. We anticipate that approximately $9 million of liabilities for unrecognized tax
benefits, including accrued interest, and $3 million of related deferred tax assets may be reversed within the next
12 months. The anticipated reversals are related to state tax items, none of which are material, and are expected
to result from audit settlements or the expiration of the applicable statute of limitations period.
Off-Balance Sheet Arrangements
We have financial interests in unconsolidated variable interest entities as discussed in Note 20 to the
Consolidated Financial Statements. Additionally, we are party to guarantee arrangements with unconsolidated
entities as discussed in the Guarantees section of Note 11 to the Consolidated Financial Statements. These
arrangements have not materially affected our financial position, results of operations or liquidity during the year
ended December 31, 2013, nor are they expected to have a material impact on our future financial position,
results of operations or liquidity.
Inflation
While inflationary increases in costs, including the cost of diesel fuel, have affected our income from
operations margins in recent years, we believe that inflation generally has not had, and in the near future is not
expected to have, any material adverse effect on our results of operations. However, as of December 31, 2013,
approximately 30% of our collection revenues are generated under long-term agreements with price adjustments
based on various indices intended to measure inflation. Additionally, management’s estimates associated with
inflation have had, and will continue to have, an impact on our accounting for landfill and environmental
remediation liabilities.
Item 7A. Quantitative and Qualitative Disclosures 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. As of December 31, 2013, all of our derivative transactions were related to actual or
anticipated economic exposures. 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.
Interest Rate Exposure — Our exposure to market risk for changes in interest rates relates primarily to our
financing activities, although our interest costs can also be significantly affected by our on-going financial
assurance needs, which are discussed in the Financial Assurance and Insurance Obligations section of Item 1.
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