Waste Management 2013 Annual Report Download - page 195

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We have not offset fair value amounts recognized for our derivative instruments. For information related to
the inputs used to measure our derivative assets and liabilities at fair value, refer to Note 18.
Fair Value Hedges
Interest Rate Swaps
We have used interest rate swaps to maintain a portion of our debt obligations at variable market interest
rates. In April 2012, we elected to terminate our interest rate swaps and, upon termination, we received $76
million in cash for their fair value plus accrued interest receivable. The terminated interest rate swaps were
associated with our senior notes that matured in November 2012 and additional senior notes that are scheduled to
mature through 2018. The associated fair value adjustments to long-term debt are being amortized as a reduction
to interest expense over the remaining terms of the underlying debt using the effective interest method. The cash
proceeds received from our termination of the swaps were classified as a change in “Other assets” within “Net
cash provided by operating activities” in the Consolidated Statement of Cash Flows.
We designated our interest rate swaps as fair value hedges of our fixed-rate senior notes. Fair value hedge
accounting for interest rate swap contracts increased the carrying value of our debt instruments by $59 million as
of December 31, 2013 and $79 million as of December 31, 2012.
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
active interest rate swaps and the underlying hedged items on our results of operations (in millions):
Years Ended December 31,
Derivatives Designated as
Fair Value Hedges
Statement of Operations
Classification
Gain (Loss) on
Swap
Gain (Loss) on
Fixed-Rate Debt
2013 2012 2011 2013 2012 2011
Interest rate swaps .......... Interest expense $— $(1) $35 $— $1 $(35)
We also recognize the impacts of (i) net periodic settlements of current interest on our active interest rate
swaps, if any, and (ii) the amortization of previously terminated interest rate swap agreements as adjustments to
interest expense. The following table summarizes the impact of periodic settlements of active swap agreements
and the impact of terminated swap agreements on our results of operations (in millions):
Years Ended December 31,
Decrease to Interest Expense Due to Hedge Accounting for Interest Rate Swaps 2013 2012 2011
Periodic settlements of active swap agreements(a) ..................... $— $ 8 $23
Terminated swap agreements ...................................... 20 22 12
$20 $30 $35
(a) These amounts represent the net of our periodic variable-rate interest obligations and the swap
counterparties’ fixed-rate interest obligations. Our swaps provided that we received fixed interest rates
ranging from 5.00% to 7.125% and paid floating interest rates based on spreads from three-month LIBOR
ranging from (0.205)% to 5.53%. These settlements have decreased due to our election to terminate our
interest rate swap portfolio with a notional amount of $1 billion in April 2012.
105