Waste Management 2013 Annual Report Download - page 196

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash Flow Hedges
Forward-Starting Interest Rate Swaps
In prior years, we entered into forward-starting interest rate swaps with a total notional value of $525
million to hedge the risk of changes in semi-annual interest payments due to fluctuations in the forward ten-year
LIBOR swap rate for anticipated fixed-rate debt issuances in 2011, 2012 and 2014. We designated these forward-
starting interest rate swaps as cash flow hedges.
During the third quarter of 2012, $200 million of these forward-starting interest rate swaps were terminated
contemporaneously with the actual issuance of senior notes in September 2012, and we paid cash of $59 million
to settle the liabilities related to these swap agreements. At December 31, 2013 and 2012, our “Accumulated
other comprehensive income” included $34 million and $39 million, respectively, of after-tax deferred losses
related to all previously terminated swaps, which are being amortized as an increase to interest expense over the
ten-year life of the related senior note issuances using the effective interest method. As of December 31, 2013, $7
million (on a pre-tax basis) is scheduled to be reclassified as an increase to interest expense over the next 12
months.
The active forward-starting interest rate swaps outstanding as of December 31, 2013 relate to an anticipated
debt issuance in the first quarter of 2014. As of December 31, 2013, the fair value of these active interest rate
derivatives was comprised of $28 million of current liabilities compared with $42 million of long-term liabilities
as of December 31, 2012.
Treasury Rate Locks
At December 31, 2013 and 2012, our “Accumulated other comprehensive income” included $6 million and
$7 million, respectively, of after-tax deferred losses associated with Treasury rate locks that had been executed in
previous years in anticipation of senior note issuances. These deferred losses are reclassified as an increase to
interest expense over the life of the related senior note issuances, which extend through 2032. As of
December 31, 2013, $1 million (on a pre-tax basis) is scheduled to be reclassified as an increase to interest
expense over the next 12 months.
Foreign Currency Derivatives
We use foreign currency derivatives to hedge our exposure to fluctuations in exchange rates for anticipated
intercompany cash transactions between WM Holdings and its Canadian subsidiaries.
As of December 31, 2012, the hedged cash flows included C$370 million of principal and C$10 million of
interest scheduled to be paid on October 31, 2013. The intercompany note and related forward contracts matured
and settled on October 31, 2013. The gain realized on the settlement of the forward contracts was $4 million.
Interest on this intercompany note of C$10 million and C$11 million was also paid on November 30, 2011 and
2012, respectively. Forward contracts executed to hedge these cash flows settled contemporaneously with the
related interest payments. The financial statement impacts of these forward contracts were not material.
In October 2013, we executed a new Canadian dollar intercompany debt arrangement between WM
Holdings and its Canadian subsidiaries and elected to swap WM Holding’s non-functional currency
intercompany loan receivable back to U.S. dollars, which is WM Holdings’ functional currency. The total
notional value of the new cross currency swaps is C$370 million. The critical terms of the executed swaps match
the terms of the intercompany loan. The scheduled principal payments of the loan and the related swaps are as
follows: C$70 million due on October 31, 2016, C$150 million due on October 31, 2017 and C$150 million due
on October 31, 2018. We designated these cross currency swaps as cash flow hedges. Gains or losses resulting
from the remeasurement of the underlying non-functional currency intercompany loan are recognized in current
earnings in the same financial statement line item as offsetting gains or losses on the related cross currency
swaps.
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