Waste Management 2013 Annual Report Download - page 222

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 Notes 8 and 14 for additional information regarding our derivative instruments discussed above.
Fair Value of Debt
At December 31, 2013 the carrying value of our debt was approximately $10.2 billion compared with
approximately $9.9 billion at December 31, 2012. The carrying value of our debt includes adjustments associated
with fair value hedge accounting related to our interest rate swaps as discussed in Note 8.
The estimated fair value of our debt was approximately $11.0 billion at December 31, 2013 and
approximately $11.3 billion at December 31, 2012. The estimated fair value of our senior notes is based on
quoted market prices. The carrying value of remarketable debt and borrowings under our revolving credit
facilities approximates fair value due to the short-term nature of the interest rates. The fair value of our other debt
is estimated using discounted cash flow analysis, based on current market rates for similar types of instruments.
The decrease in the fair value of our debt when comparing December 31, 2013 with December 31, 2012 is
primarily related to recent increases in long-term interest rates, which have caused a decline in market prices for
fixed-rate corporate debt securities.
Although we have determined the estimated fair value amounts using available market information and
commonly accepted valuation methodologies, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, our estimates are not necessarily indicative of the amounts that
we, or holders of the instruments, could realize in a current market exchange. The use of different assumptions
and/or estimation methodologies could have a material effect on the estimated fair values. The fair value
estimates are based on Level 2 inputs of the fair value hierarchy available as of December 31, 2013 and 2012.
These amounts have not been revalued since those dates, and current estimates of fair value could differ
significantly from the amounts presented.
19. Acquisitions and Divestitures
Current Year Acquisitions
We continue to pursue the acquisition of businesses that are accretive to our Solid Waste business and
enhance and expand our existing service offerings. During the year ended December 31, 2013, we acquired
Greenstar, LLC and substantially all of the assets of RCI Environnement, Inc., which are discussed further below.
Additionally, we acquired 14 other businesses related primarily to our collection and energy services operations.
Total consideration, inclusive of $7 million for estimated working capital, for all acquisitions was $772 million,
which included $714 million in cash paid in 2013, debt of $22 million and a liability for contingent consideration
with a preliminary estimated fair value of $29 million. The contingent consideration is primarily based on
changes in certain recycling commodity indexes and, to a lesser extent, contingent upon achievement by the
acquired businesses of certain negotiated goals, which generally include targeted revenues. Our estimated
maximum obligations for the contingent cash payments were $33 million at the dates of acquisition. As of
December 31, 2013, we had paid $4 million of this contingent consideration. In 2013, we also paid $6 million of
contingent consideration associated with acquisitions completed prior to 2013.
The allocation of purchase price for 2013 acquisitions was primarily to “Property and equipment,” which
had an estimated fair value of $195 million; “Other intangible assets,” which had an estimated fair value of $232
million; and “Goodwill” of $327 million. Other intangible assets included $218 million of customer and supplier
relationships, $5 million of covenants not-to-compete and $9 million of other intangible assets. Goodwill is
primarily a result of expected synergies from combining the acquired businesses with our existing operations and
is generally tax deductible.
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