Waste Management 2013 Annual Report Download - page 227

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
adjustment based on factors that include the fair market value of rents for the facilities and lease payments made
through the re-measurement dates. In addition, we may also be required under certain circumstances to make
capital contributions to the LLCs based on differences between the fair market value of the facilities and defined
termination values as provided for in the underlying lease agreements, although we believe the likelihood of the
occurrence of these circumstances is remote.
We have determined that we are the primary beneficiary of the LLCs and consolidate these entities in our
Consolidated Financial Statements because (i) all of the equity owners of the LLCs are considered related parties
for purposes of applying this accounting guidance; (ii) the equity owners share power over the significant
activities of the LLCs; and (iii) we are the entity within the related party group whose activities are most closely
associated with the LLCs.
As of December 31, 2013 and 2012, our Consolidated Balance Sheets included $284 million and $296
million, respectively, of net property and equipment associated with the LLCs’ waste-to-energy facilities and
$239 million and $245 million, respectively, in noncontrolling interests associated with Hancock’s and CIT’s
interests in the LLCs. During the years ended December 31, 2013, 2012 and 2011, we recognized reductions in
earnings of $43 million, $45 million and $50 million, respectively, for Hancock’s and CIT’s noncontrolling
interests in the LLCs’ earnings, which are included in our consolidated net income. The LLCs’ earnings relate to
the rental income generated from leasing the facilities to our subsidiaries, reduced by depreciation expense. The
LLCs’ rental income is eliminated in WM’s consolidation.
Significant Unconsolidated Variable Interest Entities
Investment in U.K. Waste-to-Energy and Recycling Entity — In the first quarter of 2012, we formed a U.K.
joint venture (the “JV”), together with a commercial waste management company (“Partner”), to develop,
construct, operate and maintain a waste-to-energy and recycling facility in England. We own a 50% interest in
the JV. The total cost of constructing this facility is expected to be £200 million, or $331 million based on the
exchange rate as of December 31, 2013. The JV will be funded primarily through loans from the joint venture
partners and loans under the JV’s credit facility agreements with third-party financial institutions. The funds
loaned under the credit facility agreements will be used for the development and construction of the facility. We
are committed to provide funding of up to £57 million, or $94 million, based on the exchange rate as of
December 31, 2013, of funding to the JV. Our actual commitment may be more or less depending on the actual
cost of the facility. Through December 31, 2013, we had funded approximately £11 million, or $18 million,
through loans and less than $1 million through equity contributions. These amounts are included in our
Condensed Consolidated Balance Sheet as long-term “Other assets” and “Investments in unconsolidated
entities,” respectively. In addition to the funding commitments described above, the JV has entered into certain
foreign currency and interest rate derivatives at the direction of the governmental authority that awarded the
project to the JV. The impacts of gains or losses incurred on these derivatives will ultimately be remitted to or
recoverable from the governmental authority under the terms of the project, and accordingly, are not reflected in
our “Equity in net losses of unconsolidated entities”. We also have guaranteed the performance of certain
management services for the project for which our maximum exposure is not material.
In addition, a wholly-owned subsidiary of WM will be responsible for constructing the waste-to-energy
facility for the JV under a fixed-price construction contract. Once the facility is constructed, a majority-owned
subsidiary of WM will be responsible for operating and maintaining the facility for the JV under a substantially
fixed-price operating and maintenance contract. Under the operating and maintenance contract, we have
guaranteed our ability to operate this facility at certain performance levels that we believe are achievable. We
also will be jointly responsible, along with our Partner, for the performance of sales and marketing services for
the JV through a 50%-owned unconsolidated entity. The fixed-price components of the above mentioned
contracts were established based on estimates of expected construction, operation and maintenance costs.
137