Waste Management 2014 Annual Report Download - page 147

expected to have, any material adverse effect on our results of operations. However, as of December 31, 2014,
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, 2014, 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.
As of December 31, 2014, we had $9.4 billion of long-term debt when excluding the impacts of accounting
for fair value adjustments attributable to interest rate derivatives, discounts and premiums. The effective interest
rates of approximately $1.4 billion of our outstanding debt obligations are subject to change during 2015. The
most significant components of our variable-rate debt obligations are (i) $501 million of tax-exempt bonds that
are subject to repricing on either a daily or weekly basis through a remarketing process; (ii) $638 million of tax-
exempt bonds with term interest rate periods that are subject to repricing within 12 months and (iii) $232 million
of outstanding advances under our Canadian credit facility. We currently estimate that a 100 basis point increase
in the interest rates of our outstanding variable-rate debt obligations would increase our 2015 interest expense by
approximately $11.2 million. As of December 31, 2013, the effective interest rates of approximately $2.4 billion
of our outstanding debt obligations were subject to change within 12 months.
Our remaining outstanding debt obligations have fixed interest rates through either the scheduled maturity
of the debt or, for certain of our “fixed-rate” tax exempt bonds, through the end of a term interest rate period that
exceeds twelve months. The fair value of our fixed-rate debt obligations and various interest rate derivative
instruments, if any, can increase or decrease significantly if market interest rates change.
We have performed sensitivity analyses to determine how market rate changes might affect the fair value of
our market risk-sensitive derivatives and related positions. These analyses are inherently limited because they
reflect a singular, hypothetical set of assumptions. Actual market movements may vary significantly from our
assumptions. An instantaneous, one percentage point increase in interest rates across all maturities and applicable
yield curves attributable to these instruments would have decreased the fair value of our combined debt and
interest rate derivative positions by approximately $650 million at December 31, 2014.
We are also exposed to interest rate market risk because we have significant cash and cash equivalent
balances as well as assets held in restricted trust funds and escrow accounts. These assets are generally invested
in high quality, liquid instruments including money market funds that invest in U.S. government obligations with
original maturities of three months or less. Because of the short terms to maturity of these investments, we
believe that our exposure to changes in fair value due to interest rate fluctuations is insignificant.
Commodity Price Exposure — In the normal course of our business, we are subject to operating agreements
that expose us to market risks arising from changes in the prices for commodities such as diesel fuel; recyclable
materials, including old corrugated cardboard, old newsprint and plastics; and electricity, which generally
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