Waste Management 2014 Annual Report Download - page 169

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Investments in Unconsolidated Entities
Investments in unconsolidated entities over which the Company has significant influence are accounted for
under the equity method of accounting. Investments in entities in which the Company does not have the ability to
exert significant influence over the investees’ operating and financing activities are accounted for under the cost
method of accounting. In addition to equity investments in unconsolidated subsidiaries, we support these
ventures through loans and advances. These loans and advances are included as a component of “Other” within
the “Net cash provided by investing activities” in our Consolidated Statement of Cash Flows. The following table
summarizes our equity and cost method investments as of December 31 (in millions):
2014 2013
Equity investments(a) ................................... $228 $437
Cost investments ....................................... 180 154
Investments in unconsolidated entities .................. $408 $591
(a) The amount reported in 2013 included $177 million attributable to our 2010 investment in Shanghai
Environment Group (“SEG”), which was part of our Wheelabrator business. This investment was classified
as a current asset and reflected in “Investment in unconsolidated entity” in our Consolidated Balance Sheet
as of December 31, 2013, based on our intent to sell our investment in SEG within the next 12 months. We
sold our investment in SEG in the first quarter of 2014.
We monitor and assess the carrying value of our investments throughout the year for potential impairment
and write them down to their fair value when other-than-temporary declines exist. Fair value is generally based
on (i) other third-party investors’ recent transactions in the securities; (ii) other information available regarding
the current market for similar assets and/or (iii) a market or income approach as deemed appropriate.
Foreign Currency
We have operations in Canada as well as a cost center in India. Local currencies generally are considered
the functional currencies of our operations and investments outside the United States. The assets and liabilities of
our foreign operations are translated to U.S. dollars using the exchange rate at the balance sheet date. Revenues
and expenses are translated to U.S. dollars using the average exchange rate during the period. The resulting
translation difference is reflected as a component of comprehensive income.
Derivative Financial Instruments
We primarily use derivative financial instruments to manage our risk associated with fluctuations in interest
rates and foreign currency exchange rates. In prior years, we used interest rate swaps to maintain a strategic
portion of our long-term debt obligations at variable, market-driven interest rates or in anticipation of planned
senior note issuances to effectively lock in a fixed interest rate for those anticipated issuances. Foreign currency
exchange rate derivatives are used to hedge our exposure to changes in exchange rates for anticipated
intercompany debt transactions, and related interest payments, between Waste Management Holdings, Inc., a
wholly-owned subsidiary (“WM Holdings”), and its Canadian subsidiaries. Prior to the sale of our Wheelabrator
business, we used electricity commodity derivatives to mitigate the variability in our revenues and cash flows
caused by fluctuations in the market prices for electricity. The financial statement impacts of our derivatives are
discussed in Notes 8 and 14.
We obtain current valuations of our interest rate and foreign currency hedging instruments from third-party
pricing models. The estimated fair values of derivatives used to hedge risks fluctuate over time and should be
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