Waste Management 2014 Annual Report Download - page 179

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We also recognize the impacts of (i) net periodic settlements of current interest on our active interest rate
swaps, if any, and (ii) the amortization of previously terminated interest rate swap agreements as adjustments to
interest expense. The following table summarizes these impacts on our results of operations (in millions):
Years Ended December 31,
Decrease to Interest Expense Due to Hedge Accounting for Interest Rate Swaps 2014 2013 2012
Periodic settlements of active swap agreements ............. $— $— $ 8
Terminated swap agreements ............................ 14 20 22
$ 14 $ 20 $30
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.
The active forward-starting interest rate swaps outstanding at December 31, 2013 related to a debt issuance
initially forecasted for March 2014, that occurred in May 2014. As of December 31, 2013, the fair value of these
active interest rate derivatives of $28 million was included in current liabilities. During the first quarter of 2014,
these forward-starting interest rate swaps with a notional value of $175 million matured and we paid cash of $36
million to settle the associated liabilities.
At December 31, 2014 and 2013, our “Accumulated other comprehensive income” included $50 million and
$34 million, respectively, of after-tax deferred losses related to all terminated forward-starting interest rate
swaps. These losses are being amortized as an increase to interest expense using the effective interest method
over the ten-year term of the related senior notes, which extend through 2024. As of December 31, 2014, $11
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 exchange rate 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, 2014 and 2013, we had foreign exchange cross currency swaps outstanding for all of the
anticipated cash flows associated with intercompany loans from WM Holdings to the wholly-owned Canadian
subsidiaries. The hedged cash flows as of December 31, 2014 and 2013 included C$370 million of total notional
value. 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 loans are recognized in current earnings in the same
financial statement line item as offsetting gains or losses on the related cross currency swaps.
There was no significant ineffectiveness associated with our cash flow hedges during the years ended
December 31, 2014, 2013 or 2012. Refer to Note 14 for information regarding the impacts of our cash flow
derivatives on our comprehensive income and results of operations.
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