Waste Management 2015 Annual Report Download - page 189

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Foreign Currency Derivatives
Our foreign currency derivatives are valued using a third-party pricing model that incorporates information
about forward Canadian dollar rates, or observable market data, as of the reporting date. The third-party pricing
model used to value our foreign currency derivatives also incorporates Company and counterparty credit
valuation adjustments, as appropriate. Counterparties to these contracts are financial institutions who participate
in our $2.25 billion revolving credit facility. Valuations may fluctuate significantly from period-to-period due to
volatility in the Canadian dollar to U.S. dollar exchange rate over the term of the agreements.
Refer to Notes 8 and 14 for additional information regarding the derivative instruments discussed above.
Fair Value of Debt
At December 31, 2015 the carrying value of our debt was approximately $9.0 billion compared with
approximately $9.4 billion at December 31, 2014. 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 $9.2 billion at December 31, 2015 and
approximately $10.6 billion at December 31, 2014. 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 senior notes and 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, 2015 with December 31, 2014 is primarily related to the net repayment of $427 million of our
debt, a substantial portion of which was related to our debt refinancing as further discussed in Note 7. This
refinancing resulted in a reduction of high-coupon debt and the payment of related market premiums on these
notes, and the replacement of this debt with new notes with a fair value that closely approximates book value.
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, 2015 and 2014.
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, 2015, we acquired 27
businesses primarily related to our Solid Waste business. Total consideration, net of cash acquired, for all
acquisitions was $661 million, which included $554 million in cash paid in 2015, purchase price holdbacks of
$11 million and a liability for contingent consideration with a preliminary estimated fair value of $96 million.
The contingent consideration is primarily based on achievement by the acquired businesses of certain negotiated
goals, which generally include targeted financial metrics. Our estimated maximum obligations for the contingent
cash payments were $126 million at the dates of acquisition. As of December 31, 2015, we had paid $8 million of
this contingent consideration. In 2015, we also paid $4 million of contingent consideration associated with
acquisitions completed prior to 2015.
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