Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

8. Derivative Instruments and Hedging Activities

The following table summarizes the fair values of derivative instruments recorded in our Consolidated Balance Sheet (in millions):

		December 31,
Derivatives Designated as Hedging Instruments	Balance Sheet Location	2014		2013
Foreign currency derivatives	Long-term other assets	$	28	$	2
Total derivative assets		$	28	$	2
Electricity commodity derivatives(a)	Current accrued liabilities	$	—	$	3
Interest rate derivatives	Current accrued liabilities		—		28
Total derivative liabilities		$	—	$	31

(a) Our electricity commodity derivatives were associated with our Wheelabrator business and were divested in conjunction with the sale of that business in December 2014.

We have not offset fair value amounts recognized for our derivative instruments. For information related to the inputs used to measure our derivative assets and liabilities at fair value, refer to Note 18.

Fair Value Hedges

Interest Rate Swaps

In prior years, we entered into interest rate swaps to maintain a portion of our debt obligations at variable market interest rates. We designated these interest rate swaps as fair value hedges of our fixed-rate senior notes. Fair value hedge accounting for interest rate swap contracts increased the carrying value of our debt instruments by $45 million as of December 31, 2014 and $59 million as of December 31, 2013. These fair value adjustments to long-term debt are being amortized as a reduction to interest expense using the effective interest method over the remaining term of the related senior notes, which extend through 2028.

Gains or losses on the derivatives as well as the offsetting gains or losses on the hedged items attributable to our interest rate swaps are recognized in current earnings. We include gains and losses on our interest rate swaps as adjustments to interest expense, which is the same financial statement line item where offsetting gains and losses on the related hedged items are recorded. The fair value adjustment from active interest rate swaps and the offsetting gain on the related hedged items was immaterial during the year ended December 31, 2012. We did not have any active swaps outstanding in 2014 and 2013.

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.

Credit-Risk-Related Contingent Features

Our interest rate derivative instruments have in the past, and may in the future, contain provisions related to the Company’s credit rating. These provisions generally provide that if the Company’s credit rating were to fall to specified levels below investment grade, the counterparties have the ability to terminate the derivative agreements, resulting in settlement of all affected transactions. As of December 31, 2014 and 2013, we did not have any interest rate derivatives outstanding that contained these credit-risk-related features.