Waste Management 2007 Annual Report Download - page 105

asset. If significant events or changes in circumstances indicate that the carrying value of an asset or asset group may
not be recoverable, we perform a test of recoverability by comparing the carrying value of the asset or asset group to
its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a
single asset, we will determine whether an impairment has occurred for the group of assets for which we can identify
the projected cash flow. If the carrying values are in excess of undiscounted expected future cash flows, we measure
any impairment by comparing the fair value of the asset or asset group to its carrying value. Fair value is determined
by either an internally developed discounted projected cash flow analysis of the asset or asset group or an actual
third-party valuation. If the fair value of an asset or asset group is determined to be less than the carrying amount of
the asset or asset group, an impairment in the amount of the difference is recorded in the period that the impairment
indicator occurs and is included in the “(Income) expense from divestitures, asset impairments and unusual items”
line item in our Consolidated Statement of Operations. Estimating future cash flows requires significant judgment
and projections may vary from cash flows eventually realized. There are other considerations for impairments of
landfills and goodwill, as described below.
Landfills — Certain impairment indicators require significant judgment and understanding of the waste
industry when applied to landfill development or expansion projects. For example, a regulator may initially deny a
landfill expansion permit application though the expansion permit is ultimately granted. In addition, management
may periodically divert waste from one landfill to another to conserve remaining permitted landfill airspace.
Therefore, certain events could occur in the ordinary course of business and not necessarily be considered indicators
of impairment of our landfill assets due to the unique nature of the waste industry.
Goodwill — At least annually, we assess whether goodwill is impaired. We assess whether an impairment
exists by comparing the carrying value of each Group’s goodwill to its implied fair value. The implied fair value of
goodwill is determined by deducting the fair value of each Group’s identifiable assets and liabilities from the fair
value of the Group as a whole. We rely on discounted cash flow analysis, which requires significant judgments and
estimates about the future operations of each Group, to develop our estimates of fair value. Additional impairment
assessments may be performed on an interim basis if we encounter events or changes in circumstances that would
indicate that, more likely than not, the carrying value of goodwill has been impaired.
Restricted trust and escrow accounts
As of December 31, 2007, our restricted trust and escrow accounts consist principally of (i) funds deposited for
purposes of settling landfill closure, post-closure and environmental remediation obligations; (ii) funds held in trust
for the construction of various facilities; and (iii) funds held in trust for the repayment of our debt obligations. As of
December 31, 2007 and 2006, we had $418 million and $377 million, respectively, of restricted trust and escrow
accounts, which are primarily included in long-term “Other assets” in our Consolidated Balance Sheets.
Closure, post-closure and environmental remediation funds — At several of our landfills, we provide financial
assurance by depositing cash into restricted trust funds or escrow accounts for purposes of settling closure, post-
closure and environmental remediation obligations. Balances maintained in these trust funds and escrow accounts
will fluctuate based on (i) changes in statutory requirements; (ii) future deposits made to comply with contractual
arrangements; (iii) the ongoing use of funds for qualifying closure, post-closure and environmental remediation
activities; (iv) acquisitions or divestitures of landfills; and (v) changes in the fair value of the financial instruments
held in the trust fund or escrow accounts.
Tax-exempt bond funds — We obtain funds from the issuance of industrial revenue bonds for the construction
of collection and disposal facilities and for equipment necessary to provide waste management services. Proceeds
from these arrangements are directly deposited into trust accounts, and we do not have the ability to use the funds in
regular operating activities. Accordingly, these borrowings are excluded from financing activities in our Statement
of Cash Flows. At the time our construction and equipment expenditures have been documented and approved by
the applicable bond trustee, the funds are released and we receive cash. These amounts are reported in the Statement
of Cash Flows as an investing activity when the cash is released from the trust funds. Generally, the funds are fully
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WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)