Waste Management 2007 Annual Report Download - page 63

respect to other named and unnamed PRPs. Estimates of the cost for the likely remedy are then either developed
using our internal resources or by third-party environmental engineers or other service providers. Internally
developed estimates are based on:
• Management’s judgment and experience in remediating our own and unrelated parties’ sites;
• Information available from regulatory agencies as to costs of remediation;
• The number, financial resources and relative degree of responsibility of other PRPs who may be liable for
remediation of a specific site; and
• The typical allocation of costs among PRPs unless the actual allocation has been determined.
Asset Impairments — Our long-lived assets, including landfills and landfill expansions, are carried on our
financial statements based on their cost less accumulated depreciation or amortization. We review the carrying
value of our long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. In order to assess whether a potential impairment exists, the
assets’ carrying values are compared with their undiscounted expected future cash flows. Estimating future cash
flows requires significant judgment about factors such as general economic conditions and projected growth rates,
and our estimates often vary from cash flows eventually realized. Impairments are measured by comparing the fair
value of the asset to its carrying value. Fair value is determined by either an internally developed discounted
projected cash flow analysis of the asset or an actual third-party valuation. If the fair value of an asset is determined
to be less than the carrying amount of the asset, an impairment in the amount of the difference is recorded in the
period that the impairment indicator occurs.
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.
Self-insurance reserves and recoveries — We have retained a significant portion of the risks related to our
health and welfare, automobile, general liability and workers’ compensation insurance programs. Our liabilities
associated with the exposure for unpaid claims and associated expenses, including incurred but not reported losses,
generally is estimated with the assistance of external actuaries and by factoring in pending claims and historical
trends and data. Our estimated accruals for these liabilities could be significantly different than our ultimate
obligations if variables such as the frequency or severity of future incidents are significantly different than what we
assume. Estimated insurance recoveries related to recorded liabilities are recorded as assets when we believe that
the receipt of such amounts is probable.
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