Waste Management 2007 Annual Report Download - page 99

each individual asset retirement obligation. The weighted-average rate applicable to our asset retirement obliga-
tions at December 31, 2007 is between 6.00% and 7.25%, the range of the credit-adjusted, risk-free discount rates
effective since adopting SFAS No. 143 in 2003.
We record the estimated fair value of final capping, closure and post-closure liabilities for our landfills based
on the capacity consumed through the current period. The fair value of final capping obligations is developed based
on our estimates of the airspace consumed to date for each final capping event and the expected timing of each final
capping event. The fair value of closure and post-closure obligations is developed based on our estimates of the
airspace consumed to date for the entire landfill and the expected timing of each closure and post-closure activity.
Because these obligations are measured at estimated fair value using present value techniques, changes in the
estimated cost or timing of future final capping, closure and post-closure activities could result in a material change
in these liabilities, related assets and results of operations. We assess the appropriateness of the estimates used to
develop our recorded balances annually, or more often if significant facts change.
Changes in inflation rates or the estimated costs, timing or extent of future final capping and closure and post-
closure activities typically result in both (i) a current adjustment to the recorded liability and landfill asset; and (ii) a
change in liability and asset amounts to be recorded prospectively over either the remaining capacity of the related
discrete final capping event or the remaining permitted and expansion airspace (as defined below) of the landfill.
Any changes related to the capitalized and future cost of the landfill assets are then recognized in accordance with
our amortization policy, which would generally result in amortization expense being recognized prospectively over
the remaining capacity of the final capping event or the remaining permitted and expansion airspace of the landfill,
as appropriate. Changes in such estimates associated with airspace that has been fully utilized result in an
adjustment to the recorded liability and landfill assets with an immediate corresponding adjustment to landfill
airspace amortization expense.
During the years ended December 31, 2007, 2006 and 2005, adjustments associated with changes in our
expectations for the timing and cost of future final capping, closure and post-closure of fully utilized airspace
resulted in $17 million, $1 million and $13 million in net credits to landfill airspace amortization expense,
respectively, with the majority of these credits resulting from revised estimates associated with final capping
changes. In managing our landfills, our engineers look for ways to reduce or defer our construction costs, including
final capping costs. Most of the benefit recognized in these years was the result of concerted efforts to improve the
operating efficiencies of our landfills allowing us to delay spending for final capping activities, landfill expansions
that resulted in reduced or deferred final capping costs, or completed final capping construction that cost less than
anticipated.
Interest accretion on final capping, closure and post-closure liabilities is recorded using the effective interest
method and is recorded as final capping, closure and post-closure expense, which is included in “Operating” costs
and expenses within our Consolidated Statements of Operations.
Amortization of Landfill Assets — The amortizable basis of a landfill includes (i) amounts previously
expended and capitalized; (ii) capitalized landfill final capping, closure and post-closure costs; (iii) projections
of future purchase and development costs required to develop the landfill site to its remaining permitted and
expansion capacity; and (iv) projected asset retirement costs related to landfill final capping, closure and post-
closure activities.
Amortization is recorded on a units-of-consumption basis, applying cost as a rate per ton. The rate per ton is
calculated by dividing each component of the amortizable basis of a landfill by the number of tons needed to fill the
corresponding asset’s airspace. For landfills that we do not own, but operate through operating or lease arrange-
ments, the rate per ton is calculated based on the lesser of the contractual term of the underlying agreement or the
life of the landfill.
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WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)