Waste Management 2011 Annual Report Download - page 163

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Acquisition-date fair value estimates are revised as necessary and accounted for as an adjustment to income from
operations if, and when, additional information regarding these contingencies becomes available to further define
and quantify assets acquired and liabilities assumed. Beginning in 2009, all acquisition-related transaction costs
have been expensed as incurred. For acquisitions completed before 2009, direct costs incurred for a business
combination were accounted for as part of the cost of the acquired business.
Goodwill and Other Intangible Assets
Goodwill is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We
do not amortize goodwill, but as discussed in the “Asset Impairments” section below, we assess our goodwill for
impairment at least annually.
Other intangible assets consist primarily of customer contracts, customer lists, covenants not-to-compete,
licenses, permits (other than landfill permits, as all landfill-related intangible assets are combined with landfill
tangible assets and amortized using our landfill amortization policy), and other contracts. Other intangible assets
are recorded at cost and are generally amortized using either a 150% declining balance approach or a straight-line
basis as we determine appropriate. Customer contracts and customer lists are typically amortized over ten years.
Covenants not-to-compete are amortized over the term of the non-compete covenant, which is generally two to
five years. Licenses, permits and other contracts are amortized over the definitive terms of the related
agreements. If the underlying agreement does not contain definitive terms and the useful life is determined to be
indefinite, the asset is not amortized.
Asset Impairments
We monitor the carrying value of our long-lived assets for potential impairment and test the recoverability
of such assets whenever events or changes in circumstances indicate that their carrying amounts may not be
recoverable. These events or changes in circumstances, including management decisions pertaining to such
assets, are referred to as impairment indicators. If an impairment indicator occurs, 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 flows. 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 generally determined by
considering (i) internally developed discounted projected cash flow analysis of the asset or asset group; (ii) actual
third-party valuations; and/or (iii) information available regarding the current market for similar assets. 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 the cash flows eventually realized, which could impact our ability to accurately assess
whether an asset has been impaired.
There are additional considerations for impairments of landfills, goodwill and other indefinite-lived
intangible assets, as described below.
Landfills — The assessment of impairment indicators and the recoverability of our capitalized costs
associated with landfills and related expansion projects require significant judgment due to the unique nature of
the waste industry, the highly regulated permitting process and the sensitive estimates involved. During the
review of a landfill expansion application, a regulator may initially deny the expansion application although the
expansion permit is ultimately granted. In addition, management may periodically divert waste from one landfill
to another to conserve remaining permitted landfill airspace, or a landfill may be required to cease accepting
waste, prior to receipt of the expansion permit. However, such events occur in the ordinary course of business in
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