Income from Operations. Other income (expense): -- ----- -- ----- -- ----- -- ----- 4,849 ------ 785 ------ -- ----- -- ----- 4,849 ------ 785 ------ Interest income (expense), net..... Equity in subsidiaries, net of (148) (100) (26) -- (274) taxes........................... 408 471 -- (879) -- Minority interest.................. -- -- (3) -- (3) Other, net......................... -- ----- 260 ----- -- ----- 371 ----- 8 ------ (21) ------ -- ----- (879) ----- 8 ------ (269) ------ Income before income taxes 260 371 764 (879) 516 taxes (55) (37) 294 -- 202 Provision for (benefit from) income Income before extraordinary item and cumulative effect of change in ----- ----- ------ ----- ------ accounting principle 315 408 470 (879) 314 Extraordinary item................... -- -- (1) -- (1) accounting principle............... -- -- 2 -- 2 Net income........................... ----- $ 315 ===== ----- $ 408 ===== ------ $ 471 ====== ----- $(879) ===== ------ $ 315 ====== 21 Cumulative effect of change in WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED Cash flows from operating activities: Net income........................................... $ 355 $ 427 $ 476 $(903) $ 355 Equity in earnings of subsidiaries, net of taxes..... (427) (476) -- 903 -- Other adjustments and charges........................ (12) (10) 551 -- 529 Net cash provided by (used in) operating activities.... (84) (59) 1,027 -- 884 Cash flows from investing activities: Acquisitions of businesses, net of cash acquired..... -- -- (64) -- (64) Capital expenditures................................. -- -- (552) -- (552) Proceeds from divestitures of businesses, net of cash divested, and other sales of assets................ -- -- 71 -- 71 Other................................................ -- -- 96 -- 96 Net cash used in investing activities.................. -- -- (449) -- (449) Cash flows from financing activities: New borrowings....................................... 498 -- -- -- 498 Debt repayments...................................... (427) (24) (17) -- (468) Common stock repurchases............................. (500) -- -- -- (500) Exercise of common stock options and warrants........ 23 -- -- -- 23 (Increase) decrease in intercompany and investments, net................................................ 525 83 (608) -- -- Net cash provided by (used in) financing activities.... 119 59 (625) -- (447) Effect of exchange rate changes on cash and cash equivalents.......................................... -- -- 2 -- 2 Increase (decrease) in cash and cash equivalents....... 35 -- (45) -- (10) Cash and cash equivalents at beginning of period....... 757 -- (27) -- 730 Cash and cash equivalents at end of period............. $ 792 $ -- $ (72) $ -- $ 720 ===== ===== ====== ===== ===== CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED) PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED Cash flows from operating activities: Net income........................................... $ 315 $ 408 $ 471 $(879) $ 315 Equity in earnings of subsidiaries, net of taxes..... (408) (471) -- 879 -- Other adjustments and charges........................ (24) (4) 579 -- 551 Net cash provided by (used in) operating activities.... (117) (67) 1,050 -- 866 Cash flows from investing activities: Acquisitions of businesses, net of cash acquired..... -- -- (65) -- (65) Capital expenditures................................. -- -- (474) -- (474) Proceeds from divestitures of businesses, net of cash divested, and other sales of assets................ -- -- 26 -- 26 Other................................................ -- -- 64 -- 64 Net cash used in investing activities.................. -- -- (449) -- (449) Cash flows from financing activities: New borrowings....................................... 594 -- 359 -- 953 Debt repayments...................................... (320) (400) (366) -- (1,086) Exercise of common stock options and warrants........ 38 -- -- -- 38 Other................................................ -- -- (19) -- (19) (Increase) decrease in intercompany and investments, net................................................ 64 453 (517) -- -- Net cash provided by (used in) financing activities.... 376 53 (543) (114) Effect of exchange rate on cash and cash equivalents... -- -- (1) -- (1) Increase (decrease) in cash and cash equivalents....... 259 (14) 57 -- 302 Cash and cash equivalents at beginning of period....... 174 14 (94) -- 94 Cash and cash equivalents at end of period............. $ 433 $ -- $ (37) $ -- $ 396 ===== ===== ====== ===== ======= WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. NEW ACCOUNTING PRONOUNCEMENTS SFAS NO. 141 AND SFAS NO. 142 In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Accounting for Business Combinations ("SFAS No. 141"), and Statement of Financial Accounting Standards No. 142, Accounting for Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting and prohibits the pooling-of-interests method for business combinations initiated after June 30, 2001. According to SFAS No. 142, goodwill that arose from business combinations after June 30, 2001 cannot be amortized. In addition, SFAS No. 142 required the continuation of the amortization of goodwill and all intangible assets through December 31, 2001. The amortization of existing goodwill ceased on January 1, 2002. SFAS No. 142 requires a two-step impairment approach for goodwill. Companies must first determine whether goodwill is impaired and if so, they must value that impairment based on the amount by which the book value exceeds the estimated fair value. Companies have six months from the date they initially apply SFAS No. 142 to test goodwill for impairment and any impairment charge resulting from the initial application of the new accounting pronouncement must be classified as the cumulative effect of a change in accounting principle. Thereafter, goodwill must be tested for impairment annually and impairment losses must be presented in the operating section of the income statement unless they are associated with a discontinued operation. In those cases, any impairment losses will be included, net of tax, within the results of discontinued operations. WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In accordance with the Company's adoption of SFAS No. 141, the Company utilizes the purchase method of accounting for its business combinations. In accordance with the Company's adoption of SFAS No. 142, the Company has not amortized goodwill from any acquisitions that occurred after June 30, 2001. The Company has no intangible assets, other than goodwill, that have ceased being amortized upon adoption of SFAS No. 142. Adopting SFAS No. 141 required the Company to write-off net negative goodwill of approximately $2 million, which was recorded as a credit to cumulative effect of change in accounting principle in the first quarter of 2002. In accordance with SFAS No. 142, goodwill is required to be tested for impairment at the reporting unit, which is generally defined as an operating segment or a component of an operating segment in certain circumstances. For the purposes of applying SFAS No. 142, the Company has identified seven reporting units , which are the six components in NASW (excluding WTI) and WTI, as described in Note 9, Segment and Related Information. The Company incurred no impairment of goodwill upon its initial adoption of SFAS No. 142. However, there can be no assurance that goodwill will not be impaired at any time in the future. The following schedule reflects the three and six months ended June 30, 2001 adjusted net income (excluding goodwill and negative goodwill amortization) as compared to the results of operations for the three and six months ended June 30, 2002 (in millions, except per share amounts). THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 2002 2001 2002 2001 Reported net income.................................... $ 217 $ 191 $ 355 $ 315 Add back: goodwill amortization, net of taxes.......... -- 31 -- 62 Adjusted net income.................................... $ 217 $ 222 $ 355 $ 377 ===== ===== ===== ===== BASIC EARNINGS PER COMMON SHARE: Reported net income.................................... $0.35 $0.31 $0.57 $0.50 Goodwill amortization, net of taxes.................... -- 0.05 -- 0.10 Adjusted net income.................................... $0.35 $0.36 $0.57 $0.60 ===== ===== ===== ===== DILUTED EARNINGS PER COMMON SHARE: Reported net income.................................... $0.35 $0.30 $0.57 $0.50 Goodwill amortization, net of taxes.................... -- 0.05 -- 0.10 Adjusted net income.................................... $0.35 $0.35 $0.57 $0.60 ===== ===== ===== ===== The Company's intangible assets as of June 30, 2002 were comprised of the following (in millions): CUSTOMER LISTS COVENANTS NOT-TO- COMPETE LICENSES, PERMITS AND OTHER TOTAL Intangible assets........................... $127 $ 95 $18 $ 240 Less accumulated amortization............... (70) (53) (6) (129) $ 57 ==== $ 42 ==== $12 === $ 111===== Intangible assets are recorded at cost and amortized on a straight-line basis. Customer lists are generally amortized over five to seven years. Covenants not-to-compete are amortized over the term of the agreement, which is generally three to five years. Licenses, permits and other intangible assets are amortized over the terms of the related agreement or the Company's estimate of the useful life if there are no definite terms. 24 WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Landfill operating permits are not presented above and are included in landfill assets and amortized using the Company's landfill amortization method. The intangible asset amortization expense estimated as of December 31, 2001, for the five years following 2001 is as follows (in millions): 2002 2003 2004 2005 2006 ---- ---- ---- ---- ---- $34 $30 $22 $13 $7 As of June 30, 2002, the amount of goodwill attributable to WTI was approximately $783 million. The remaining goodwill balance of approximately $4,252 million was attributable to NASW (excluding WTI). SFAS NO. 143 In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations ("SFAS No. 143"). SFAS No. 143 applies to all legally enforceable obligations associated with the retirement of tangible long-lived assets and provides the accounting and reporting requirements for such obligations. SFAS No. 143 requires amounts initially recognized as an asset retirement obligation to be measured at fair value. The recognized asset retirement cost is capitalized as part of the cost of the asset and is depreciated over the useful life of the asset. The Company expects to adopt SFAS No. 143 beginning January 1, 2003 and to record a cumulative effect of a change in accounting principle. SFAS No. 143 will impact the Company's accounting for its landfill operations. Costs associated with future capping activities that occur during the operating life of a landfill, which are currently recognized on an undiscounted basis over the operating life of the landfill as airspace is consumed, will be accounted for as an asset retirement obligation under SFAS No. 143, on a discounted basis. The Company expects to recognize landfill retirement obligations, which relate to capping, other closure and post-closure activities, over the operating life of a landfill as landfill airspace is consumed. These obligations will be initially measured at estimated fair value. Fair value will be measured on a present value basis, using a credit-adjusted, risk-free rate, which will be a higher rate than the risk-free rate the Company currently uses for discounting its final closure and post-closure obligations. Interest will be accreted on landfill retirement obligations using the effective interest method. Landfill retirement costs, which will be capitalized as part of the landfill asset, will be amortized using the Company's existing landfill accounting practices. The Company is addressing which of its other assets may be affected by the provisions of SFAS No. 143. The Company's management has not yet determined the pro forma, cumulative or future effects of the adoption of SFAS No. 143 on its results of operations or financial position. The adoption of SFAS No. 143 will have no effect on the Company's cash flow. SFAS NO. 144 In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"), which supersedes Statement of Financial Accounting Standards No. 121. SFAS No. 144 establishes a single accounting method for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and extends the presentation of discontinued operations to include more divestiture transactions. SFAS No. 144 also requires that an impairment loss be recognized for assets held-for-use when the carrying amount of an asset, or group of assets if the cash flows from those assets cannot be independently and separately identified, is not recoverable. The carrying amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, excluding interest charges. Estimates of future cash flows used to test the recoverability of a long-lived asset or asset group must incorporate a company's own assumptions about its use of the asset or asset group and must factor in all available evidence. The Company adopted SFAS No. 144 on January 1, 25 WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2002. Upon initial application of SFAS No. 144, certain previously held-for-sale assets did not meet SFAS No. 144 criteria to be held-for-sale because their anticipated sale is in 2003. However, under the transition provisions of SFAS No. 144, the Company has until December 31, 2002 to either sell these assets or meet the new held-for-sale criteria to avoid reclassifying the assets to held-for-use. SFAS NO. 145 In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement Xx. 00, xxx Xxxxxxxxx Xxxxxxxxxxx ("XXXX Xx. 000"). SFAS No. 145 requires that gains and losses from extinguishment of debt be classified as extraordinary items only if they meet the criteria in Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of Opinion No. 30 will distinguish transactions that are part of an entity's recurring operations from those that are unusual and infrequent and meet the criteria for classification as an extraordinary item. SFAS No. 145 is effective for the Company beginning January 1, 2003. Upon the adoption of SFAS No. 145, the Company will reclassify certain items in its prior period statements of operations to conform to the presentation required by SFAS No.
Appears in 1 contract
Samples: Revolving Credit Agreement
Income from Operations. 2,375 ------ 344 -- ----- -- 2,375 ------ 344 ---- ---- ------ ----- ------ Other income (expense): -- ----- -- ----- -- ----- -- ----- 4,849 ------ 785 ------ -- ----- -- ----- 4,849 ------ 785 ------ Interest income (expense), net..... (75) (51) (11) -- (137) Equity in subsidiaries, net of (148) (100) (26) taxes........................... 171 203 -- (274) taxes........................... 408 471 -- (879374) -- Minority interest.................. -- -- (31) -- (31) Other, net......................... -- ----- 260 ----- ---- 96 ---- -- ----- 371 ----- 8 ---- 152 ---- 6 ------ (216) ------ -- ----- (879374) ----- 8 6 ------ (269132) ------ Income before income taxes 260 371 764 taxes........... 96 152 338 (879374) 516 212 taxes (5528) (3719) 294 136 -- 202 89 Provision for (benefit from) income Income before extraordinary item and cumulative effect of change in ----- ----- ---- ---- ------ ----- ------ accounting principle 315 408 470 124 171 202 (879374) 314 123 Extraordinary item................... -- -- (1) -- (1) accounting principle............... -- -- 2 -- 2 Net income........................... ----- $ 315 ===== ----- $ 408 =----$124==== ---- $171 ==== ------ $ 471 203 ====== ----- $(879374) ===== ------ $ 315 124 ====== 21 19 Cumulative effect of change in WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS SIX THREE MONTHS ENDED JUNE 30MARCH 31, 2002 (UNAUDITED) PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED Cash flows from operating activities: CONSOLIDATION Net income........................................... ................................... $ 355 138 $ 427 173 $ 476 199 $(903372) $ 355 138 Equity in earnings of subsidiaries, net of taxes..... ...................................... (427173) (476199) -- 903 372 -- Other adjustments and charges........................ (12) (10) 551 ................ 6 8 284 -- 529 Net cash provided by (used in) operating activities.... (84) (59) 1,027 -- 884 Cash flows from investing activities: Acquisitions of businesses, net of cash acquired..... -- -- (64) -- (64) Capital expenditures................................. -- -- (552) -- (552) Proceeds from divestitures of businesses, net of cash divested, and other sales of assets................ -- -- 71 -- 71 Other................................................ -- -- 96 -- 96 Net cash used in investing activities.................. -- -- (449) -- (449) Cash flows from financing activities: New borrowings....................................... 498 -- -- -- 498 Debt repayments...................................... (427) (24) (17) -- (468) Common stock repurchases............................. (500) -- -- -- (500) Exercise of common stock options and warrants........ 23 -- -- -- 23 (Increase) decrease in intercompany and investments, net................................................ 525 83 (608) -- -- Net cash provided by (used in) financing activities.... 119 59 (625) -- (447) Effect of exchange rate changes on cash and cash equivalents.......................................... -- -- 2 -- 2 Increase (decrease) in cash and cash equivalents....... 35 -- (45) -- (10) Cash and cash equivalents at beginning of period....... 757 -- (27) -- 730 Cash and cash equivalents at end of period............. $ 792 $ -- $ (72) $ -- $ 720 ===== ===== ====== ===== ===== CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED) PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED 298 Cash flows from operating activities: Net income........................................... $ 315 $ 408 $ 471 $(879) $ 315 Equity in earnings of subsidiaries, net of taxes..... (408) (471) -- 879 -- Other adjustments and charges........................ (24) (4) 579 -- 551 Net cash provided by (used in) operating activities.... (117) (67) 1,050 -- 866 Cash flows from investing activities: Acquisitions of businesses, net of cash acquired..... -- -- (65) -- (65) Capital expenditures................................. -- -- (474) -- (474) Proceeds from divestitures of businesses, net of cash divested, and other sales of assets................ -- -- 26 -- 26 Other................................................ -- -- 64 -- 64 Net cash used in investing activities.................. -- -- (449) -- (449) Cash flows from financing activities: New borrowings....................................... 594 -- 359 -- 953 Debt repayments...................................... (320) (400) (366) -- (1,086) Exercise of common stock options and warrants........ 38 -- -- -- 38 Other................................................ -- -- (19) -- (19) (Increase) decrease in intercompany and investments, net................................................ 64 453 (517) -- -- Net cash provided by (used in) financing activities.... 376 53 (543) (114) Effect of exchange rate on cash and cash equivalents... -- -- (1) -- (1) Increase (decrease) in cash and cash equivalents....... 259 (14) 57 -- 302 Cash and cash equivalents at beginning of period....... 174 14 (94) -- 94 Cash and cash equivalents at end of period............. $ 433 $ -- $ (37) $ -- $ 396 ===== ===== ====== ===== ======= WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. NEW ACCOUNTING PRONOUNCEMENTS SFAS NO. 141 AND SFAS NO. 142 In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Accounting for Business Combinations ("SFAS No. 141"), and Statement of Financial Accounting Standards No. 142, Accounting for Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting and prohibits the pooling-of-interests method for business combinations initiated after June 30, 2001. According to SFAS No. 142, goodwill that arose from business combinations after June 30, 2001 cannot be amortized. In addition, SFAS No. 142 required the continuation of the amortization of goodwill and all intangible assets through December 31, 2001. The amortization of existing goodwill ceased on January 1, 2002. SFAS No. 142 requires a two-step impairment approach for goodwill. Companies must first determine whether goodwill is impaired and if so, they must value that impairment based on the amount by which the book value exceeds the estimated fair value. Companies have six months from the date they initially apply SFAS No. 142 to test goodwill for impairment and any impairment charge resulting from the initial application of the new accounting pronouncement must be classified as the cumulative effect of a change in accounting principle. Thereafter, goodwill must be tested for impairment annually and impairment losses must be presented in the operating section of the income statement unless they are associated with a discontinued operation. In those cases, any impairment losses will be included, net of tax, within the results of discontinued operations. WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In accordance with the Company's adoption of SFAS No. 141, the Company utilizes the purchase method of accounting for its business combinations. In accordance with the Company's adoption of SFAS No. 142, the Company has not amortized goodwill from any acquisitions that occurred after June 30, 2001. The Company has no intangible assets, other than goodwill, that have ceased being amortized upon adoption of SFAS No. 142. Adopting SFAS No. 141 required the Company to write-off net negative goodwill of approximately $2 million, which was recorded as a credit to cumulative effect of change in accounting principle in the first quarter of 2002. In accordance with SFAS No. 142, goodwill is required to be tested for impairment at the reporting unit, which is generally defined as an operating segment or a component of an operating segment in certain circumstances. For the purposes of applying SFAS No. 142, the Company has identified seven reporting units , which are the six components in NASW (excluding WTI) and WTI, as described in Note 9, Segment and Related Information. The Company incurred no impairment of goodwill upon its initial adoption of SFAS No. 142. However, there can be no assurance that goodwill will not be impaired at any time in the future. The following schedule reflects the three and six months ended June 30, 2001 adjusted net income (excluding goodwill and negative goodwill amortization) as compared to the results of operations for the three and six months ended June 30, 2002 (in millions, except per share amounts). THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 2002 2001 2002 2001 Reported net income.................................... $ 217 $ 191 $ 355 $ 315 Add back: goodwill amortization, net of taxes.......... -- 31 -- 62 Adjusted net income.................................... $ 217 $ 222 $ 355 $ 377 ===== ===== ===== ===== BASIC EARNINGS PER COMMON SHARE: Reported net income.................................... $0.35 $0.31 $0.57 $0.50 Goodwill amortization, net of taxes.................... -- 0.05 -- 0.10 Adjusted net income.................................... $0.35 $0.36 $0.57 $0.60 ===== ===== ===== ===== DILUTED EARNINGS PER COMMON SHARE: Reported net income.................................... $0.35 $0.30 $0.57 $0.50 Goodwill amortization, net of taxes.................... -- 0.05 -- 0.10 Adjusted net income.................................... $0.35 $0.35 $0.57 $0.60 ===== ===== ===== ===== The Company's intangible assets as of June 30, 2002 were comprised of the following (in millions): CUSTOMER LISTS COVENANTS NOT-TO- COMPETE LICENSES, PERMITS AND OTHER TOTAL Intangible assets........................... $127 $ 95 $18 $ 240 Less accumulated amortization............... (70) (53) (6) (129) $ 57 ==== $ 42 ==== $12 === $ 111===== Intangible assets are recorded at cost and amortized on a straight-line basis. Customer lists are generally amortized over five to seven years. Covenants not-to-compete are amortized over the term of the agreement, which is generally three to five years. Licenses, permits and other intangible assets are amortized over the terms of the related agreement or the Company's estimate of the useful life if there are no definite terms. 24 WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Landfill operating permits are not presented above and are included in landfill assets and amortized using the Company's landfill amortization method. The intangible asset amortization expense estimated as of December 31, 2001, for the five years following 2001 is as follows (in millions): 2002 2003 2004 2005 2006 ---- ---- ---- ---- ---- $34 $30 $22 $13 $7 As of June 30, 2002, the amount of goodwill attributable to WTI was approximately $783 million. The remaining goodwill balance of approximately $4,252 million was attributable to NASW (excluding WTI). SFAS NO. 143 In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations ("SFAS No. 143"). SFAS No. 143 applies to all legally enforceable obligations associated with the retirement of tangible long-lived assets and provides the accounting and reporting requirements for such obligations. SFAS No. 143 requires amounts initially recognized as an asset retirement obligation to be measured at fair value. The recognized asset retirement cost is capitalized as part of the cost of the asset and is depreciated over the useful life of the asset. The Company expects to adopt SFAS No. 143 beginning January 1, 2003 and to record a cumulative effect of a change in accounting principle. SFAS No. 143 will impact the Company's accounting for its landfill operations. Costs associated with future capping activities that occur during the operating life of a landfill, which are currently recognized on an undiscounted basis over the operating life of the landfill as airspace is consumed, will be accounted for as an asset retirement obligation under SFAS No. 143, on a discounted basis. The Company expects to recognize landfill retirement obligations, which relate to capping, other closure and post-closure activities, over the operating life of a landfill as landfill airspace is consumed. These obligations will be initially measured at estimated fair value. Fair value will be measured on a present value basis, using a credit-adjusted, risk-free rate, which will be a higher rate than the risk-free rate the Company currently uses for discounting its final closure and post-closure obligations. Interest will be accreted on landfill retirement obligations using the effective interest method. Landfill retirement costs, which will be capitalized as part of the landfill asset, will be amortized using the Company's existing landfill accounting practices. The Company is addressing which of its other assets may be affected by the provisions of SFAS No. 143. The Company's management has not yet determined the pro forma, cumulative or future effects of the adoption of SFAS No. 143 on its results of operations or financial position. The adoption of SFAS No. 143 will have no effect on the Company's cash flow. SFAS NO. 144 In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"), which supersedes Statement of Financial Accounting Standards No. 121. SFAS No. 144 establishes a single accounting method for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and extends the presentation of discontinued operations to include more divestiture transactions. SFAS No. 144 also requires that an impairment loss be recognized for assets held-for-use when the carrying amount of an asset, or group of assets if the cash flows from those assets cannot be independently and separately identified, is not recoverable. The carrying amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, excluding interest charges. Estimates of future cash flows used to test the recoverability of a long-lived asset or asset group must incorporate a company's own assumptions about its use of the asset or asset group and must factor in all available evidence. The Company adopted SFAS No. 144 on January 1, 25 WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2002. Upon initial application of SFAS No. 144, certain previously held-for-sale assets did not meet SFAS No. 144 criteria to be held-for-sale because their anticipated sale is in 2003. However, under the transition provisions of SFAS No. 144, the Company has until December 31, 2002 to either sell these assets or meet the new held-for-sale criteria to avoid reclassifying the assets to held-for-use. SFAS NO. 145 In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement Xx. 00, xxx Xxxxxxxxx Xxxxxxxxxxx ("XXXX Xx. 000"). SFAS No. 145 requires that gains and losses from extinguishment of debt be classified as extraordinary items only if they meet the criteria in Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of Opinion No. 30 will distinguish transactions that are part of an entity's recurring operations from those that are unusual and infrequent and meet the criteria for classification as an extraordinary item. SFAS No. 145 is effective for the Company beginning January 1, 2003. Upon the adoption of SFAS No. 145, the Company will reclassify certain items in its prior period statements of operations to conform to the presentation required by SFAS No.:
Appears in 1 contract
Samples: Employment Agreement
Income from Operations. Other income (expense): -- ----- -------- -- ----- -------- -- ----- -------- -- ----- 4,849 ------ 785 ------ -------- 2,310,537 ---------- 760,098 ---------- -- ----- --------- -- ----- 4,849 ------ 785 ------ --------- 2,310,537 ---------- 760,098 ---------- Interest income (expense), net..... .......................... (85,965) (72,248) (15,126) -- (173,339) Equity in subsidiaries, net of (148) (100) (26) taxes........................ 400,416 445,571 -- (274) taxes........................... 408 471 -- (879845,987) -- Minority interest.................. ............... -- -- (36,462) -- (36,462) Other, net......................... -- ----- 260 ----- -- ----- 371 ----- 8 ------ (21) ------ -- ----- (879) ----- 8 ------ (269) ------ Income before income taxes 260 371 764 (879) 516 taxes (55) (37) 294 -- 202 ...................... Provision for (benefit from) -- -------- 314,451 -- -------- 373,323 14,363 ---------- 752,873 -- --------- (845,987) 14,363 ---------- 594,660 income Income before extraordinary item and cumulative effect of change in ----- ----- ------ ----- ------ accounting principle 315 408 470 (879) 314 Extraordinary item................... -- -- (1) -- (1) accounting principle............... -- -- 2 -- 2 taxes.................... Net income........................... ----- $ 315 ........................ (32,237) -------- $346,688 ===== ----- $ 408 ===== ------ $ 471 ====== ----- (27,093) -------- $(879) 400,416 ===== ------ $ 315 ====== 21 Cumulative effect of change in 307,302 ---------- $ 445,571 ========== -- --------- $(845,987) ========= 247,972 ---------- $ 346,688 ========== 25 WASTE MANAGEMENT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS STATEMENT OF CASH FLOWS SIX THREE MONTHS ENDED JUNE 30MARCH 31, 2002 2000 (UNAUDITED) PARENT GUARANTOR NON-GUARANTORS GUARANTOR ELIMINATIONS CONSOLIDATED CONSOLIDATION --------- --------- ------------- ------------ ------------- Cash flows from operating activities: Net income........................................... $ 355 $ 427 $ 476 $(903) $ 355 .................... Equity in earnings of subsidiaries, net of taxes..... ...................... $ 55,003 (427134,048) $ 134,048 (476172,722) $ 172,722 -- 903 $(306,770) 306,770 $ 55,003 -- Other adjustments and charges........................ (12) (10) 551 -- 529 .................... Net cash provided by (used in) 28,913 --------- 93,493 --------- 497,820 --------- -- --------- 620,226 --------- operating activities.... (84) (59) 1,027 -- 884 .......... Cash flows from investing (50,132) --------- 54,819 --------- 670,542 --------- -- --------- 675,229 --------- activities: Short-term investments........ -- -- 53,733 -- 53,733 Acquisitions of businesses, net of cash acquired..... ....... -- -- (64114,110) -- (64114,110) Capital expenditures................................. .......... -- -- (552248,565) -- (552248,565) Proceeds from divestitures of businesses, net of cash divested, and other sales sale of assets................ ..................... -- -- 71 62,022 -- 71 62,022 Other................................................ -- -- 96 -- 96 , net.................... Net cash used in investing -- --------- -- --------- (43,776) --------- -- --------- (43,776) --------- activities.................. .................... -- -- (449290,696) -- (449290,696) Cash flows from financing activities: New borrowings....................................... 498 -- -- -- 498 Debt repayments...................................... (427) (24) (17) -- (468) Common stock repurchases............................. (500) -- -- -- (500) Exercise Proceeds from issuance of common stock options and warrants........ 23 -- -- -- 23 long-term debt............. Principal payments on long-term debt............. (Increase) decrease in intercompany and investments, net................................................ 525 83 (608) -- -- Net cash provided by (used in) financing activities.... 119 59 (625) -- (447) Effect of exchange rate changes on cash and cash equivalents.......................................... -- -- 2 -- 2 Increase (decrease) in cash and cash equivalents....... 35 -- (45) -- (10) Cash and cash equivalents at beginning of period....... 757 -- (27) -- 730 Cash and cash equivalents at end of period............. $ 792 $ -- $ (72) $ -- $ 720 ===== ===== ====== ===== ===== CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED) PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED Cash flows from operating activities: Net income........................................... $ 315 $ 408 $ 471 $(879) $ 315 Equity in earnings of subsidiaries, net of taxes..... (408) (471) -- 879 -- Other adjustments and charges........................ (24) (4) 579 -- 551 Net cash provided by (used in) operating activities.... (117) (67) 1,050 -- 866 Cash flows from investing activities: Acquisitions of businesses, net of cash acquired..... -- -- (65) -- (65) Capital expenditures................................. -- -- (474) -- (474) Proceeds from divestitures of businesses, net of cash divested, and other sales of assets................ -- -- 26 -- 26 Other................................................ -- -- 64 -- 64 Net cash used in investing activities.................. -- -- (449) -- (449) Cash flows from financing activities: New borrowings....................................... 594 -- 359 -- 953 Debt repayments...................................... (320) (400) (366) -- (1,086) Exercise of common stock options and warrants........ 38 -- -- -- 38 Other................................................ -- -- (19) -- (19) (Increase) decrease in intercompany and investments, net................................................ 64 453 (517) -- -- Net cash provided by (used in) financing activities.... 376 53 (543) (114) Effect of exchange rate on cash and cash equivalents... -- -- (1) -- (1) Increase (decrease) in cash and cash equivalents....... 259 (14) 57 -- 302 Cash and cash equivalents at beginning of period....... 174 14 (94) -- 94 Cash and cash equivalents at end of period............. $ 433 $ -- $ (37) $ -- $ 396 ===== ===== ====== ===== ======= WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. NEW ACCOUNTING PRONOUNCEMENTS SFAS NO. 141 AND SFAS NO. 142 In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Accounting for Business Combinations ("SFAS No. 141"), and Statement of Financial Accounting Standards No. 142, Accounting for Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting and prohibits the pooling-of-interests method for business combinations initiated after June 30, 2001. According to SFAS No. 142, goodwill that arose from business combinations after June 30, 2001 cannot be amortized. In addition, SFAS No. 142 required the continuation of the amortization of goodwill and all intangible assets through December 31, 2001. The amortization of existing goodwill ceased on January 1, 2002. SFAS No. 142 requires a two-step impairment approach for goodwill. Companies must first determine whether goodwill is impaired and if so, they must value that impairment based on the amount by which the book value exceeds the estimated fair value. Companies have six months from the date they initially apply SFAS No. 142 to test goodwill for impairment and any impairment charge resulting from the initial application of the new accounting pronouncement must be classified as the cumulative effect of a change in accounting principle. Thereafter, goodwill must be tested for impairment annually and impairment losses must be presented in the operating section of the income statement unless they are associated with a discontinued operation. In those cases, any impairment losses will be included, net of tax, within the results of discontinued operations. WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In accordance with the Company's adoption of SFAS No. 141, the Company utilizes the purchase method of accounting for its business combinations. In accordance with the Company's adoption of SFAS No. 142, the Company has not amortized goodwill from any acquisitions that occurred after June 30, 2001. The Company has no intangible assets, other than goodwill, that have ceased being amortized upon adoption of SFAS No. 142. Adopting SFAS No. 141 required the Company to write-off net negative goodwill of approximately $2 million, which was recorded as a credit to cumulative effect of change in accounting principle in the first quarter of 2002. In accordance with SFAS No. 142, goodwill is required to be tested for impairment at the reporting unit, which is generally defined as an operating segment or a component of an operating segment in certain circumstances. For the purposes of applying SFAS No. 142, the Company has identified seven reporting units , which are the six components in NASW (excluding WTI) and WTI, as described in Note 9, Segment and Related Information. The Company incurred no impairment of goodwill upon its initial adoption of SFAS No. 142. However, there can be no assurance that goodwill will not be impaired at any time in the future. The following schedule reflects the three and six months ended June 30, 2001 adjusted net income (excluding goodwill and negative goodwill amortization) as compared to the results of operations for the three and six months ended June 30, 2002 (in millions, except per share amounts). THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 2002 2001 2002 2001 Reported net income.................................... $ 217 $ 191 $ 355 $ 315 Add back: goodwill amortization, net of taxes.......... -- 31 -- 62 Adjusted net income.................................... $ 217 $ 222 $ 355 $ 377 ===== ===== ===== ===== BASIC EARNINGS PER COMMON SHARE: Reported net income.................................... $0.35 $0.31 $0.57 $0.50 Goodwill amortization, net of taxes.................... -- 0.05 -- 0.10 Adjusted net income.................................... $0.35 $0.36 $0.57 $0.60 ===== ===== ===== ===== DILUTED EARNINGS PER COMMON SHARE: Reported net income.................................... $0.35 $0.30 $0.57 $0.50 Goodwill amortization, net of taxes.................... -- 0.05 -- 0.10 Adjusted net income.................................... $0.35 $0.35 $0.57 $0.60 ===== ===== ===== ===== The Company's intangible assets as of June 30, 2002 were comprised of the following (in millions): CUSTOMER LISTS COVENANTS NOT-TO- COMPETE LICENSES, PERMITS AND OTHER TOTAL Intangible assets........................... $127 $ 95 $18 $ 240 Less accumulated amortization............... (70) (53) (6) (129) $ 57 ==== $ 42 ==== $12 === $ 111===== Intangible assets are recorded at cost and amortized on a straight-line basis. Customer lists are generally amortized over five to seven years. Covenants not-to-compete are amortized over the term of the agreement, which is generally three to five years. Licenses, permits and other intangible assets are amortized over the terms of the related agreement or the Company's estimate of the useful life if there are no definite terms. 24 WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Landfill operating permits are not presented above and are included in landfill assets and amortized using the Company's landfill amortization method. The intangible asset amortization expense estimated as of December 31, 2001, for the five years following 2001 is as follows (in millions): 2002 2003 2004 2005 2006 ---- ---- ---- ---- ---- $34 $30 $22 $13 $7 As of June 30, 2002, the amount of goodwill attributable to WTI was approximately $783 million. The remaining goodwill balance of approximately $4,252 million was attributable to NASW (excluding WTI). SFAS NO. 143 In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations ("SFAS No. 143"). SFAS No. 143 applies to all legally enforceable obligations associated with the retirement of tangible long-lived assets and provides the accounting and reporting requirements for such obligations. SFAS No. 143 requires amounts initially recognized as an asset retirement obligation to be measured at fair value. The recognized asset retirement cost is capitalized as part of the cost of the asset and is depreciated over the useful life of the asset. The Company expects to adopt SFAS No. 143 beginning January 1, 2003 and to record a cumulative effect of a change in accounting principle. SFAS No. 143 will impact the Company's accounting for its landfill operations. Costs associated with future capping activities that occur during the operating life of a landfill, which are currently recognized on an undiscounted basis over the operating life of the landfill as airspace is consumed, will be accounted for as an asset retirement obligation under SFAS No. 143, on a discounted basis. The Company expects to recognize landfill retirement obligations, which relate to capping, other closure and post-closure activities, over the operating life of a landfill as landfill airspace is consumed. These obligations will be initially measured at estimated fair value. Fair value will be measured on a present value basis, using a credit-adjusted, risk-free rate, which will be a higher rate than the risk-free rate the Company currently uses for discounting its final closure and post-closure obligations. Interest will be accreted on landfill retirement obligations using the effective interest method. Landfill retirement costs, which will be capitalized as part of the landfill asset, will be amortized using the Company's existing landfill accounting practices. The Company is addressing which of its other assets may be affected by the provisions of SFAS No. 143. The Company's management has not yet determined the pro forma, cumulative or future effects of the adoption of SFAS No. 143 on its results of operations or financial position. The adoption of SFAS No. 143 will have no effect on the Company's cash flow. SFAS NO. 144 In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"), which supersedes Statement of Financial Accounting Standards No. 121. SFAS No. 144 establishes a single accounting method for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and extends the presentation of discontinued operations to include more divestiture transactions. SFAS No. 144 also requires that an impairment loss be recognized for assets held-for-use when the carrying amount of an asset, or group of assets if the cash flows from those assets cannot be independently and separately identified, is not recoverable. The carrying amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, excluding interest charges. Estimates of future cash flows used to test the recoverability of a long-lived asset or asset group must incorporate a company's own assumptions about its use of the asset or asset group and must factor in all available evidence. The Company adopted SFAS No. 144 on January 1, 25 WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2002. Upon initial application of SFAS No. 144, certain previously held-for-sale assets did not meet SFAS No. 144 criteria to be held-for-sale because their anticipated sale is in 2003. However, under the transition provisions of SFAS No. 144, the Company has until December 31, 2002 to either sell these assets or meet the new held-for-sale criteria to avoid reclassifying the assets to held-for-use. SFAS NO. 145 In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement Xx. 00, xxx Xxxxxxxxx Xxxxxxxxxxx ("XXXX Xx. 000"). SFAS No. 145 requires that gains and losses from extinguishment of debt be classified as extraordinary items only if they meet the criteria in Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of Opinion No. 30 will distinguish transactions that are part of an entity's recurring operations from those that are unusual and infrequent and meet the criteria for classification as an extraordinary item. SFAS No. 145 is effective for the Company beginning January 1, 2003. Upon the adoption of SFAS No. 145, the Company will reclassify certain items in its prior period statements of operations to conform to the presentation required by SFAS No............
Appears in 1 contract
Samples: Employment Agreement
Income from Operations. Other income (expense): -- ----- ---- -- ----- ---- -- ----- ---- -- ----- 4,849 ---- 2,782 ------ 785 115 ------ -- ----- -- ----- 4,849 2,782 ------ 785 115 ------ Interest income (expense), net (67) (43) (7) -- (117) taxes........................... 73 100 -- (173) -- Other, net......................... -- -- 1 -- 1 ---- ---- ------ ----- ------ 6 57 (6) (173) (116) ---- ---- ------ ----- ------ Income (loss) before income taxes.... 6 57 109 (173) (1) taxes (25) (16) 9 -- (32) ---- ---- ------ ----- ------ Income before extraordinary item..... 31 73 100 (173) 31 Extraordinary item................... (1) -- -- -- (1) Net income........................... ----$ 30==== ---- $ 73 ==== ------ $ 100 ====== ----- ------ $(173) $ 30 ===== ====== 21 Equity in subsidiaries, net of (148) (100) (26) -- (274) taxes........................... 408 471 -- (879) -- Minority interest.................. -- -- (3) -- (3) Other, net......................... -- ----- 260 ----- -- ----- 371 ----- 8 ------ (21) ------ -- ----- (879) ----- 8 ------ (269) ------ Income before income taxes 260 371 764 (879) 516 taxes (55) (37) 294 -- 202 Provision for (benefit from) income Income before extraordinary item and cumulative effect of change in ----- ----- ------ ----- ------ accounting principle 315 408 470 (879) 314 Extraordinary item................... -- -- (1) -- (1) accounting principle............... -- -- 2 -- 2 Net income........................... ----- $ 315 ===== ----- $ 408 ===== ------ $ 471 ====== ----- $(879) ===== ------ $ 315 ====== 21 Cumulative effect of change in WASTE MANAGEMENT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS SIX OPERATIONS NINE MONTHS ENDED JUNE SEPTEMBER 30, 2002 (UNAUDITED) PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED Cash flows from operating activities: Net income........................................... $ 355 $ 427 $ 476 $(903) $ 355 Equity in earnings of subsidiaries, net of taxes..... (427) (476) -- 903 -- Other adjustments and charges........................ (12) (10) 551 -- 529 Net cash provided by (used in) operating activities.... (84) (59) 1,027 -- 884 Cash flows from investing activities: Acquisitions of businesses, net of cash acquired..... -- -- (64) -- (64) Capital expenditures................................. -- -- (552) -- (552) Proceeds from divestitures of businesses, net of cash divested, and other sales of assets................ -- -- 71 -- 71 Other................................................ -- -- 96 -- 96 Net cash used in investing activities.................. -- -- (449) -- (449) Cash flows from financing activities: New borrowings....................................... 498 -- -- -- 498 Debt repayments...................................... (427) (24) (17) -- (468) Common stock repurchases............................. (500) -- -- -- (500) Exercise of common stock options and warrants........ 23 -- -- -- 23 (Increase) decrease in intercompany and investments, net................................................ 525 83 (608) -- -- Net cash provided by (used in) financing activities.... 119 59 (625) -- (447) Effect of exchange rate changes on cash and cash equivalents.......................................... -- -- 2 -- 2 Increase (decrease) in cash and cash equivalents....... 35 -- (45) -- (10) Cash and cash equivalents at beginning of period....... 757 -- (27) -- 730 Cash and cash equivalents at end of period............. $ 792 $ -- $ (72) $ -- $ 720 ===== ===== ====== ===== ===== CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED) PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED Cash flows from operating activities: Net income........................................... $ 315 $ 408 $ 471 $(879) $ 315 Equity in earnings of subsidiaries, net of taxes..... (408) (471) -- 879 -- Other adjustments and charges........................ (24) (4) 579 -- 551 Net cash provided by (used in) operating activities.... (117) (67) 1,050 -- 866 Cash flows from investing activities: Acquisitions of businesses, net of cash acquired..... -- -- (65) -- (65) Capital expenditures................................. -- -- (474) -- (474) Proceeds from divestitures of businesses, net of cash divested, and other sales of assets................ -- -- 26 -- 26 Other................................................ -- -- 64 -- 64 Net cash used in investing activities.................. -- -- (449) -- (449) Cash flows from financing activities: New borrowings....................................... 594 -- 359 -- 953 Debt repayments...................................... (320) (400) (366) -- (1,086) Exercise of common stock options and warrants........ 38 -- -- -- 38 Other................................................ -- -- (19) -- (19) (Increase) decrease in intercompany and investments, net................................................ 64 453 (517) -- -- Net cash provided by (used in) financing activities.... 376 53 (543) (114) Effect of exchange rate on cash and cash equivalents... -- -- (1) -- (1) Increase (decrease) in cash and cash equivalents....... 259 (14) 57 -- 302 Cash and cash equivalents at beginning of period....... 174 14 (94) -- 94 Cash and cash equivalents at end of period............. $ 433 $ -- $ (37) $ -- $ 396 ===== ===== ====== ===== ======= WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. NEW ACCOUNTING PRONOUNCEMENTS SFAS NO. 141 AND SFAS NO. 142 In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Accounting for Business Combinations ("SFAS No. 141"), and Statement of Financial Accounting Standards No. 142, Accounting for Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting and prohibits the pooling-of-interests method for business combinations initiated after June 30, 2001. According to SFAS No. 142, goodwill that arose from business combinations after June 30, 2001 cannot be amortized. In addition, SFAS No. 142 required the continuation of the amortization of goodwill and all intangible assets through December 31, 2001. The amortization of existing goodwill ceased on January 1, 2002. SFAS No. 142 requires a two-step impairment approach for goodwill. Companies must first determine whether goodwill is impaired and if so, they must value that impairment based on the amount by which the book value exceeds the estimated fair value. Companies have six months from the date they initially apply SFAS No. 142 to test goodwill for impairment and any impairment charge resulting from the initial application of the new accounting pronouncement must be classified as the cumulative effect of a change in accounting principle. Thereafter, goodwill must be tested for impairment annually and impairment losses must be presented in the operating section of the income statement unless they are associated with a discontinued operation. In those cases, any impairment losses will be included, net of tax, within the results of discontinued operations. WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In accordance with the Company's adoption of SFAS No. 141, the Company utilizes the purchase method of accounting for its business combinations. In accordance with the Company's adoption of SFAS No. 142, the Company has not amortized goodwill from any acquisitions that occurred after June 30, 2001. The Company has no intangible assets, other than goodwill, that have ceased being amortized upon adoption of SFAS No. 142. Adopting SFAS No. 141 required the Company to write-off net negative goodwill of approximately $2 million, which was recorded as a credit to cumulative effect of change in accounting principle in the first quarter of 2002. In accordance with SFAS No. 142, goodwill is required to be tested for impairment at the reporting unit, which is generally defined as an operating segment or a component of an operating segment in certain circumstances. For the purposes of applying SFAS No. 142, the Company has identified seven reporting units , which are the six components in NASW (excluding WTI) and WTI, as described in Note 9, Segment and Related Information. The Company incurred no impairment of goodwill upon its initial adoption of SFAS No. 142. However, there can be no assurance that goodwill will not be impaired at any time in the future. The following schedule reflects the three and six months ended June 30, 2001 adjusted net income (excluding goodwill and negative goodwill amortization) as compared to the results of operations for the three and six months ended June 30, 2002 (in millions, except per share amounts). THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 2002 2001 2002 2001 Reported net income.................................... $ 217 $ 191 $ 355 $ 315 Add back: goodwill amortization, net of taxes.......... -- 31 -- 62 Adjusted net income.................................... $ 217 $ 222 $ 355 $ 377 ===== ===== ===== ===== BASIC EARNINGS PER COMMON SHARE: Reported net income.................................... $0.35 $0.31 $0.57 $0.50 Goodwill amortization, net of taxes.................... -- 0.05 -- 0.10 Adjusted net income.................................... $0.35 $0.36 $0.57 $0.60 ===== ===== ===== ===== DILUTED EARNINGS PER COMMON SHARE: Reported net income.................................... $0.35 $0.30 $0.57 $0.50 Goodwill amortization, net of taxes.................... -- 0.05 -- 0.10 Adjusted net income.................................... $0.35 $0.35 $0.57 $0.60 ===== ===== ===== ===== The Company's intangible assets as of June 30, 2002 were comprised of the following (in millions): CUSTOMER LISTS COVENANTS NOT-TO- COMPETE LICENSES, PERMITS AND OTHER TOTAL Intangible assets........................... $127 $ 95 $18 $ 240 Less accumulated amortization............... (70) (53) (6) (129) $ 57 ==== $ 42 ==== $12 === $ 111===== Intangible assets are recorded at cost and amortized on a straight-line basis. Customer lists are generally amortized over five to seven years. Covenants not-to-compete are amortized over the term of the agreement, which is generally three to five years. Licenses, permits and other intangible assets are amortized over the terms of the related agreement or the Company's estimate of the useful life if there are no definite terms. 24 WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Landfill operating permits are not presented above and are included in landfill assets and amortized using the Company's landfill amortization method. The intangible asset amortization expense estimated as of December 31, 2001, for the five years following 2001 is as follows (in millions): 2002 2003 2004 2005 2006 ---- ---- ---- ---- ---- $34 $30 $22 $13 $7 As of June 30, 2002, the amount of goodwill attributable to WTI was approximately $783 million. The remaining goodwill balance of approximately $4,252 million was attributable to NASW (excluding WTI). SFAS NO. 143 In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations ("SFAS No. 143"). SFAS No. 143 applies to all legally enforceable obligations associated with the retirement of tangible long-lived assets and provides the accounting and reporting requirements for such obligations. SFAS No. 143 requires amounts initially recognized as an asset retirement obligation to be measured at fair value. The recognized asset retirement cost is capitalized as part of the cost of the asset and is depreciated over the useful life of the asset. The Company expects to adopt SFAS No. 143 beginning January 1, 2003 and to record a cumulative effect of a change in accounting principle. SFAS No. 143 will impact the Company's accounting for its landfill operations. Costs associated with future capping activities that occur during the operating life of a landfill, which are currently recognized on an undiscounted basis over the operating life of the landfill as airspace is consumed, will be accounted for as an asset retirement obligation under SFAS No. 143, on a discounted basis. The Company expects to recognize landfill retirement obligations, which relate to capping, other closure and post-closure activities, over the operating life of a landfill as landfill airspace is consumed. These obligations will be initially measured at estimated fair value. Fair value will be measured on a present value basis, using a credit-adjusted, risk-free rate, which will be a higher rate than the risk-free rate the Company currently uses for discounting its final closure and post-closure obligations. Interest will be accreted on landfill retirement obligations using the effective interest method. Landfill retirement costs, which will be capitalized as part of the landfill asset, will be amortized using the Company's existing landfill accounting practices. The Company is addressing which of its other assets may be affected by the provisions of SFAS No. 143. The Company's management has not yet determined the pro forma, cumulative or future effects of the adoption of SFAS No. 143 on its results of operations or financial position. The adoption of SFAS No. 143 will have no effect on the Company's cash flow. SFAS NO. 144 In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"), which supersedes Statement of Financial Accounting Standards No. 121. SFAS No. 144 establishes a single accounting method for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and extends the presentation of discontinued operations to include more divestiture transactions. SFAS No. 144 also requires that an impairment loss be recognized for assets held-for-use when the carrying amount of an asset, or group of assets if the cash flows from those assets cannot be independently and separately identified, is not recoverable. The carrying amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, excluding interest charges. Estimates of future cash flows used to test the recoverability of a long-lived asset or asset group must incorporate a company's own assumptions about its use of the asset or asset group and must factor in all available evidence. The Company adopted SFAS No. 144 on January 1, 25 WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2002. Upon initial application of SFAS No. 144, certain previously held-for-sale assets did not meet SFAS No. 144 criteria to be held-for-sale because their anticipated sale is in 2003. However, under the transition provisions of SFAS No. 144, the Company has until December 31, 2002 to either sell these assets or meet the new held-for-sale criteria to avoid reclassifying the assets to held-for-use. SFAS NO. 145 In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement Xx. 00, xxx Xxxxxxxxx Xxxxxxxxxxx ("XXXX Xx. 000"). SFAS No. 145 requires that gains and losses from extinguishment of debt be classified as extraordinary items only if they meet the criteria in Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of Opinion No. 30 will distinguish transactions that are part of an entity's recurring operations from those that are unusual and infrequent and meet the criteria for classification as an extraordinary item. SFAS No. 145 is effective for the Company beginning January 1, 2003. Upon the adoption of SFAS No. 145, the Company will reclassify certain items in its prior period statements of operations to conform to the presentation required by SFAS No.------ --------- -------------- ------------ ------------
Appears in 1 contract
Samples: investors.wm.com
