NOTE 9 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other identifiable indefinite lived intangibles are not amortized, but are subject to an annual impairment test, or more frequent testing if circumstances indicate that they may be impaired.

Goodwill:

During the second quarter of 2016, we changed the composition of our operating segments; see Note 12 – Segment Reporting for more information. Due to this change, part of our Domestic Regulated Waste and Compliance Services operating segment was combined with the legacy Domestic Regulated Recall and Returns Management Services operating segment to form a new operating segment, Domestic Communication and Related Services.

Our three operating segments, which are also our reporting units, are:

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Domestic Regulated Waste and Compliance Services,

•

Domestic Communication and Related Services, and

•

International Regulated Waste and Compliance Services.

Our Domestic Communication and Related Services operating segment does not meet the quantitative criteria to be a separate reportable segment and is categorized as “Other.”

Goodwill was reassigned to the affected reporting units using a relative fair value approach. That is, the goodwill was assigned to the businesses in the Domestic Regulated Waste and Compliance Services reporting unit based on their relative fair values and then the assigned goodwill followed the business impacted by the reorganization into the new Domestic Communication and Related Services reporting unit.

As a result of these changes in our segment reporting, all historical segment information has been revised to conform to the new presentation including our goodwill rollforward by segment.

The changes in the carrying amount of goodwill since January 1, 2015, by reportable segment and for the "Other” category, were as follows:

In thousands
	Domestic Regulated Waste and Compliance Services			International Regulated Waste and Compliance Services			Other			Total
Balance as of January 1, 2015	$	1,467,969		$	614,783		$	336,080		$	2,418,832
Goodwill acquired during the year		1,150,437			273,519			26,994			1,450,950
Purchase accounting allocation adjustments for prior year acquisitions		(6,221	)		(19,072	)		(2,984	)		(28,277	)
Goodwill other changes		—			(440	)		—			(440	)
Changes due to foreign currency fluctuations		—			(82,888	)		—			(82,888	)
Balance as of December 31, 2015		2,612,185			785,902			360,090			3,758,177
Goodwill acquired during the year		33,041			4,422			2,873			40,336
Purchase accounting allocation adjustments for prior year acquisitions		(74,193	)		(103,398	)		(2,663	)		(180,254	)
Changes due to foreign currency fluctuations		—			(21,360	)		—			(21,360	)
Balance at September 30, 2016	$	2,571,033		$	665,566		$	360,300		$	3,596,899

Current year adjustments to goodwill are primarily due to updated tangible and intangible asset valuations for certain 2015 acquisitions.

During the quarter ended June 30, 2016, we performed our annual goodwill impairment evaluation for our three reporting units: Domestic Regulated Waste and Compliance Services, Domestic Communication and Related Services, and International Regulated Waste and Compliance Services. We calculated the fair value of each of our reporting units using an income method and validated those results using a market approach by applying estimated EBITDA multiples to the EBITDA of the reporting units.

The income approach uses expected future cash flows of each reporting unit and discounts those cash flows to present values. Expected future cash flows are calculated using management assumptions of growth rates, capital expenditures, and cost efficiencies. Future acquisitions are not included in the expected future cash flows. We use a discount rate based on our Company calculated weighted average cost of capital which is adjusted for each of our reporting units based on size and country risk premiums.

The results of our goodwill impairment test using the market approach corroborated the results of the impairment test under the income approach and indicated the fair value of our reporting units exceeded their respective carrying values.

Due to the change in reporting units during the second quarter, we analyzed goodwill for impairment immediately before and after we reorganized our reporting structure. As a result of this analysis, we concluded that goodwill related to the effected reporting units were not impaired.

Other Intangible Assets:

At September 30, 2016 and December 31, 2015, the values of other intangible assets were as follows:

In thousands
	September 30, 2016						December 31, 2015
	Gross Carrying Amount		Accumulated Amortization		Net Value		Gross Carrying Amount		Accumulated Amortization		Net Value
Amortizable intangibles:
Customer relationships	$	1,579,988	$	241,368	$	1,338,620	$	1,304,388	$	144,020	$	1,160,368
Covenants not-to-compete		10,561		6,501		4,060		6,878		5,141		1,737
Tradenames		9,088		1,797		7,291		3,819		948		2,871
Other		19,005		2,924		16,081		18,902		916		17,986
Indefinite lived intangibles:
Operating permits		242,281		—		242,281		233,101		—		233,101
Tradenames		318,776		—		318,776		426,498		—		426,498
Total	$	2,179,699	$	252,590	$	1,927,109	$	1,993,586	$	151,025	$	1,842,561

The changes in the carrying amount of intangible assets since January 1, 2015 were as follows:

In thousands
	Total
Balance as of January 1, 2015	$	909,645
Intangible assets acquired during the year		1,016,775
Valuation adjustments for prior year acquisitions		35,241
Impairments during the year		(4,177	)
Amortization during the year		(45,498	)
Changes due to foreign currency fluctuations		(69,425	)
Balance as of December 31, 2015		1,842,561
Intangible assets acquired during the year		23,235
Valuation adjustments for prior year acquisitions		178,621
Impairments during the year		(4	)
Amortization during the year		(102,311	)
Changes due to foreign currency fluctuations		(14,993	)
Balance at September 30, 2016	$	1,927,109

Under generally accepted accounting principles, a fair value must be assigned to all acquired assets based on a theoretical “market participant” regardless of the acquirer's intended use for those assets. This accounting treatment can lead to the recognition of losses when a company disposes of acquired assets. We complete our annual impairment analysis of our indefinite lived intangibles during the quarter ended December 31 of each year, or more frequently, if circumstances indicate that they may be impaired.

Our finite-lived intangible assets are amortized over their useful lives. We have determined that our customer relationships have useful lives from 5 to 40 years based upon the type of customer, with a weighted average remaining useful life of 15.3 years. We have covenant not-to-compete intangibles with useful lives from 5 to 14 years, with a weighted average remaining useful life of 3.5 years. We have tradename intangibles with useful lives from 10 to 40 years, with a weighted average remaining useful life of 15.0 years. Other intangibles mainly consist of landfill air rights with a weighted average remaining useful life of 18.0 years. We have determined that our permits have indefinite lives due to our ability to renew these permits with minimal additional cost, and therefore these are not amortized. We also have a trade name that we have determined has an indefinite life.

During the quarters ended September 30, 2016 and 2015, the aggregate amortization expense was $33.1 million and $9.2 million, respectively. We recorded approximately $33 million of additional amortization during the nine months ended September 30, 2016 due to an update to the valuation of the Shred-it intangibles. For the nine months ended September 30, 2016 and 2015, the aggregate amortization expense was $102.3 million and $27.0 million, respectively.

The estimated amortization expense for each of the next five years, assuming no additional amortizable intangible assets, is as follows for the years ended December 31:

In thousands
2016	$	132,122
2017		118,850
2018		118,788
2019		117,964
2020		116,353

Future amortization expense may fluctuate depending on changes in foreign currency rates, future acquisitions, or changes to the estimated amortizable life of the intangibles. The estimates for amortization expense noted above are based upon foreign exchange rates as of September 30, 2016.