Waste Management 2006 Annual Report Download - page 63

changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable, 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 determined by
either an internally developed discounted projected cash flow analysis of the asset or asset group or an actual third-
party valuation. 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.
Typical indicators that an asset may be impaired include:
• A significant decrease in the market price of an asset or asset group;
• A significant adverse change in the extent or manner in which an asset or asset group is being used or in its
physical condition;
• A significant adverse change in legal factors or in the business climate that could affect the value of an asset
or asset group, including an adverse action or assessment by a regulator;
• An accumulation of costs significantly in excess of the amount originally expected for the acquisition or
construction of a long-lived asset;
• Current period operating or cash flow losses combined with a history of operating or cash flow losses or a
projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or
asset group; or
• A current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise
disposed of significantly before the end of its previously estimated useful life.
If any of these or other indicators occur, the asset is reviewed to determine whether there has been an
impairment. Estimating future cash flows requires significant judgment and projections may vary from cash flows
eventually realized. There are other considerations for impairments of landfills and goodwill, as described below.
Landfills — Certain of the indicators listed above 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 book value of goodwill to its implied fair value. The implied fair value of goodwill is
determined by deducting the fair value of each of our reporting unit’s (Group’s) identifiable assets and liabilities
from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the purchase
price were being initially allocated. Additional impairment assessments may be performed on an interim basis if we
encounter events or changes in circumstances, such as those listed above, that would indicate that, more likely than
not, the book value of goodwill has been impaired.
Self-insurance reserves and recoveries — We have retained a 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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