Waste Management 2013 Annual Report Download - page 183

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
these landfills could be avoided as we are able to allocate disposal that would have gone to these landfills to other
facilities and not materially impact operations. As a result of management’s decision, we determined that the
carrying values of landfill assets were no longer able to be recovered by the undiscounted cash flows attributable
to these assets. As such, we wrote their carrying values down to their estimated fair values using a market
approach considering the highest and best use of the assets.
Refer to Note 13 for additional information related to landfill asset impairments recognized during the
reported periods.
Goodwill — At least annually, and more frequently if warranted on a nonrecurring basis, we assess our
goodwill for impairment using Level 3 inputs.
We assess whether a goodwill impairment exists using both qualitative and quantitative assessments. Our
qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely
than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this
qualitative assessment we determine it is not more likely than not that the fair value of a reporting unit is less
than its carrying amount, we will not perform a quantitative assessment.
If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is
less than its carrying amount or if we elect not to perform a qualitative assessment, we perform a quantitative
assessment, or two-step impairment test, to determine whether a goodwill impairment exists at the reporting unit.
The first step in our quantitative assessment identifies potential impairments by comparing the estimated fair
value of the reporting unit to its carrying value, including goodwill. If the carrying value exceeds estimated fair
value, there is an indication of potential impairment and the second step is performed to measure the amount of
impairment. Fair value is typically estimated using a combination of the income approach and market approach
or only an income approach when applicable. The income approach is based on the long-term projected future
cash flows of the reporting units. We discount the estimated cash flows to present value using a weighted-
average cost of capital that considers factors such as market assumptions, the timing of the cash flows and the
risks inherent in those cash flows. We believe that this approach is appropriate because it provides a fair value
estimate based upon the reporting units’ expected long-term performance considering the economic and market
conditions that generally affect our business. The market approach estimates fair value by measuring the
aggregate market value of publicly-traded companies with similar characteristics to our business as a multiple of
their reported cash flows. We then apply that multiple to the reporting units’ cash flows to estimate their fair
values. We believe that this approach is appropriate because it provides a fair value estimate using valuation
inputs from entities with operations and economic characteristics comparable to our reporting units.
Fair value computed by these two methods is arrived at using a number of factors, including projected future
operating results, economic projections, anticipated future cash flows, comparable marketplace data and the cost
of capital. There are inherent uncertainties related to these factors and to our judgment in applying them to this
analysis. However, we believe that these two methods provide a reasonable approach to estimating the fair value
of our reporting units.
Refer to Notes 6 and 13 for additional information related to goodwill impairments recognized during the
reported periods.
Indefinite-Lived Intangible Assets Other Than Goodwill — At least annually, and more frequently if
warranted, we assess indefinite-lived intangible assets other than goodwill for impairment.
When performing the impairment test for indefinite-lived intangible assets, we generally first conduct a
qualitative analysis to determine whether we believe it is more likely than not that an asset has been impaired. If
we believe an impairment has occurred, we then evaluate for impairment by comparing the estimated fair value
of assets to the carrying value. An impairment charge is recognized if the asset’s estimated fair value is less than
its carrying value.
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