Waste Management 2014 Annual Report Download - page 118

At December 31, 2014, one of our landfill sites for which we believe receipt of the expansion permit is probable,
is not currently accepting waste. The net recorded capitalized landfill asset cost for this site was $247 million at
December 31, 2014. We performed a test of recoverability for this landfill and the undiscounted cash flows
resulting from our probability-weighted estimation approach significantly exceeded the carrying value of this
site. During the year ended December 31, 2013, we recognized $262 million of charges to impair certain of our
landfills, primarily as a result of our consideration of management’s decision in the fourth quarter of 2013 not to
actively pursue expansion and/or development of such landfills. These charges were primarily associated with
two landfills in our Eastern Canada Area, which are no longer accepting waste. We had previously concluded
that receipt of permits for these landfills was probable. However, in connection with our asset rationalization and
capital allocation analysis, which was influenced, in part, by our acquisition of RCI, we determined that the
future costs to construct 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.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —
(Income) Expense from Divestitures, Asset Impairments (Other than Goodwill) and Unusual Items and Note 13 to
the Consolidated Financial Statements for additional information related to landfill asset impairments recognized
during the reported periods.
Goodwill — At least annually, and more frequently if warranted, 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.
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