Waste Management 2014 Annual Report Download - page 119

During our annual 2013 impairment test of our goodwill balances we determined the fair value of our
Wheelabrator business had declined and the associated goodwill was impaired. As a result, we recognized an
impairment charge of $483 million, which had no related tax benefit. We estimated the implied fair value of our
Wheelabrator reporting unit goodwill using a combination of income and market approaches. Because the annual
impairment test indicated that Wheelabrator’s carrying value exceeded its estimated fair value, we performed the
“step two” analysis. In the “step two” analysis, the fair values of all assets and liabilities were estimated,
including tangible assets, power contracts, customer relationships and trade name for the purpose of deriving an
estimate of the implied fair value of goodwill. The implied fair value of goodwill was then compared to the
carrying amount of goodwill to determine the amount of the impairment. The factors contributing to the
$483 million goodwill impairment charge principally related to the continued challenging business environment
in areas of the country in which Wheelabrator operated, characterized by lower available disposal volumes
(which impact disposal rates and overall disposal revenue, as well as the amount of electricity Wheelabrator was
able to generate), lower electricity pricing due to the pricing pressure created by availability of natural gas and
increased operating costs as Wheelabrator’s facilities aged. These factors caused us to lower prior assumptions
for electricity and disposal revenue, and increase assumed operating costs. Additionally, the discount factor
previously utilized in the income approach in 2013 increased mainly due to increases in interest rates. In 2013,
we incurred an additional $10 million of charges to impair goodwill associated with our Puerto Rico operations
and $4 million to impair goodwill associated with our recycling business. In 2014, we recognized $10 million of
goodwill impairment charges associated with our recycling operations.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Goodwill Impairments and Notes 6 and 13 to the Consolidated Financial Statements 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.
Fair value is typically estimated using an income approach. The income approach is based on the long-term
projected future cash flows. 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 expected long-term performance considering the economic and market conditions that generally affect
our business.
Fair value computed by this method 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 this method provides a reasonable approach to estimating the fair value of the
reporting units.
Deferred Income Taxes
Deferred income taxes are based on the difference between the financial reporting and tax basis of assets
and liabilities. The deferred income tax provision represents the change during the reporting period in the
deferred tax assets and deferred tax liabilities, net of the effect of acquisitions and dispositions. Deferred tax
assets include tax loss and credit carry-forwards and are reduced by a valuation allowance if, based on available
evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
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