Waste Management 2014 Annual Report Download - page 163

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Where it is probable that a liability has been incurred, we estimate costs required to remediate sites based on
site-specific facts and circumstances. We routinely review and evaluate sites that require remediation,
considering whether we were an owner, operator, transporter, or generator at the site, the amount and type of
waste hauled to the site and the number of years we were associated with the site. Next, we review the same type
of information with respect to other named and unnamed PRPs. Estimates of the costs for the likely remedy are
then either developed using our internal resources or by third-party environmental engineers or other service
providers. Internally developed estimates are based on:
• Management’s judgment and experience in remediating our own and unrelated parties’ sites;
• Information available from regulatory agencies as to costs of remediation;
• The number, financial resources and relative degree of responsibility of other PRPs who may be liable
for remediation of a specific site; and
• The typical allocation of costs among PRPs, unless the actual allocation has been determined.
Estimating our degree of responsibility for remediation is inherently difficult. We recognize and accrue for
an estimated remediation liability when we determine that such liability is both probable and reasonably
estimable. Determining the method and ultimate cost of remediation requires that a number of assumptions be
made. There can sometimes be a range of reasonable estimates of the costs associated with the likely site
remediation alternatives identified in the investigation of the extent of environmental impact. In these cases, we
use the amount within the range that constitutes our best estimate. If no amount within a range appears to be a
better estimate than any other, we use the amount that is the low end of such range. If we used the high ends of
such ranges, our aggregate potential liability would be approximately $190 million higher than the $235 million
recorded in the Consolidated Financial Statements as of December 31, 2014. Our ultimate responsibility may
differ materially from current estimates. It is possible that technological, regulatory or enforcement
developments, the results of environmental studies, the inability to identify other PRPs, the inability of other
PRPs to contribute to the settlements of such liabilities, or other factors could require us to record additional
liabilities. Our ongoing review of our remediation liabilities, in light of relevant internal and external facts and
circumstances, could result in revisions to our accruals that could cause upward or downward adjustments to
income from operations. These adjustments could be material in any given period.
Where we believe that both the amount of a particular environmental remediation liability and the timing of
the payments are fixed or reliably determinable, we inflate the cost in current dollars (by 2.5% at December 31,
2014 and 2013) until the expected time of payment and discount the cost to present value using a risk-free
discount rate, which is based on the rate for U.S. Treasury bonds with a term approximating the weighted average
period until settlement of the underlying obligation. We determine the risk-free discount rate and the inflation
rate on an annual basis unless interim changes would significantly impact our results of operations. For remedial
liabilities that have been discounted, we include interest accretion, based on the effective interest method, in
“Operating” costs and expenses in our Consolidated Statements of Operations. The following table summarizes
the impacts of revisions in the risk-free discount rate applied to our environmental remediation liabilities and
recovery assets during the reported periods (in millions) and the risk-free discount rate applied as of each
reporting date:
Years Ended December 31,
2014 2013 2012
Charge (reduction) to Operating expenses ................... $ 10 $ (13) $ 3
Risk-free discount rate applied to environmental remediation
liabilities and recovery assets ........................... 2.00% 3.00% 1.75%
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