Waste Management 2014 Annual Report Download - page 174

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Depreciation and amortization expense, including amortization expense for assets recorded as capital leases,
was comprised of the following for the years ended December 31 (in millions):
2014 2013 2012
Depreciation of tangible property and equipment .......... $ 834 $ 853 $ 833
Amortization of landfill airspace ....................... 380 400 395
Depreciation and amortization expense .............. $1,214 $1,253 $1,228
6. Goodwill and Other Intangible Assets
Goodwill was $5,740 million as of December 31, 2014 compared with $6,070 million as of December 31,
2013. The $330 million decrease in goodwill during 2014 is primarily related to the sale of our Wheelabrator
business and, to a lesser extent, the effect of foreign currency translation adjustments related to the goodwill
associated with our Canadian operations and goodwill impairment charges associated with our recycling
operations. See Notes 3, 13, 19 and 21 for additional information.
As discussed more fully in Note 3, we perform our annual impairment test of our goodwill balances using a
measurement date of October 1. We will also perform interim tests if an impairment indicator exists such that the
fair value of a reporting unit could potentially be less than its carrying amount. We did not encounter any events
or changes in circumstances that indicated that an impairment was more likely than not during interim periods in
2014, 2013 or 2012.
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.
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