BUSINESS COMBINATION

9 Months Ended

Sep. 30, 2014

BUSINESS COMBINATION

BUSINESS ACQUISITION

NOTE 2.BUSINESS COMBINATION

On June 17, 2014, the Company acquired 100% of the outstanding shares of EQ Holdings, Inc. and its wholly-owned subsidiaries (collectively “EQ”).  EQ is a fully integrated environmental services company providing waste treatment and disposal, wastewater treatment, remediation, recycling, industrial cleaning and maintenance, transportation, total waste management, technical services, and emergency response services to a variety of industries and customers in North America. The total purchase price was $465.9 million, net of cash acquired, and was funded through a combination of cash on hand and borrowings under a new $415.0 million term loan. The purchase price is subject to post-closing adjustments including agreed upon working capital requirements.

We have recognized the assets and liabilities of EQ based on our preliminary estimates of their acquisition date fair values. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. As such, we have not completed our valuation analysis and calculations in sufficient detail necessary to arrive at the final estimates of the fair market value of the assets acquired and liabilities assumed, along with the related allocations to goodwill and intangible assets. All information presented is preliminary and subject to revision pending finalization of our fair market valuation analysis. Our final fair value determinations may be significantly different than those reflected in our consolidated financial statements as of September 30, 2014.

The following table summarizes the consideration paid for EQ and the preliminary fair value estimates of assets acquired and liabilities assumed recognized at the acquisition date, with purchase price allocation adjustments since the preliminary purchase price allocation as previously disclosed as of June 30, 2014:

	Purchase Price Allocation
$s in thousands	June 30, 2014			Adjustments			September 30, 2014
Current assets	$	114,227		$	(1,028	)	$	113,199
Property and equipment	103,532			—			103,532
Identifiable intangible assets	250,900			—			250,900
Current liabilities	(56,550		)	(888		)	(57,438		)
Other liabilities	(131,336		)	177			(131,159		)
Total identifiable net assets	280,773			(1,739		)	279,034
Goodwill	190,894			1,739			192,633
Total purchase price	$	471,667		$	—		$	471,667

Purchase price allocation adjustments relate primarily to the receipt of additional information regarding the fair values of accounts receivable, prepaid expenses, accounts payable and accrued expenses, deferred income taxes and residual goodwill.

Goodwill of $192.6 million arising from the acquisition is the result of several factors. EQ has an assembled workforce that serves the U.S. industrial market utilizing state-of-the-art technology to treat a wide range of industrial and hazardous waste. The acquisition of EQ increases our geographic base providing a coast-to-coast presence and an expanded service platform to better serve key North American hazardous waste markets. In addition, the acquisition of EQ provides us with an opportunity to compete for additional waste clean-up project work; expand penetration with national accounts; improve and enhance transportation, logistics, and service offerings with existing customers and attract new customers. All of the goodwill recognized was assigned to our EQ Operations reporting segment. None of the goodwill recognized is expected to be deductible for income tax purposes.

The preliminary fair value estimate of identifiable intangible assets by major intangible asset class and related weighted average amortization period are as follows:

$s in thousands	June 17, 2014		Weighted Average Amortization Period (Years)
Permits and licenses	$	119,500	45
Customer relationships	115,000		15
Tradename	9,900		4
Customer backlog	3,600		10
Non-compete agreements	1,400		1
Internet domain and website	900		19
Database	600		15
Total identifiable intangible assets	$	250,900	29

The following unaudited pro forma financial information presents the combined results of operations as if EQ had been combined with us at the beginning of each of the periods presented. The pro forma financial information includes the accounting effects of the business combination, including the amortization of intangible assets, depreciation of property, plant and equipment, and interest expense.   The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the periods presented, nor should it be taken as indication of our future consolidated results of operations.

	(unaudited)				(unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
$s in thousands, except per share amounts	2014		2013		2014		2013
Pro forma combined:
Revenue	$	170,894	$	148,704	$	458,091	$	381,159
Net income	$	13,333	$	9,606	$	24,835	$	19,246
Earnings per share
Basic	$	0.62	$	0.52	$	1.15	$	1.05
Diluted	$	0.61	$	0.52	$	1.15	$	1.04

Revenue from EQ included in US Ecology’s consolidated statement of operations since the closing of the acquisition on June 17, 2014 was $111.3 million and $125.9 million, respectively, for the three and nine month periods ended September 30, 2014.  Operating income from EQ included in US Ecology’s consolidated statement of operations since the closing of the acquisition on June 17, 2014 was $10.5 million and $12.0 million, respectively, for the three and nine month periods ended September 30, 2014. Acquisition-related costs of $307,000 and $5.6 million were included in Selling, general and administrative expenses in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2014, respectively.