Acquisitions and Divestitures

9 Months Ended

Sep. 30, 2015

Business Combinations [Abstract]

Acquisitions and Divestitures

9. Acquisitions and Divestitures

Acquisitions

Deffenbaugh Disposal, Inc. — On March 26, 2015, we acquired Deffenbaugh, one of the largest privately owned collection and disposal firms in the Midwest, for total consideration of $416 million ($413 million cash), inclusive of amounts for estimated working capital. Deffenbaugh’s assets include five collection operations, seven transfer stations, two recycling facilities, one subtitle-D landfill, and one construction and demolition landfill. For the three and nine months ended September 30, 2015, Deffenbaugh recognized revenues of $44 million and $92 million, respectively, and net income (loss) of less than $1 million for both the three and nine months ended September 30, 2015, which are included in our Condensed Consolidated Statements of Operations.

Goodwill of $152 million was calculated as the excess of the consideration paid over the net assets recognized and represents the future economic benefits expected to arise from other assets acquired that could not be individually identified and separately recognized. Goodwill has been assigned to our Areas that will be integrating these operations as they are expected to benefit from the synergies of the combination. Goodwill related to this acquisition is not deductible for income tax purposes.

The allocation of the purchase price for the Deffenbaugh acquisition is preliminary and subject to change based on the finalization of our detailed valuations. The following table presents adjustments since the acquisition date to the allocation of the purchase price (in millions):

	March 26, 2015			Adjustments			September 30, 2015
Cash and cash equivalents	$	15		$	—		$	15
Accounts and other receivables		18			4			22
Parts and supplies		2			—			2
Deferred income tax asset		9			2			11
Other current assets		12			(2	)		10
Property and equipment		212			(5	)		207
Goodwill		140			12			152
Other intangible assets		134			(34	)		100
Other assets		1			—			1
Accounts payable		(4	)		2			(2	)
Accrued liabilities		(12	)		(3	)		(15	)
Deferred revenues		(5	)		(1	)		(6	)
Landfill and environmental remediation liabilities		(21	)		3			(18	)
Deferred income tax liability		(65	)		15			(50	)
Other liabilities		(20	)		6			(14	)
Total purchase price	$	416		$	(1	)	$	415

The preliminary allocation of $100 million for other intangibles includes $94 million for customer relationships and $6 million for a trade name, each with an amortization period of 15 years.

The following pro forma consolidated results of operations have been prepared as if the acquisition of Deffenbaugh occurred at January 1, 2014 (in millions, except per share amounts):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2014		2015		2014
Operating revenues	$	3,646	$	9,755	$	10,688
Net income attributable to Waste Management, Inc.		272		480		713
Basic earnings per common share		0.59		1.06		1.54
Diluted earnings per common share		0.59		1.05		1.53

Divestitures

Wheelabrator Business — On December 19, 2014, we sold our Wheelabrator business to an affiliate of Energy Capital Partners and received cash proceeds of $1.95 billion, net of cash divested, subject to certain post-closing adjustments. We recognized a gain of $519 million on this sale in the fourth quarter of 2014. For the nine months ended September 30, 2015, net adjustments to this gain were immaterial on a pre-tax basis. In conjunction with the sale, the Company entered into several agreements to dispose of a minimum number of tons of waste at certain Wheelabrator facilities. These agreements generally provide for fixed volume commitments, with certain market price resets, for up to seven years.

Prior to the sale, our Wheelabrator business constituted a reportable segment, as discussed in Note 8. We concluded that the sale of our Wheelabrator business did not qualify for discontinued operations accounting under applicable authoritative guidance based on our significant continuing obligations under the long-term waste supply agreements referred to above and in Note 7.

Other — In the third quarter of 2014, we sold certain landfill and collection operations in our Eastern Canada Area, which were included in Tier 3. We received cash proceeds from the sale of $39 million and recognized a gain of $18 million. In the second quarter of 2014, we sold our Puerto Rico operations and certain other collection and landfill assets which were included in Tier 3 and Tier 1, respectively, of our Solid Waste business. We received proceeds from the sale of $80 million, consisting of $65 million of cash and $15 million of preferred stock. The loss recognized related to the sale was $25 million and is recorded in “(Income) expense from divestitures, asset impairments and unusual items” in our Condensed Consolidated Statement of Operations.