19. Acquisitions and Divestitures

Pending Acquisition

On September 17, 2014, the Company signed a definitive agreement to acquire the outstanding stock of Deffenbaugh Disposal, Inc., one of the largest privately owned collection and disposal firms in the Midwest. Closing of the acquisition is expected to occur in early 2015, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions.

Current Year Acquisitions

We continue to pursue the acquisition of businesses that are accretive to our Solid Waste business and enhance and expand our existing service offerings. During the year ended December 31, 2014, we acquired 15 businesses related to our Solid Waste business. Total consideration, net of cash acquired, for all acquisitions was $32 million, which included $26 million in cash paid in 2014 and a liability for contingent consideration with a preliminary estimated fair value of $6 million. The contingent consideration is primarily based on achievement by the acquired businesses of certain negotiated goals, which generally include targeted revenues. Our estimated maximum obligations for the contingent cash payments were $6 million at the dates of acquisition. As of December 31, 2014, we had paid $4 million of this contingent consideration. In 2014, we also paid $5 million of contingent consideration associated with acquisitions completed prior to 2014.

The allocation of purchase price for 2014 acquisitions was primarily to “Property and equipment,” which had an estimated fair value of $6 million; “Other intangible assets,” which had an estimated fair value of $9 million; and “Goodwill” of $17 million. Other intangible assets included $7 million of customer and supplier relationships and $2 million of covenants not-to-compete. Goodwill is primarily a result of expected synergies from combining the acquired businesses with our existing operations and is tax deductible.

Prior Year Acquisitions

During the year ended December 31, 2013, we acquired Greenstar and substantially all of the assets of RCI, which are discussed further below. Additionally, we acquired 14 other businesses primarily related to our Solid Waste business and energy services operations. Total consideration, inclusive of $7 million for estimated working capital, for all acquisitions was $772 million, which included $714 million in cash paid in 2013, debt of $22 million and a liability for contingent consideration with an estimated fair value of $29 million. The contingent consideration is primarily based on changes in certain recycling commodity indexes and, to a lesser extent, contingent upon achievement by the acquired businesses of certain negotiated goals, which generally include targeted revenues. Our estimated maximum obligations for the contingent cash payments were $33 million at the dates of acquisition. As of December 31, 2013, we had paid $4 million of this contingent consideration. In 2013, we also paid $6 million of contingent consideration associated with acquisitions completed prior to 2013.

The allocation of purchase price for 2013 acquisitions was primarily to “Property and equipment,” which had an estimated fair value of $195 million; “Other intangible assets,” which had an estimated fair value of $232 million; and “Goodwill” of $327 million. Other intangible assets included $218 million of customer and supplier relationships, $5 million of covenants not-to-compete and $9 million of other intangible assets. Goodwill is primarily a result of expected synergies from combining the acquired businesses with our existing operations and is generally tax deductible.

Acquisition of Greenstar, LLC

On January 31, 2013, we paid $170 million inclusive of certain adjustments, to acquire Greenstar. Pursuant to the sale and purchase agreement, up to an additional $40 million is payable to the sellers during the period from 2014 to 2018, of which $20 million is guaranteed. The remaining $20 million of this consideration is contingent based on changes in certain recyclable commodity indexes and had an estimated fair value at closing of $16 million. Greenstar was an operator of recycling and resource recovery facilities. This acquisition provides the Company’s customers with greater access to recycling solutions, having supplemented our extensive nationwide recycling network with the operations of one of the nation’s largest private recyclers.

Goodwill of $122 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 predominantly to our Areas and, to a lesser extent, our recycling brokerage services, as they are expected to benefit from the synergies of the combination. Goodwill related to this acquisition is deductible for income tax purposes. There have been no material adjustments to the purchase price allocation since the date of acquisition.

Acquisition of RCI Environnement, Inc.

On July 5, 2013, we paid C$509 million, or $481 million, to acquire substantially all of the assets of RCI, the largest waste management company in Quebec, and certain related entities. Total consideration, inclusive of amounts for estimated working capital, was C$515 million, or $487 million. RCI provides collection, transfer, recycling and disposal operations throughout the Greater Montreal area. The acquired RCI operations complement and expand the Company’s existing assets and operations in Quebec.

Goodwill of $191 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 Eastern Canada Area as it is expected to benefit from the synergies of the combination. A portion of goodwill related to this acquisition is deductible for income tax purposes in accordance with Canadian tax law. There have been no material adjustments to the purchase price allocation since the date of acquisition.

The following table presents the final allocations of the purchase price for the Greenstar and RCI acquisitions (in millions):


	Greenstar			RCI
Accounts and other receivables	$	30		$	32
Parts and supplies		4			—
Other current assets		2			—
Property and equipment		58			117
Goodwill		122			191
Other intangible assets		32			169
Accounts payable		(17	)		—
Accrued liabilities		(12	)		—
Deferred revenues		—			(4	)
Landfill and environmental remediation liabilities		(2	)		(1	)
Current portion of long-term debt		(4	)		—
Long-term debt, less current portion		(2	)		(3	)
Deferred income taxes, net		—			(14	)
Other liabilities		(5	)		—

Total purchase price	$	206		$	487

The following table presents the final allocations of the purchase price to intangible assets (amounts in millions, except for amortization periods):


	Greenstar				RCI
	Amount		Weighted Average Amortization Periods (in Years)		Amount		Weighted Average Amortization Periods (in Years)
Supplier relationships	$	31		10.0	$	—		—
Lease agreements		1		8.4		—		—
Customer relationships		—		—		162		15.0
Trade name		—		—		7		5.0

Total intangible assets subject to amortization	$	32		10.0	$	169		14.6

Pro Forma Consolidated Results of Operations

The following pro forma consolidated results of operations have been prepared as if the acquisitions of RCI and Greenstar occurred at January 1, 2012 (in millions, except per share amounts):


	Years Ended December 31,
	2013		2012
Operating revenues	$	14,085	$	14,009
Net income attributable to Waste Management, Inc.		112		803
Basic earnings per common share		0.24		1.73
Diluted earnings per common share		0.24		1.73

In 2012, we paid $94 million for interests in oil and gas producing properties through two transactions. The purchase price was allocated primarily to “Property and equipment.” Additionally, we acquired 32 other businesses related to our Solid Waste business. Total consideration, net of cash acquired, for all acquisitions was $244 million, which included $207 million in cash paid in 2012, deposits paid during 2011 for acquisitions completed in 2012 of $7 million, a liability for additional cash payments with a preliminary estimated fair value of $22 million, and assumed liabilities of $8 million. The additional cash payments are contingent upon achievement by the acquired businesses of certain negotiated goals, which generally include targeted revenues. At the dates of acquisition, our estimated maximum obligations for the contingent cash payments were $57 million. As of December 31, 2012, we had paid $9 million of this contingent consideration. In 2012, we also paid $34 million of contingent consideration associated with acquisitions completed prior to 2012.

The allocation of purchase price for 2012 acquisitions was primarily to “Property and equipment,” which had an estimated fair value of $126 million; “Other intangible assets,” which had an estimated fair value of $43 million; and “Goodwill” of $69 million. Other intangible assets included $34 million of customer contracts and customer relationships and $9 million of covenants not-to-compete. Goodwill is primarily a result of expected synergies from combining the acquired businesses with our existing operations and is tax deductible.

Current Year Divestitures

The aggregate sales price for divestitures of operations was $2.09 billion in 2014, primarily related to (i) the sale of our Wheelabrator business in December 2014; (ii) the sale of certain landfill and collection operations in our Eastern Canada Area in the third quarter of 2014 and (iii) the sale of our Puerto Rico operations and certain other collection and landfill assets in the second quarter of 2014, as discussed further below. We recognized net gains on these divestitures of $515 million in 2014. These divestitures were made as part of our initiative to improve or divest certain non-strategic or underperforming operations. The remaining amounts reported in the Consolidated Statement of Cash Flows generally relate to the sale of fixed assets.

Divestiture of 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 which is included within “(Income) expense from divestitures, asset impairments (other than goodwill) and unusual items” in the Consolidated Statement of Operations. 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.

Our Wheelabrator business met the criteria to be classified as held-for-sale and was classified as “Businesses held-for-sale” within our Condensed Consolidated Balance Sheet at September 30, 2014.

Wheelabrator provides waste-to-energy services and manages waste-to-energy facilities and independent power production plants. Wheelabrator owns or operates 16 waste-to-energy facilities and four independent power production plants. Prior to the sale, our Wheelabrator business constituted a reportable segment, as discussed in Note 21. We concluded that the sale of our Wheelabrator business did not qualify for discontinued operations accounting under current authoritative guidance based on our significant continuing obligations under the long-term waste supply agreements referred to above and in Note 11.

The following table presents the carrying amounts of our Wheelabrator business as of December 19, 2014 (in millions):


Accounts and other receivables	$	90
Parts and supplies		65
Deferred income taxes		1
Other assets		12

Total current assets		168
Property and equipment		1,155
Goodwill		305
Other intangible assets		3
Other assets		215

Total assets	$	1,846

Accounts payable	$	23
Accrued liabilities		20
Deferred revenues		1
Current portion of long-term debt		1

Total current liabilities		45
Long-term debt, less current portion		14
Deferred income taxes		344
Landfill and environmental remediation liabilities		18
Other liabilities		19

Total liabilities	$	440

Noncontrolling interests	$	31

Other Divestitures

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 and recognized a loss on the sale of $25 million.

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.

The gain or loss on these divestitures is included within “(Income) expense from divestitures, asset impairments (other than goodwill) and unusual items” in the Consolidated Statement of Operations. The remaining proceeds from divestitures in 2014 were comprised substantially of cash.

Prior Year Divestitures

The aggregate sales price for divestitures of operations was $70 million in 2013 and $7 million in 2012 and proceeds from these divestitures were comprised substantially of cash. We recognized net gains on these divestitures of $8 million and less than $1 million in 2013, and 2012, respectively. These divestitures were made as part of our initiative to improve or divest certain non-strategic or underperforming operations. The remaining amounts reported in the Consolidated Statement of Cash Flows generally relate to the sale of fixed assets.