3.ACQUISITIONS

The Company recognizes, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. The Company measures and recognizes goodwill as of the acquisition date as the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of the Company's previously held equity interest in the acquiree (if any), over (b) the fair value of assets acquired and liabilities assumed. If information about facts and circumstances existing as of the acquisition date is incomplete by the end of the reporting period in which a business combination occurs, the Company will report provisional amounts for the items for which the accounting is incomplete. The measurement period ends once the Company receives the information it was seeking; however, this period will not exceed one year from the acquisition date. Any material adjustments recognized during the measurement period will be reflected retrospectively in the consolidated financial statements of the subsequent period. The Company recognizes acquisition-related costs as expense.

R360 Acquisition

On October 25, 2012, the Company completed the acquisition of all of the outstanding equity interests in certain entities that, together with the operating subsidiaries of such entities, hold the business of R360 Environmental Solutions, Inc. (“R360”) for total cash consideration of $1,338,344, net of cash acquired, the assumption of outstanding debt totaling $9,306 and the assumption of contingent consideration totaling $37,293. The acquisition was funded with available cash and with borrowings of $475,000 under the Company’s prior credit agreement and of $800,000 under its prior term loan agreement. The R360 business consists of E&P landfills, E&P liquid waste injection wells, E&P waste treatment and recovery facilities and oil recovery facilities at 24 operating locations across Louisiana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming. The R360 acquisition enabled the Company to significantly expand its scope of E&P waste services and contributed towards the achievement of the Company’s strategy to expand through acquisitions.

The results of operations of the R360 business have been included in the Company’s consolidated financial statements from its acquisition date. Total revenues during the period from October 25, 2012 to December 31, 2012, generated from the R360 operations and included within consolidated revenues were $40,190. Total pre-tax earnings during the period from October 25, 2012 to December 31, 2012, generated from the R360 operations and included within consolidated income before income taxes, were $8,669.

The following table summarizes the consideration transferred to acquire the R360 business and the amounts of identifiable assets acquired and liabilities assumed:


Fair value of consideration transferred:
Cash	$	1,338,344
Debt assumed*		9,306
Contingent consideration		37,293
		1,384,943
Recognized amounts of identifiable assets acquired and liabilities assumed associated with businesses acquired:
Accounts receivable		50,161
Other current assets		19,716
Property and equipment		894,651
Indefinite-lived intangibles		27,096
Customer lists		21,016
Accounts payable		(31,702)
Accrued liabilities		(19,286)
Other long-term liabilities		(8,066)
Deferred income taxes		(14,568)
Total identifiable net assets		939,018
Goodwill	$	445,925

____________________

*Debt assumed was paid at close of acquisition.

Contingent consideration consists of obligations assumed by the Company related to previous acquisitions completed by R360, and consists of the following:


Prairie Disposal contingent consideration	$	24,376
Oilfield Holdings contingent consideration		8,000
Calpet contingent consideration		4,176
Claco Services contingent consideration		741
	$	37,293

The Prairie Disposal contingent consideration represents the fair value of up to $25,000 of contingent consideration payable to the former owners of Prairie Disposal, LLC and Prairie Liquids, LLC (“Prairie”) based on the future achievement of certain milestones over an expected two-year period. The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the two-year period in which the obligation is expected to be settled, and applied a discount rate of 2.0%. During the year ended December 31, 2014, the Company paid $25,000 to the former owners.

The Oilfield Holdings contingent consideration represents the fair value of up to $8,000 payable to the former owners of Oilfield Holdings if R360 completed a qualifying cash event, as defined in the Oilfield Holdings purchase agreement. A qualifying cash event included the sale of R360. Payment of the contingent consideration required the qualifying cash event to generate a return on investment above a certain minimum threshold. The Company’s R360 acquisition generated a return on investment that resulted in the payment of the $8,000 liability to the former owners of Oilfield Holdings in November 2012.

The Calpet contingent consideration represents the fair value of up to $4,221 payable to the former owners of Calpet, LLC based on the future achievement of revenue targets through June 2013. The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the one-year period in which the obligations is expected to be settled, and applied a discount rate of 2.0%. During the year ended December 31, 2013, $2,500 of the contingent consideration was earned and paid to the former owners and $1,250 of the contingent consideration was not earned and credited to expense. During the year ended December 31, 2014, the remaining $471 of contingent consideration was earned and paid to the former owners.

The Claco Services contingent consideration represents the fair value of up to $750 payable to the former owners of Claco Services through December 2013. The Company paid $375 of this assumed liability in both December 2012 and December 2013.

The R360 acquisition resulted in goodwill acquired totaling $445,925, of which $395,339 is expected to be deductible for tax purposes. The goodwill is attributable to growth opportunities, at existing R360 operations as well as additional acquisitions of companies providing non-hazardous oilfield waste treatment and disposal services, and synergies that are expected to arise as a result of the acquisition.

Cash consideration for the R360 acquisition included payment for the estimated net working capital of $18,906, as defined in the acquisition agreement, which was subject to final adjustment subsequent to the close of the acquisition. In March 2013, Waste Connections received $18,000 from the former owners of R360 due to the final adjustment to the net working capital that was estimated at the closing date.

The gross amount of trade receivables due under contracts was $52,777, of which $2,616 was expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the R360 acquisition.

The Company incurred $2,655, of acquisition-related costs for the R360 acquisition. These expenses are included in Selling, general and administrative expenses in the Company’s Consolidated Statements of Net Income.

Other Acquisitions

In March 2014, the Company acquired Screwbean Landfill, LLC (“Screwbean”), which owns land and permits to construct and operate an E&P waste facility, and S.A. Dunn & Company, LLC (“Dunn”), which owns land and permits to construct and operate a construction and demolition landfill, for aggregate total cash consideration of $27,020 and contingent consideration of $2,923. Contingent consideration represents the fair value of up to $3,000 of amounts payable to the former Dunn owners based on the successful modification of site construction permits that would enable increased capacity at the landfill. The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the two-year period in which the obligations are expected to be settled, and applying discount rates ranging from 2.4% to 2.7%.

In September 2014, the Company acquired Rumsey Environmental, LLC (“Rumsey”), which provides solid waste collection services in western Alabama, for aggregate total cash consideration of $16,000 and contingent consideration of $1,891. Contingent consideration represents the fair value of up to $2,000 of amounts payable to the former owners based on the achievement of certain operating targets specified in the asset purchase agreement. The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the two-year period in which the obligation is expected to be settled, and applying a discount rate of 2.8%.

In October 2014, the Company acquired Section 18, LLC (“Section 18”), which provides E&P disposal services in North Dakota, for aggregate total cash consideration of $64,425 and contingent consideration of $37,724. Contingent consideration represents the estimated fair value of up to $43,166 of amounts payable to the former owners based on approval of site construction permits for future facilities in North Dakota, Wyoming and Montana and the achievement of certain operating targets specified in the asset purchase agreement. The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the one to four-year period in which the obligations are expected to be settled, and applying a discount rate of 5.2%.

In addition to the acquisitions of Screwbean, Dunn, Rumsey and Section 18, the Company acquired five individually immaterial non-hazardous solid waste collection, transfer and disposal businesses during the year ended December 31, 2014.

The Company acquired eight individually immaterial non-hazardous solid waste collection businesses during the year ended December 31, 2013.

In July 2012, the Company completed the acquisition of 100% of the interests in the operations of SKB Environmental, Inc. (“SKB”), a provider of solid waste transfer and disposal services in Minnesota, in exchange for total consideration of $86,763. Pursuant to the stock purchase agreement, the Company was required to remit additional consideration to the former shareholders of SKB if the acquired operations exceeded earnings targets specified in the stock purchase agreement over a one-year earn out period ending June 30, 2013. The Company computed the fair value of the contingent consideration at the purchase date to be $20,711, based upon probability assessments of the expected future cash flows over the one-year period in which the obligation was expected to be settled, to which the Company had applied a discount rate of 2.0%. Based upon the actual earnings of SKB over the one-year earn out period, the final additional consideration was $25,768, which the Company paid in July 2013. The difference between the final contingent consideration paid and the fair value of the contingent consideration at the purchase date was charged to expense in the Company’s Consolidated Statements of Net Income.

On March 1, 2012, the Company completed the acquisition of 100% of the interests in the operations of Alaska Pacific Environmental Services Anchorage, LLC and Alaska Green Waste Solutions, LLC (together, “Alaska Waste”). Alaska Waste provides solid waste collection, transfer and composting services in Anchorage, the Mat-Su Valley, Fairbanks, the Kenai Peninsula and Kodiak Island. The Company paid $133,402 for the purchased operations. Pursuant to the asset purchase agreement, the Company is required to remit up to $4,000 of additional consideration to the former owners of Alaska Waste if new business is generated through the privatization of certain markets currently serviced by municipalities. The Company computed the fair value of the contingent consideration at the purchase date to be $602, based upon probability assessments of the expected future cash flows over the two-year period in which the obligation is expected to be settled, to which the Company applied a discount rate of 2.8%. During the year ended December 31, 2014, the contingency period expired and the contingent consideration liability was written off to Impairments and other operating charges in the Consolidated Statements of Net Income.

In addition to the acquisitions of SKB and Alaska Waste, the Company acquired 10 individually immaterial non-hazardous solid waste collection, transfer, disposal and E&P businesses during the year ended December 31, 2012.

The total acquisition-related costs incurred for the acquisitions closed during the years ended December 31, 2014, 2013 and 2012 were $2,147, $1,946 and $2,658. These expenses are included in Selling, general and administrative expenses in the Company’s Consolidated Statements of Net Income.

The results of operations of the acquired businesses have been included in the Company’s consolidated financial statements from their respective acquisition dates. The Company expects these acquired businesses to contribute towards the achievement of the Company’s strategy to expand through acquisitions. Goodwill acquired is attributable to the synergies and ancillary growth opportunities expected to arise after the Company’s acquisition of these businesses.

The following table summarizes the consideration transferred to acquire these businesses and the amounts of identifiable assets acquired, liabilities assumed and noncontrolling interests associated with businesses acquired at the acquisition date for acquisitions consummated in the years ended December 31, 2014, 2013 and 2012:


	2014 Acquisitions		2013 Acquisitions		2012 Acquisitions
Fair value of consideration transferred:
Cash	$	126,181	$	64,156	$	241,525
Debt assumed*		-		-		12,986
Contingent consideration		42,538		40		21,314
		168,719		64,196		275,825
Recognized amounts of identifiable assets acquired and liabilities assumed associated with businesses acquired:
Accounts receivable		3,785		211		10,874
Other current assets		111		317		1,062
Restricted assets		-		-		6,725
Property and equipment		140,412		12,775		127,023
Long-term franchise agreements and contracts		369		1,043		10,307
Indefinite-lived intangibles		-		-		35,344
Customer lists		9,420		13,024		21,837
Permits		-		-		2,295
Other long-term assets		-		-		185
Deferred revenue		(427)		(539)		(5,056)
Accounts payable		-		(735)		(3,393)
Accrued liabilities		(1,749)		(1,034)		(2,139)
Other long-term liabilities		(1,980)		(767)		(3,480)
Total identifiable net assets		149,941		24,295		201,584
Goodwill	$	18,778	$	39,901	$	74,241

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*Debt assumed as part of 2012 acquisitions was paid at close of acquisition.

Goodwill acquired in 2014 totaling $18,778 is expected to be deductible for tax purposes. Goodwill acquired in 2013 totaling $39,731 is expected to be deductible for tax purposes. The 2012 acquisitions of SKB, Alaska Waste and other individually immaterial non-hazardous solid waste collection, transfer, disposal and E&P businesses resulted in goodwill acquired in 2012 totaling $74,241, which is expected to be deductible for tax purposes.

The fair value of acquired working capital related to three individually immaterial acquisitions completed during the year ended December 31, 2014, is provisional pending receipt of information to support the fair value of the assets acquired and liabilities assumed. Any adjustments recorded relating to finalizing the working capital for these three acquisitions are not expected to be material to the Company’s financial position.

The gross amount of trade receivables due under contracts acquired during the year ended December 31, 2014, was $3,981, of which $196 was expected to be uncollectible. The gross amount of trade receivables due under contracts acquired during the year ended December 31, 2013, was $414, of which $203 was expected to be uncollectible. The gross amount of trade receivables due under contracts acquired with the acquisitions of SKB, Alaska Waste and other individually immaterial non-hazardous solid waste collection, transfer, disposal and E&P businesses during the year ended December 31, 2012, was $10,984, of which $110 was expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisition of these businesses.

The Company paid $4,099 of contingent consideration during the year ended December 31, 2012, related to the achievement of earnings targets for certain acquisitions closed in 2011 and 2010.

Pro Forma Results of Operations

The following pro forma results of operations assume that the Company’s significant acquisitions occurring in 2012, consisting of the acquisitions of R360, Alaska Waste and SKB, were acquired as of January 1, 2012 (unaudited):


	Year Ended December 31,
	2012
Total revenue	$	1,866,458
Net income		164,176
Basic income per share		1.35
Diluted income per share		1.35

The unaudited pro forma results of operations do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on January 1, 2012, nor are they necessarily indicative of future operating results. The above unaudited pro forma financial information includes adjustments to acquisition expenses incurred by the Company and the acquired businesses, interest expense for additional financing and repayments of debt as part of the acquisitions, depreciation expense on acquired property, plant and equipment, amortization of identifiable intangible assets acquired, accretion of closure and post-closure interest expense on acquired landfills and provision for income taxes.