The following is a reconciliation of the Company’s final capping, closure and post-closure liability balance from December 31, 20162018 to SeptemberJune 30, 2017: 2019:
| Final capping, closure and post-closure liability at December 31, 2016 | | $ | 244,909 | | |
| Adjustments to final capping, closure and post-closure liabilities | | | (27,876 | ) | |
| | | | |
Final capping, closure and post-closure liability at December 31, 2018 | | | $ | 251,782 |
| Liabilities incurred | | | 11,011 | | | | 11,263 |
| Accretion expense associated with landfill obligations | | | 8,757 | | | | 7,063 |
| Closure payments | | | (4,913 | ) | | | (334) |
Assumption of closure liabilities from acquisitions | | | | 8,707 |
| Foreign currency translation adjustment | | | 2,025 | | | | 1,614 |
| Final capping, closure and post-closure liability at September 30, 2017 | | $ | 233,913 | | |
Final capping, closure and post-closure liability at June 30, 2019 | | | $ | 280,095 |
The AdjustmentsLiabilities incurred of $11,263 for the six months ended June 30, 2019, represent non-cash increases to final capping, closure and post-closure liabilities primarily consisted of decreases in estimatedand are recorded on the Condensed Consolidated Balance Sheets along with an offsetting addition to site costs, which is amortized to depletion expense as the remaining landfill airspace is consumed. The final capping, closure and post closure costs at several of our landfills, most notably our landfill at Seneca Meadows, and changespost-closure liability is included in engineering estimates related to a proposed expansion at our Chiquita Canyon landfill as well as timing of closure events and total site capacity.Other long-term liabilities in the Condensed Consolidated Balance Sheets. The Company performs its annual review of its cost and capacity estimates in the first quarter of each year.
At SeptemberJune 30, 20172019 and December 31, 2016, $55,8272018, $6,795 and $55,388$12,325, respectively, of the Company’s restricted assetscash balance and $51,902 and $44,939, respectively, of the Company’s restricted investments balance was for purposes of securing its performance of future final capping, closure and post-closure obligations.
Progressive Waste Acquisition
As described in Note 1, on June 1, 2016, pursuant to the Merger Agreement, Merger Sub merged with and into Old Waste Connections in an all-stock business combination with Old Waste Connections continuing as the surviving corporation and an indirect wholly-owned subsidiary of New Waste Connections. The term “Progressive Waste” is used herein in the context of references to Progressive Waste Solutions Ltd. and its shareholders prior to the completion of the Progressive Waste acquisition on June 1, 2016. The financial statements presented herein are the historical financial statements of Old Waste Connections with the inclusion on June 1, 2016 of the fair value of the identifiable assets and liabilities acquired from Progressive Waste and the inclusion of the results of operations from the acquired Progressive Waste operations commencing on June 1, 2016.
Under the terms of the Merger Agreement, Old Waste Connections’ stockholders received 3.1152645 New Waste Connections shares for each Old Waste Connections share they owned. Immediately following the completion of the Progressive Waste acquisition, New Waste Connections also completed (i) a consolidation whereby every 3.1152645 common shares outstanding were converted into one common share (the “Consolidation”) and (ii) an amalgamation with a wholly-owned subsidiary whereby its legal name was changed from Progressive Waste Solutions Ltd. to Waste Connections, Inc. (the “Amalgamation”). Upon completion of the Progressive Waste acquisition, Old Waste Connections’ former stockholders owned approximately 70% of the Company, and Progressive Waste’s former shareholders owned approximately 30%. All share amounts stated herein reflect shares on a post-Consolidation basis.
Following the completion of the Progressive Waste acquisition, the Consolidation and the Amalgamation, on June 1, 2016, the post-Consolidation common shares of New Waste Connections (the “Common Shares”) commenced trading on the Toronto Stock Exchange (the “TSX”) and on the NYSE under the ticker symbol “WCN.” The common stock of Old Waste Connections, which traded previously under the symbol “WCN,” ceased trading on, and has been delisted from, the NYSE.
The transaction was accounted for as a reverse merger using the acquisition method of accounting. Old Waste Connections has been identified as the acquirer for accounting purposes and the acquisition method of accounting has been applied. Identifying the acquirer requires various considerations including the relative voting rights post-closing, the size of minority voting interests and the composition of the board of directors and senior management. Based on these considerations, Old Waste Connections’ former stockholders hold a majority of the post-closing voting rights of the combined company and both the post-closing composition of the board of directors and senior management are most closely aligned with Old Waste Connections. The Progressive Waste acquisition provided the Company with significant strategic and financial benefits including enhanced size and revenue diversification, increased earnings and cash flows and better access to capital markets.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The results of operations from the acquired Progressive Waste operations have been included in the Company’s Condensed Consolidated Financial Statements from June 1, 2016, the acquisition date. Total revenues during the period from June 1, 2016 to September 30, 2016, generated from the operations acquired in the Progressive Waste acquisition and included within consolidated revenues, were $687,108. Total pre-tax earnings during the period from June 1, 2016 to September 30, 2016, generated from the operations acquired in the Progressive Waste acquisition and included within consolidated income before income taxes, were $68,289. Total revenues during the period from January 1, 2017 to May 31, 2017, generated from the operations acquired in the Progressive Waste acquisition and included within consolidated revenues, were $826,886. Total pre-tax earnings during the period from January 1, 2017 to May 31, 2017, generated from the operations acquired in the Progressive Waste acquisition and included within consolidated income before income taxes, was $79,470, and includes $57,362 of expenses recorded in Impairments and other operating items.
The following table summarizes the consideration transferred to acquire Progressive Waste and the amounts of identifiable assets acquired and liabilities assumed:
| Fair value of consideration transferred: | | | | |
| Shares issued | | $ | 3,503,162 | |
| Debt assumed | | | 1,729,274 | |
| | | | 5,232,436 | |
| Less: cash acquired | | | (65,768 | ) |
| Net fair value of consideration transferred | | | 5,166,668 | |
| | | | | |
| Recognized amounts of identifiable assets acquired and liabilities assumed associated with the business acquired: | | | | |
| Accounts receivable | | | 231,709 | |
| Prepaid expenses and other current assets | | | 28,623 | |
| Restricted assets | | | 16,551 | |
| Property and equipment | | | 2,063,011 | |
| Contracts | | | 223,885 | |
| Customer lists | | | 191,679 | |
| Other intangibles | | | 218,499 | |
| Other assets | | | 4,491 | |
| Accounts payable and accrued liabilities | | | (264,992 | ) |
| Deferred revenue | | | (35,635 | ) |
| Contingent consideration | | | (19,412 | ) |
| Other long-term liabilities | | | (185,774 | ) |
| Deferred income taxes | | | (329,552 | ) |
| Total identifiable net assets | | | 2,143,083 | |
| Goodwill | | $ | 3,023,585 | |
Following the merger of Merger Sub into Old Waste Connections, and the issuance of 3.1152645 New Waste Connections shares for each Old Waste Connections share after giving effect to the Consolidation, the Company issued an additional 78,218,878 common shares at $44.79, the closing price on the NYSE of New Waste Connections common shares on June 1, 2016 as share consideration for the Progressive Waste acquisition. The Company assumed $1,729,274 of debt in the acquisition, consisting of $1,659,465 of amounts outstanding under the Progressive Waste credit facilities that were repaid in full following the close of the acquisition, $64,000 of tax-exempt bonds and $5,809 of other long-term debt.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Contingent consideration acquired consists primarily of two amounts payable to the former owners of an acquisition completed by Progressive Waste in 2015. The first contingent amount payable is based on the acquired operations exceeding earnings targets specified in the purchase agreement over a one-year period ending September 30, 2017. There is no limit to this contingent amount payable under the terms of the purchase agreement, the fair value of which was recorded as $10,452 of additional purchase consideration in 2016, based upon applying a discount rate of 2.0% to the probability assessment of the expected future cash flows over the period in which the obligation is expected to be settled. During the nine months ended September 30, 2017, the Company recorded $9,631 to Impairments and other operating items in the Condensed Consolidated Statements of Net Income to increase the fair value of the amount payable under this liability-classified contingent consideration arrangement. The Company paid this liability in the fourth quarter of 2017. The second contingent amount payable had a maximum possible payment of $5,000, representing a purchase price holdback payable to the former owners subject to the satisfaction of various business performance conditions through December 31, 2016, which was paid during the nine months ended September 30, 2017.
The goodwill acquired is primarily attributable to growth opportunities at operations acquired in the Progressive Waste acquisition and synergies that are expected to arise as a result of the acquisition. The expected tax deductible amount of the goodwill acquired is $303,594.
The gross amount of trade receivables due under contracts was $239,212, of which $7,503 was expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the Progressive Waste acquisition.
The Company incurred $758 and $31,588 of acquisition-related costs for the Progressive Waste acquisition during the nine months ended September 30, 2017 and 2016, respectively. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.
Other Acquisitions
In January 2017, the Company acquired Groot Industries, Inc. (“Groot”). At the time of the acquisition, Groot was the largest privately-owned solid waste services company in Illinois with total annual revenue of approximately $200,000. Groot serves approximately 300,000 customers primarily in northern Illinois from a network of seven collection operations, six transfer stations and one recycling facility.
In addition to the acquisition of Groot, the Company acquired 11ten individually immaterial non-hazardous solid waste collection, transfer and disposal businesses during the ninesix months ended SeptemberJune 30, 2017.2019. The total acquisition-related costs incurred during the ninesix months ended SeptemberJune 30, 20172019 for these acquisitions was $3,660.$7,021. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.
The Company acquired 1012 individually immaterial non-hazardous solid waste collection, recycling, transfer and disposal businesses during the ninesix months ended SeptemberJune 30, 2016.2018. The purchase price for one of these acquisitions included contingent consideration of $11,593, representing the fair value of up to $12,582 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 three-year period in which the obligation is expected to be settled, and applying a discount rate of 2.7%. As of June 30, 2019, the obligation recognized at the purchase date has not materially changed. Any changes in the fair value of the contingent consideration subsequent to the acquisition date will be charged or credited to expense until the contingency is settled. The total acquisition-related costs incurred during the ninesix months ended SeptemberJune 30, 20162018 for these acquisitions was $773.$4,584. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.
The results of operations of thesethe acquired businesses have been included in the Company’s Condensed 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.
