UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM 10-K




(Mark One)


þ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the
fiscal year ended December 31, 2008




OR




 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the
transition period from ___________ to ___________




Commission
File No. 1-31507









WASTE
CONNECTIONS, INC.




(Exact
name of registrant as specified in its charter)


Delaware
            94-3283464(State
      or other jurisdiction
            (I.R.S.
      Employer Identification No.)of
      incorporation or organization)35
      Iron Point CircleSuite
      200Folsom,
      California
            95630(Address
      of principal executive offices)
            (Zip
      Code)




(916)
608-8200


(Registrant’s
telephone number, including area code)


Securities
      registered pursuant to Section 12(b) of the Act:Common
      Stock, par value $.01 per share
            New
      York Stock Exchange(Title
      of each class)
            (Name
      of each exchange on which
registered)




Securities
registered pursuant to Section 12(g) of the Act: None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.




Yes þNo
 ̈




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.




Yes  ̈No
þ




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.




Yes þNo  ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. þ




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):




þ
      Large accelerated filer
             ̈ Accelerated
      filer
             ̈ Non-accelerated
      filer
             ̈ Smaller reporting
      company




Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).




Yes  ̈No
þ




As of
June 30, 2008, the aggregate market value of voting and non-voting common
stock held by non-affiliates of the registrant, based on the closing sales price
for the registrant’s common stock, as reported on the New York Stock Exchange,
was $2,102,628,497.




Number of
shares of common stock outstanding as of January 23, 2009:
79,856,318


DOCUMENTS
INCORPORATED BY REFERENCE




Portions
of the registrant’s definitive Proxy Statement for the 2009 Annual Meeting of
Stockholders are incorporated by reference into Part III
hereof.









WASTE
CONNECTIONS, INC.


ANNUAL
REPORT ON FORM 10-K




TABLE OF
CONTENTS


Item No.
                    
                    
                    PagePART I1.
                    BUSINESS
                    11A.
                    RISK
      FACTORS
                    141B.
                    UNRESOLVED
      STAFF COMMENTS
                    202.
                    PROPERTIES
                    203.
                    LEGAL
      PROCEEDINGS
                    214.
                    SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                    22PART II5.
                    MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
      MATTERSAND
      ISSUER PURCHASES OF EQUITY SECURITIES
                    236.
                    SELECTED
      FINANCIAL DATA
                    257.
                    MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF
      OPERATIONS
                    277A.
                    QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                    428.
                    FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                    459.
                    CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL
      DISCLOSURE
                    869A.
                    CONTROLS
      AND PROCEDURES
                    869B.
                    OTHER
      INFORMATION
                    86PART III10.
                    DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                    8711.
                    EXECUTIVE
      COMPENSATION
                    8712.
                    SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED
      STOCKHOLDER MATTERS
                    8713.
                    CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE
                    8714.
                    PRINCIPAL
      ACCOUNTING FEES AND SERVICES
                    87PART IV15.
                    EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                    88SIGNATURES
                    
                    89SCHEDULE II
      – VALUATION AND QUALIFYING ACCOUNTS
                    90EXHIBIT INDEX
                    91


i




PART I


ITEM 1.
              BUSINESS




Our
Company




Waste
Connections, Inc. is an integrated solid waste services company that provides
solid waste collection, transfer, disposal and recycling services in mostly
secondary markets in the Western and Southern U.S. We serve approximately
1.8 million residential, commercial and industrial customers from
operations in 23 states: Alabama, Arizona, California, Colorado, Idaho,
Illinois, Iowa, Kansas, Kentucky, Minnesota, Mississippi, Montana, Nebraska,
Nevada, New Mexico, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah,
Washington and Wyoming. As of December 31, 2008, we owned or operated a
network of 135solid waste collection
operations, 52transfer stations,
34recycling
operations and 37active landfills. In
addition, we provided intermodal services for the rail haul movement of solid
waste and cargo containers in the Pacific Northwest through a network of
six intermodal facilities.




We are a
leading provider of solid waste services in most of our markets. We have focused
on secondary markets mostly in the Western and Southern U.S. because we believe
that those areas offer:


●
                                                      opportunities
      to enter into exclusive arrangements;●
                                                      more
      competitive barriers to entry;●
                                                      less
      competition from larger solid waste services companies;●
                                                      projected
      economic and population growth rates that will contribute to the growth of
      our business; and●
                                                      a
      number of independent solid waste services companies suitable for
      acquisition.




Our
senior management team has extensive experience in operating, acquiring and
integrating solid waste services businesses, and we intend to continue to focus
our efforts on balancing internal and acquisition-based growth. We anticipate
that a part of our future growth will come from acquiring additional solid waste
collection, transfer and disposal businesses and, therefore, we expect that
additional acquisitions could continue to affect period-to-period comparisons of
our operating results.




Waste
Connections, Inc. is a Delaware corporation organized in 1997.




Our
Operating Strategy




Our
operating strategy seeks to improve financial returns and deliver superior
stockholder value creation within the solid waste industry. We seek to avoid
highly competitive, large urban markets and instead target markets where we can
provide non-integrated or integrated solid waste services under exclusive
arrangements or where we can operate on an integrated basis while attaining high
market share. The key components of our operating strategy, which are tailored
to the competitive and regulatory factors that affect our markets, are as
follows:




Control the Waste
Stream. In markets where waste collection services are provided under
exclusive arrangements, or where waste disposal is municipally funded or
available at multiple municipal sources, we believe that controlling the waste
stream by providing collection services is often more important to our
profitability and growth than owning or operating landfills. In addition,
contracts in some Western U.S. markets dictate the disposal facility to be used.
The large size of many western states increases the cost of interstate and long
haul disposal, heightening the effects of regulations that direct waste
disposal, which may make it more difficult for a landfill to obtain the disposal
volume necessary to operate profitably. In markets with these characteristics,
we believe that landfill ownership or vertical integration is not as critical to
our success.




Provide Vertically
Integrated Services. In markets where we believe that owning landfills is
a strategic element to a collection operation because of competitive and
regulatory factors, we generally focus on providing integrated services, from
collection through disposal of solid waste in landfills that we own or
operate.




Manage on a Decentralized
Basis. We manage our operations on a decentralized basis. This places
decision-making authority close to the customer, enabling us to identify and
address customers’ needs quickly in a cost-effective manner. We believe that
decentralization provides a low-overhead, highly efficient operational structure
that allows us to expand into geographically contiguous markets and operate in
relatively small communities that larger competitors may not find attractive. We
believe that this structure gives us a strategic competitive advantage, given
the relatively rural nature of much of the Western and Southern U.S., and makes
us an attractive buyer to many potential acquisition
candidates.


1




We
currently deliver our services from approximately 147operating locations
grouped into three regions. We manage and evaluate our business on the basis of
the regions’ geographic characteristics, interstate waste flow, revenue base,
employee base, regulatory structure and acquisition opportunities. Each region
has a regional vice president and a regional controller, reporting directly to
our corporate management. These regional officers are responsible for operations
and accounting in their regions and supervise their regional staff.




Each
operating location has a district or site manager who has autonomous service and
decision-making authority for his or her operations and is responsible for
maintaining service quality, promoting safety, implementing marketing programs
and overseeing day-to-day operations, including contract administration. Local
managers also help identify acquisition candidates and are responsible for
integrating acquired businesses into our operations and obtaining the permits
and other governmental approvals required for us to operate.




Implement Operating
Standards. We develop company-wide operating standards, which are
tailored for each of our markets based on industry norms and local conditions.
We implement cost controls and employee training and safety procedures and
establish a sales and marketing plan for each market. By internalizing the waste
stream of acquired operations, we can further increase operating efficiencies
and improve capital utilization. We use a wide-area information system network,
implement financial controls and consolidate certain accounting, personnel and
customer service functions. While regional and district management operate with
a high degree of autonomy, our senior officers monitor regional and district
operations and require adherence to our accounting, purchasing, marketing and
internal control policies, particularly with respect to financial matters. Our
executive officers regularly review the performance of regional officers,
district managers and operations. We believe we can improve the profitability of
existing and newly acquired operations by establishing operating standards,
closely monitoring performance and streamlining certain administrative
functions.




Our
Growth Strategy




We tailor
the components of our growth strategy to the markets in which we operate and
into which we hope to expand.




Obtain Additional Exclusive
Arrangements. Our operations include market areas where we have exclusive
arrangements, including franchise agreements, municipal contracts and
governmental certificates, under which we are the exclusive service provider for
a specified market. These exclusive rights and contractual arrangements create a
barrier to entry that is usually obtained through the acquisition of a company
with such exclusive rights or contractual arrangements or by a competitive
bid.




We devote
significant resources to securing additional franchise agreements and municipal
contracts through competitive bidding and by acquiring other companies. In
bidding for franchises and municipal contracts and evaluating acquisition
candidates holding governmental certificates, our management team draws on its
experience in the waste industry and knowledge of local service areas in
existing and target markets. Our district management and sales and marketing
personnel maintain relationships with local governmental officials within their
service areas, maintain, renew and renegotiate existing franchise agreements and
municipal contracts, and secure additional agreements and contracts while
targeting acceptable financial returns. Our sales and marketing personnel also
expand our presence into areas adjacent to or contiguous with our existing
markets, and market additional services to existing customers. We believe our
ability to offer comprehensive rail haul disposal services in the Pacific
Northwest improves our competitive position in bidding for such contracts in
that region.




Generate Internal
Growth. To generate continued internal revenue growth, our district
management and sales and marketing personnel focus on increasing market
penetration in our current and adjacent markets, soliciting new residential,
commercial and industrial customers in markets where such customers have the
option to choose a particular waste collection service and marketing upgraded or
additional services (such as compaction or automated collection) to existing
customers. We also focus on raising prices and instituting surcharges, when
appropriate, to offset cost increases. Where possible, we intend to leverage our
franchise-based platforms to expand our customer base beyond our exclusive
market territories. As customers are added in existing markets, our revenue per
routed truck increases, which generally increases our collection efficiencies
and profitability. In markets in which we have exclusive contracts, franchises
and certificates, we expect internal volume growth generally to track population
and business growth.




Expand Through
Acquisitions. We intend to expand the scope of our operations by
continuing to acquire solid waste companies in new markets and in existing or
adjacent markets that are combined with or “tucked in” to our existing
operations. We focus our acquisition efforts on markets that we believe provide
significant growth opportunities for a well-capitalized market entrant and where
we can create economic and operational barriers to entry by new competitors.
This focus typically highlights markets in which we can either: (1) provide
waste collection services under franchises, exclusive contracts or other
arrangements; or (2) gain a leading market position and provide vertically
integrated collection and disposal services. We believe that our experienced
management, decentralized operating strategy, financial strength, size and
public company status make us an attractive buyer to certain solid waste
collection and disposal acquisition candidates. We have developed an acquisition
discipline based on a set of financial, market and management criteria to
evaluate opportunities. Once an acquisition is closed, we seek to integrate it
while minimizing disruption to the ongoing operations of both Waste Connections
and the acquired business.


2




In new
markets, we often use an initial acquisition as an operating base and seek to
strengthen the acquired operation’s presence in that market by providing
additional services, adding new customers and making “tuck-in” acquisitions of
other solid waste companies in that market or adjacent markets. We believe that
many suitable “tuck-in” acquisition opportunities exist within our current and
targeted market areas that may provide us with opportunities to increase our
market share and route density.




The U.S.
solid waste services industry experienced significant consolidation during the
1990s. The consolidation trend has continued, most notably with the recent
merger between Republic Services, Inc. and Allied Waste Industries, Inc. The
solid waste services industry remains regional in nature with acquisition
opportunities available in selected markets. Some of the remaining independent
landfill and collection operators lack the capital resources, management skills
and/or technical expertise necessary to comply with stringent environmental and
other governmental regulations and compete with larger, more efficient,
integrated operators. In addition, many of the remaining independent operators
may wish to sell their businesses to achieve liquidity in their personal
finances or as part of their estate planning. Due to the prevalence of exclusive
arrangements, we believe the Western markets contain the largest and most
attractive number of acquisition opportunities. In addition, the recent merger
between Republic Services, Inc. and Allied Waste Industries, Inc. will result in
additional acquisition opportunities through governmentally-mandated
divestitures.  For example, on February 6, 2009, we entered into
an Asset Purchase Agreement with Republic Services in connection with the sale
of certain assets Republic Services was required to divest pursuant to a court
order issued in connection with the merger between Republic Services and
Allied.  For additional information, see Part II, Item 9B of this
Annual Report on Form 10-K.


During
the year ended December 31, 2007, we completed 15 acquisitions, none
of which individually or in the aggregate accounted for greater than 10% of our
total assets. On November 3, 2008, we completed the acquisition of all of
the outstanding capital stock of Harold LeMay Enterprises, Incorporated for an
aggregate purchase price of $210.9 million, which amount includes the
assumption of $18.3 million of indebtedness. During the year ended
December 31, 2008, we completed 14 other acquisitions and acquired the
remaining 49% interest in Pierce County Recycling, Composting and Disposal, LLC
and Pierce County Landfill Management, Inc. (“PCRCD”), none of which
individually or in the aggregate accounted for greater than 10% of our total
assets.




SOLID
WASTE SERVICES




Residential,
Commercial and Industrial Collection Services




We serve
approximately 1.8 million residential, commercial and industrial customers
from operations in 23 states. Our services are generally provided under one
of the following arrangements: (1) governmental certificates;
(2) exclusive franchise agreements; (3) exclusive municipal contracts;
(4) residential subscriptions; (5) residential contracts; or
(6) commercial and industrial service agreements.




Governmental
certificates, exclusive franchise agreements and exclusive municipal contracts
grant us rights to provide services within specified areas at established rates.
Governmental certificates, or G Certificates, are unique to the State of
Washington. The Washington Utilities and Transportation Commission, or the WUTC,
awards G Certificates to solid waste collection service providers in
unincorporated areas and electing municipalities. These certificates typically
grant the holder the exclusive and perpetual right to provide specific
residential, commercial and/or industrial waste services in a defined territory
at specified rates subject to divestiture and/or cancellation by the WUTC on
specified limited grounds. Franchise agreements typically provide an exclusive
period of seven years or longer for a specified territory. These arrangements
specify a broad range of services to be provided, establish rates for the
services and often give the service provider a right of first refusal to extend
the term of the agreement. Municipal contracts typically provide a shorter
service period and a more limited scope of services than franchise agreements
and generally require competitive bidding at the end of the contract term. We do
not expect that the loss of any current contracts in negotiation for renewal or
contracts likely to terminate in 2009 will have a material adverse effect on our
revenues or cash flows. No single contract or customer accounted for more than
5% of our total revenues for the years ended December 31, 2007 and
2008.




We
provide residential solid waste services, other than those we perform under
exclusive arrangements, under contracts with homeowners’ associations, apartment
owners, mobile home park operators or on a subscription basis with individual
households. We set base residential fees on a contract basis primarily based on
route density, the frequency and level of service, the distance to the disposal
or processing facility, weight and type of waste collected, type of equipment
and containers furnished, the cost of disposal or processing and prices charged
by competitors in that market for similar services. Collection fees are paid
either by the municipalities from tax revenues or directly by the residents
receiving the services. We provide 20- to 96-gallon carts to residential
customers.


3




We
provide commercial and industrial services, other than those we perform under
exclusive arrangements, under customer service agreements generally ranging from
one to five years in duration. We determine fees under these agreements by such
factors as collection frequency, level of service, route density, the type,
volume and weight of the waste collected, type of equipment and containers
furnished, the distance to the disposal or processing facility, the cost of
disposal or processing and prices charged by competitors in our collection
markets for similar services. Collection of larger volumes of commercial and
industrial waste streams generally helps improve our operating efficiencies, and
consolidation of these volumes allows us to negotiate more favorable disposal
prices. We provide one- to ten-cubic yard containers to commercial customers and
ten- to 50-cubic yard containers to industrial customers. For an additional fee,
we install on the premises of large volume customers stationary compactors that
compact waste prior to collection.




Landfill
Disposal Services




We own
solid waste landfills to achieve vertical integration in markets where the
economic and regulatory environments make landfill ownership attractive. Where
our operations are vertically integrated, we eliminate third-party disposal
costs and generally realize higher margins and stronger operating cash flows.
The fees charged at disposal facilities, which are known as tipping fees, are
based on market factors and take into account the type and weight or volume of
solid waste deposited and the type and size of the vehicles used to transport
waste.




Our
landfill facilities consisted of the following at December 31,
2008:


Owned
      and operated landfills
                    
                    27Operated
      landfills under limited-term operating agreements
                    
                    7Operated
      landfills under life-of-site agreements
                    
                    337




We own
landfills in California, Colorado, Illinois, Kansas, Kentucky, Minnesota,
Mississippi, Nebraska, New Mexico, Oklahoma, Oregon, Tennessee and Washington.
In addition, we operate, but do not own, landfills in California, Mississippi,
Nebraska and New Mexico. With the exception of two landfills located in
Mississippi and Colorado, which only accept construction and demolition waste,
all landfills that we own or operate are municipal solid waste
landfills.




Under
landfill operating agreements, the owner of the property, generally a
municipality, usually owns the permit and we operate the landfill for a
contracted term, which may be the life of the landfill. Where the contracted
term is not the life of the landfill, the property owner is generally
responsible for final capping, closure and post-closure obligations. We are
responsible for all final capping, closure and post-closure obligations at the
three operated landfills for which we have life-of-site agreements. Our
operating contracts for which the contracted term is less than the life of the
landfill have expiration dates from 2009 to 2018. One contract expiring in 2009
represents estimated annual revenues of $2.4 million and is not expected to be
renewed. For all other operated landfills under limited-term operating
agreements, we intend to seek renewal of these contracts prior to, or upon,
their expiration.




Based on
remaining permitted capacity as of December 31, 2008, and projected annual
disposal volumes, the average remaining landfill life for our owned and operated
landfills and landfills operated, but not owned, under life-of-site agreements,
is estimated to be approximately 48 years. Many of our existing landfills have
the potential for expanded disposal capacity beyond the amount currently
permitted. We monitor the available permitted in-place disposal capacity of our
landfills on an ongoing basis and evaluate whether to seek capacity expansion.
In making this evaluation, we consider various factors, including the
following:


●
                  whether
      the land where the expansion is being sought is contiguous to the current
      disposal site, and whether we either own it or the property is under an
      option, purchase, operating or other similar agreement;●
                  whether
      total development costs, final capping costs, and closure/post-closure
      costs have been determined;●
                  whether
      internal personnel have performed a financial analysis of the proposed
      expansion site and have determined that it has a positive financial and
      operational impact;●
                  whether
      internal personnel or external consultants are actively working to obtain
      the necessary approvals to obtain the landfill expansion permit;
      and●
                  whether
      we consider it probable that we will achieve the expansion (for a pursued
      expansion to be considered probable, there must be no significant known
      technical, legal, community, business or political restrictions or similar
      issues existing that could impair the success of the
      expansion).




We also
regularly consider whether it is advisable, in light of changing market
conditions and/or regulatory requirements, to seek to expand or change the
permitted waste streams or to seek other permit modifications. We are currently
seeking to expand permitted capacity at five of our landfills for which we
consider expansions to be probable. Although we cannot be certain that all
future expansions will be permitted as designed, the average remaining landfill
life for our owned and operated landfills and landfills operated, but not owned,
under life-of-site agreements is estimated to be approximately 53 years when
considering remaining permitted capacity, probable expansion capacity and
projected annual disposal volume.


4




The
following table reflects estimated landfill capacity and airspace changes, as
measured in tons, for owned and operated landfills and landfills operated, but
not owned, under life-of-site agreements (in thousands):


2007
                                                        
                                                        
                                                        2008Permitted
                                                        
                                                        
                                                        ProbableExpansion
                                                        
                                                        
                                                        Total
                                                        
                                                        
                                                        Permitted
                                                        
                                                        
                                                        ProbableExpansion
                                                        
                                                        
                                                        TotalBalance,
      beginning of year
                                                        
                                                        
                                                        384,454
                                                        
                                                        
                                                        
                                                        30,340
                                                        
                                                        
                                                        
                                                        414,794
                                                        
                                                        
                                                        
                                                        401,095
                                                        
                                                        
                                                        
                                                        28,430
                                                        
                                                        
                                                        
                                                        429,525Acquired
      landfills
                                                        
                                                        
                                                        16,088
                                                        
                                                        
                                                        
                                                        7,028
                                                        
                                                        
                                                        
                                                        23,116
                                                        
                                                        
                                                        
                                                        5,100
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        5,100Permits
      granted
                                                        
                                                        
                                                        6,826
                                                        
                                                        
                                                        
                                                        (6,826
                                                        )
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        7,028
                                                        
                                                        
                                                        
                                                        (7,028
                                                        )
                                                        
                                                        
                                                        —Airspace
      consumed
                                                        
                                                        
                                                        (8,238
                                                        )
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        (8,238
                                                        )
                                                        
                                                        
                                                        (8,320
                                                        )
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        (8,320
                                                        )Pursued
      expansions
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        15,456
                                                        
                                                        
                                                        
                                                        15,456Changes
      in engineering estimates
                                                        
                                                        
                                                        1,965
                                                        
                                                        
                                                        
                                                        (2,112
                                                        )
                                                        
                                                        
                                                        (147
                                                        )
                                                        
                                                        
                                                        (4,523
                                                        )
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        (4,523
                                                        )Balance,
      end of year
                                                        
                                                        
                                                        401,095
                                                        
                                                        
                                                        
                                                        28,430
                                                        
                                                        
                                                        
                                                        429,525
                                                        
                                                        
                                                        
                                                        400,380
                                                        
                                                        
                                                        
                                                        36,858
                                                        
                                                        
                                                        
                                                        437,238




The
estimated remaining operating lives for the landfills we own and landfills we
operate under life-of-site agreements, based on remaining permitted and probable
expansion capacity and projected annual disposal volume, in years, as of
December 31, 2007, and December 31, 2008, are shown in the tables below. The
estimated remaining operating lives include assumptions that the operating
permits are renewed.


20070
      to 5
                                              
                                              
                                              6
      to 10
                                              
                                              
                                              11
      to 20
                                              
                                              
                                              21
      to 40
                                              
                                              
                                              41
      to 50
                                              
                                              
                                              
                                              51+
                                              
                                              
                                              TotalOwned
      and operated landfills
                                              
                                              
                                              1
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              5
                                              
                                              
                                              
                                              6
                                              
                                              
                                              
                                              2
                                              
                                              
                                              
                                              11
                                              
                                              
                                              
                                              25Operated
      landfills under life-of-site agreements
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1
                                              
                                              
                                              
                                              31
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              5
                                              
                                              
                                              
                                              8
                                              
                                              
                                              
                                              2
                                              
                                              
                                              
                                              12
                                              
                                              
                                              
                                              2820080
      to 5
                                              
                                              
                                              6
      to 10
                                              
                                              
                                              11
      to 20
                                              
                                              
                                              21
      to 40
                                              
                                              
                                              41
      to 50
                                              
                                              
                                              
                                              51+
                                              
                                              
                                              TotalOwned
      and operated landfills
                                              
                                              
                                              1
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              5
                                              
                                              
                                              
                                              7
                                              
                                              
                                              
                                              2
                                              
                                              
                                              
                                              12
                                              
                                              
                                              
                                              27Operated
      landfills under life-of-site agreements
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2
                                              
                                              
                                              
                                              1
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              31
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              5
                                              
                                              
                                              
                                              9
                                              
                                              
                                              
                                              3
                                              
                                              
                                              
                                              12
                                              
                                              
                                              
                                              30


5




The
disposal tonnage that we received in 2007 and 2008 at all of our landfills is
shown in the tables below (tons in thousands):


Three
      months ended
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Twelve
      months

                                                                                                                                            ended

                                                                                                                                              December
      31,

                                                                                                                                                2007March
      31,

                                                                                                                                            2007
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        June
      30,2007
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        September
      30,

                                                                                                                                            2007
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        December
      31,

                                                                                                                                            2007Number

                                                                                                                                            of
      Sites
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Total

                                                                                                                                            Tons
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Number

                                                                                                                                            of
      Sites
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Total

                                                                                                                                            Tons
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Number

                                                                                                                                            of
      Sites
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Total

                                                                                                                                            Tons
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Number

                                                                                                                                            of
      Sites
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Total

                                                                                                                                            TonsOwned
      landfills or landfills operated under life-of-site
    agreements
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        28
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,769
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        28
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,122
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        30
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,211
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        28
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,136
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        8,238Operated
      landfills
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        8
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        245
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        8
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        261
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        7
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        244
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        7
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        234
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        98436
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,014
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        36
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,383
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        37
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,455
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        35
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,370
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        9,222


Twelve monthsendedDecember
      31,2008Three
      months endedMarch 31,2008
                                                                                                              
                                                                                                              
                                                                                                              June 30,2008
                                                                                                              
                                                                                                              
                                                                                                              September 30,2008
                                                                                                              
                                                                                                              
                                                                                                              December 31,2008Numberof
      Sites
                                                                                                              
                                                                                                              
                                                                                                              TotalTons
                                                                                                              
                                                                                                              
                                                                                                              Numberof
      Sites
                                                                                                              
                                                                                                              
                                                                                                              TotalTons
                                                                                                              
                                                                                                              
                                                                                                              Numberof
      Sites
                                                                                                              
                                                                                                              
                                                                                                              TotalTons
                                                                                                              
                                                                                                              
                                                                                                              Numberof
      Sites
                                                                                                              
                                                                                                              
                                                                                                              TotalTonsOwned
      landfills or landfills operated under life-of-site
    agreements
                                                                                                              
                                                                                                              
                                                                                                              29
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,972
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              29
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,204
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              29
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,235
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              30
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,909
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              8,320Operated
      landfills
                                                                                                              
                                                                                                              
                                                                                                              7
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              222
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              7
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              236
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              7
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              236
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              7
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              211
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              90536
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,194
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              36
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,440
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              36
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,471
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              37
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,120
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              9,225




Transfer
Station Services




We have
an active program to acquire, develop, own and operate transfer stations in
markets proximate to our collection operations. Transfer stations receive,
compact and load solid waste to be transported to landfills via truck, rail or
barge. Transfer stations extend our direct-haul reach and link collection
operations with distant disposal facilities. We owned or operated 52 transfer
stations at December 31, 2008. Currently, we own transfer stations in
California, Colorado, Kansas, Kentucky, Montana, Nebraska, Oklahoma, Oregon,
Tennessee and Washington. In addition, we operate, but do not own, transfer
stations in Idaho, Kentucky, Nebraska, Tennessee, Washington and Wyoming. We
believe that transfer stations benefit us by:


●
            concentrating
      the waste stream from a wider area, which increases the volume of disposal
      at our landfill facilities and gives us greater leverage in negotiating
      more favorable disposal rates at other landfills;●
            improving
      utilization of collection personnel and equipment; and●
            building
      relationships with municipalities and private operators that deliver
      waste, which can lead to additional growth
  opportunities.




Recycling
Services




We offer
residential, commercial, industrial and municipal customers recycling services
for a variety of recyclable materials, including cardboard, office paper,
plastic containers, glass bottles and ferrous and aluminum metals. We own or
operate 34 recycling processing operations and sell other collected recyclable
materials to third parties for processing before resale. The majority of the
recyclables we process for sale are paper products and are shipped to customers
in Asia. Changes in end market demand can cause fluctuations in the prices for
such commodities, which can affect revenue, operating income and cash flows.
Sales prices of and demand for paper products declined beginning in the fourth
quarter of 2008. Certain of our municipal recycling contracts in Washington
specify certain benchmark resale prices for recycled commodities. To the extent
the prices we actually receive for the processed recycled commodities collected
under those contracts exceed the prices specified in the contracts, we share the
excess with the municipality, after recovering any previous shortfalls resulting
from actual market prices falling below the prices specified in the contracts.
To reduce our exposure to commodity price volatility and risk with respect to
recycled materials, we have adopted a pricing strategy of charging collection
and processing fees for recycling volume collected from third parties. We
believe that recycling will continue to be an important component of local and
state solid waste management plans due to the public’s increasing environmental
awareness and expanding regulations that mandate or encourage
recycling.


6




INTERMODAL
SERVICES




Intermodal
logistics is the movement of containers using two or more modes of
transportation, usually including a rail or truck segment. In November 2004, we
entered the intermodal services business in the Pacific Northwest through the
acquisition of Northwest Container Services, Inc., which provides repositioning,
storage, maintenance and repair of cargo containers for international shipping
companies. We provide these services for containerized cargo primarily to
international shipping companies importing and exporting goods through the
Pacific Northwest. We also operate two intermodal facilities primarily for the
shipment of waste by rail to distant disposal facilities that are not owned or
operated by Waste Connections. As of December 31, 2008, we owned or operated six
intermodal operations in Washington and Oregon. Our fleet of double-stack
railcars provides dedicated direct-line haul services among terminals in
Portland, Tacoma and Seattle. We have contracts with the Burlington Northern
Santa Fe and Union Pacific railroads for the movement of containers among our
six intermodal operations. We also provide our customers container and chassis
sales and leasing services.




We intend
to further expand our intermodal business through cross-selling efforts with our
solid waste services operations. We believe that a significant amount of solid
waste is transported currently by truck, rail and barge from primarily the
Seattle-Tacoma and Metro Portland areas to remote landfills in Eastern
Washington and Eastern Oregon. We believe our ability to market both intermodal
and disposal services will enable us to more effectively compete for these
volumes.




COMPETITION




The solid
waste services industry is highly competitive and requires substantial labor and
capital resources. In addition to us, the industry includes: two national,
publicly-held solid waste companies – Republic Services, Inc. and Waste
Management, Inc.;several regional,
publicly-held and privately-owned companies; and several thousand small, local,
privately-owned companies. Certain of the markets in which we compete or will
likely compete are served by one or more large, national solid waste companies,
as well as by numerous regional and local solid waste companies of varying sizes
and resources, some of which we believe have accumulated substantial goodwill in
their markets. We also compete with operators of alternative disposal
facilities, including incinerators, and with counties, municipalities and solid
waste districts that maintain their own waste collection and disposal
operations. Public sector operators may have financial advantages over us
because of their access to user fees and similar charges, tax revenues and
tax-exempt financing.




We
compete for collection, transfer and disposal volume based primarily on the
price and, to a lesser extent, quality of our services. From time to time,
competitors may reduce the price of their services in an effort to expand their
market shares or service areas or to win competitively bid municipal contracts.
These practices may cause us to reduce the price of our services or, if we elect
not to do so, to lose business. We provide a significant amount of our
residential, commercial and industrial collection services under exclusive
franchise and municipal contracts and G Certificates. Exclusive franchises and
municipal contracts may be subject to periodic competitive bidding.




The U.S.
solid waste services industry has undergone significant consolidation, and we
encounter competition in our efforts to acquire collection operations, transfer
stations and landfills. We generally compete for acquisition candidates with
publicly-owned regional and national waste management companies. Accordingly, it
may become uneconomical for us to make further acquisitions or we may be unable
to locate or acquire suitable acquisition candidates at price levels and on
terms and conditions that we consider appropriate, particularly in markets we do
not already serve. Competition in the disposal industry is also affected by the
increasing national emphasis on recycling and other waste reduction programs,
which may reduce the volume of waste deposited in landfills.




The
intermodal services industry is also highly competitive. We compete against
other intermodal rail services companies, trucking companies and railroads, many
of which have greater financial and other resources than we do. Competition is
based primarily on price, reliability and quality of service.




REGULATION




Introduction




Our
operations, including landfills, solid waste transportation, transfer stations,
vehicle maintenance shops and fueling facilities, are all subject to extensive
and evolving federal, state and local environmental laws and regulations, the
enforcement of which has become increasingly stringent. The environmental
regulations that affect us are administered by the Environmental Protection
Agency, or the EPA, and other federal, state and local environmental, zoning,
health and safety agencies. The WUTC regulates the portion of our collection
business in Washington performed under G Certificates. We currently comply in
all material respects with applicable federal, state and local environmental
laws, permits, orders and regulations. In addition, we attempt to anticipate
future regulatory requirements and plan in advance as necessary to comply with
them. We do not presently anticipate incurring any material costs to bring our
operations into environmental compliance with existing or expected future
regulatory requirements, although we can give no assurance that this will not
change in the future.


7




The
principal federal, state and local statutes and regulations that apply to our
operations are described below. Certain of the statutes described below contain
provisions that authorize, under certain circumstances, lawsuits by private
citizens to enforce the provisions of the statutes. In addition to penalties,
some of those statutes authorize an award of attorneys’ fees to parties that
successfully bring such an action. Enforcement actions under these statutes may
include both civil and criminal penalties, as well as injunctive relief in some
instances.




The
Resource Conservation and Recovery Act of 1976, or RCRA




RCRA
regulates the generation, treatment, storage, handling, transportation and
disposal of solid waste and requires states to develop programs to ensure the
safe disposal of solid waste. RCRA divides solid waste into two groups,
hazardous and nonhazardous. Wastes are generally classified as hazardous if they
either: (1) are specifically included on a list of hazardous wastes; or (2)
exhibit certain characteristics defined as hazardous. Household wastes are
specifically designated as nonhazardous. Wastes classified as hazardous under
RCRA are subject to much stricter regulation than wastes classified as
nonhazardous, and businesses that deal with hazardous waste are subject to
regulatory obligations in addition to those imposed on handlers of nonhazardous
waste. From time to time, our intermodal services business transports hazardous
materials in compliance with federal transportation requirements. Some of our
ancillary operations, such as vehicle maintenance operations, may generate
hazardous wastes. We manage these wastes in substantial compliance with
applicable laws.




In
October 1991, the EPA adopted the Subtitle D Regulations governing solid waste
landfills. The Subtitle D Regulations, which generally became effective in
October 1993, include location restrictions, facility design standards,
operating criteria, closure and post-closure requirements, financial assurance
requirements, groundwater monitoring requirements, groundwater remediation
standards and corrective action requirements. In addition, the Subtitle D
Regulations require that new landfill sites meet more stringent liner design
criteria (typically, composite soil and synthetic liners or two or more
synthetic liners) intended to keep leachate out of groundwater and have
extensive collection systems to carry away leachate for treatment prior to
disposal. Groundwater monitoring wells must also be installed at virtually all
landfills to monitor groundwater quality and, indirectly, the effectiveness of
the leachate collection system. The Subtitle D Regulations also require, where
certain regulatory thresholds are exceeded, that facility owners or operators
control emissions of methane gas generated at landfills in a manner intended to
protect human health and the environment. Each state is required to revise its
landfill regulations to meet these requirements or such requirements will be
automatically imposed by the EPA on landfill owners and operators in that state.
Each state is also required to adopt and implement a permit program or other
appropriate system to ensure that landfills in the state comply with the
Subtitle D Regulations. Various states in which we operate or may operate in the
future have adopted regulations or programs as stringent as, or more stringent
than, the Subtitle D Regulations.




RCRA also
regulates underground storage of petroleum and other regulated materials. RCRA
requires registration, compliance with technical standards for tanks, release
detection and reporting, and corrective action, among other things. Certain of
our facilities and operations are subject to these requirements.




The
Federal Water Pollution Control Act of 1972, or the Clean Water Act




The Clean
Water Act regulates the discharge of pollutants from a variety of sources,
including solid waste disposal sites and transfer stations, into waters of the
United States. If run-off from our owned or operated transfer stations or
run-off or collected leachate from our owned or operated landfills is discharged
into streams, rivers or other surface waters, the Clean Water Act would require
us to apply for and obtain a discharge permit, conduct sampling and monitoring
and, under certain circumstances, reduce the quantity of pollutants in such
discharge. Also, virtually all landfills are required to comply with the EPA’s
storm water regulations issued in November 1990, which are designed to prevent
contaminated landfill storm water run-off from flowing into surface waters. We
believe that our facilities comply in all material respects with the Clean Water
Act requirements. Various states in which we operate or may operate in the
future have been delegated authority to implement the Clean Water Act permitting
requirements, and some of these states have adopted regulations that are more
stringent than the federal Clean Water Act requirements. For example, states
often require permits for discharges that may impact ground water as well as
surface water.


8




The
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
or CERCLA




CERCLA
established a regulatory and remedial program intended to provide for the
investigation and cleanup of facilities where or from which a release of any
hazardous substance into the environment has occurred or is threatened. CERCLA’s
primary mechanism for remedying such problems is to impose strict joint and
several liability for cleanup of facilities on current owners and operators of
the site, former owners and operators of the site at the time of the disposal of
the hazardous substances, any person who arranges for the transportation,
disposal or treatment of the hazardous substances, and the transporters who
select the disposal and treatment facilities, regardless of the care exercised
by such persons. CERCLA also imposes liability for the cost of evaluating and
remedying any damage to natural resources. The costs of CERCLA investigation and
cleanup can be very substantial. Liability under CERCLA does not depend on the
existence or disposal of “hazardous waste” as defined by RCRA; it can also be
based on the release of even very small amounts of the more than 700 “hazardous
substances” listed by the EPA, many of which can be found in household waste. In
addition, the definition of “hazardous substances” in CERCLA incorporates
substances designated as hazardous or toxic under the federal Clean Water Act,
Clear Air Act and Toxic Substances Control Act. If we were found to be a
responsible party for a CERCLA cleanup, the enforcing agency could hold us, or
any other generator, transporter or the owner or operator of the contaminated
facility, responsible for all investigative and remedial costs, even if others
were also liable. CERCLA also authorizes the imposition of a lien in favor of
the United States on all real property subject to, or affected by, a remedial
action for all costs for which a party is liable. Subject to certain procedural
restrictions, CERCLA gives a responsible party the right to bring a contribution
action against other responsible parties for their allocable shares of
investigative and remedial costs. Our ability to obtain reimbursement from
others for their allocable shares of such costs would be limited by our ability
to find other responsible parties and prove the extent of their responsibility,
their financial resources, and other procedural requirements. Various state laws
also impose strict joint and several liability for investigation, cleanup and
other damages associated with hazardous substance releases.




The Clean
Air Act




The Clean
Air Act generally, through state implementation of federal requirements,
regulates emissions of air pollutants from certain landfills based on factors
such as the date of the landfill construction and tons per year of emissions of
regulated pollutants. Larger landfills and landfills located in areas where the
ambient air does not meet certain requirements of the Clean Air Act may be
subject to even more extensive air pollution controls and emission limitations.
In addition, the EPA has issued standards regulating the disposal of
asbestos-containing materials. Air permits may be required to construct gas
collection and flaring systems and composting operations, and operating permits
may be required, depending on the potential air emissions. State air regulatory
programs may implement the federal requirements but may impose additional
restrictions. For example, some state air programs uniquely regulate odor and
the emission of toxic air pollutants.




Climate
Change Laws and Regulations




On
September 27, 2006, California enacted AB32, the Global Warming Solutions Act of
2006, which established the first statewide program in the United States to
limit greenhouse gas, or GHG, emissions and impose penalties for non-compliance.
Since then, the California Air Resources Board has taken and plans to take
various actions to implement the program, including the approval on December 11,
2008, of an AB32 Scoping Plan summarizing the main GHG-reduction strategies for
California.




Because
landfill and collection operations emit GHG, our operations in California are
subject to regulations issued under AB32. These regulations increase our costs
for those operations. If we are unable to pass such higher costs through to our
customers, our business, financial condition and operating results could be
adversely affected.




Climate
change laws and regulations could also affect our non-California operations. For
example, California’s AB32 Scoping Plan described above recommends a GHG cap and
trade system in conjunction with the Western Climate Initiative, which currently
includes seven states and four Canadian provinces. Also, President Barack Obama
has stated that he favors reducing GHG to 1990 levels by 2020 and imposing an
economy-wide cap-and-trade program to achieve a further 80 percent reduction by
2050.




The
Occupational Safety and Health Act of 1970, or the OSH Act




The OSH
Act is administered by the Occupational Safety and Health Administration, or
OSHA, and many state agencies whose programs have been approved by OSHA. The OSH
Act establishes employer responsibilities for worker health and safety,
including the obligation to maintain a workplace free of recognized hazards
likely to cause death or serious injury, comply with adopted worker protection
standards, maintain certain records, provide workers with required disclosures
and implement certain health and safety training programs. Various OSHA
standards may apply to our operations, including standards concerning notices of
hazards, safety in excavation and demolition work, the handling of asbestos and
asbestos-containing materials and worker training and emergency response
programs.




Flow
Control/Interstate Waste Restrictions




Certain
permits and approvals and state and local regulations may limit a landfill’s or
transfer station’s ability to accept waste that originates from specified
geographic areas, import out-of-state waste or wastes originating outside the
local jurisdictions or otherwise discriminate against non-local waste. These
restrictions, generally known as flow control restrictions, are controversial,
and courts have held that some state and local flow control schemes violate
constitutional limits on state or local regulation of interstate commerce, while
other state and local flow control schemes do not. In 2007, the U.S. Supreme
Court upheld a flow control scheme directing waste to be processed at a
municipally owned transfer station. This decision may result in certain state
and local jurisdictions seeking to enforce flow control restrictions through
local legislation or contractually. These actions could limit or prohibit the
importation of out-of-state waste or direct that wastes be handled at specified
facilities. Such actions could adversely affect our transfer stations and
landfills. These restrictions could also result in higher disposal costs for our
collection operations. If we were unable to pass such higher costs through to
our customers, our business, financial condition and operating results could be
adversely affected.


9




State and
Local Regulations




Each
state in which we now operate or may operate in the future has laws and
regulations governing the generation, storage, treatment, handling,
transportation and disposal of solid waste, occupational safety and health,
water and air pollution and, in most cases, the siting, design, operation,
maintenance, closure and post-closure maintenance of landfills and transfer
stations. State and local permits and approval for these operations may be
required and may be subject to periodic renewal, modification or revocation by
the issuing agencies. In addition, many states have adopted statutes comparable
to, and in some cases more stringent than, CERCLA. These statutes impose
requirements for investigation and cleanup of contaminated sites and liability
for costs and damages associated with such sites, and some provide for the
imposition of liens on property owned by responsible parties.




Many
municipalities also have enacted or could enact ordinances, local laws and
regulations affecting our operations. These include zoning and health measures
that limit solid waste management activities to specified sites or activities,
flow control provisions that direct or restrict the delivery of solid wastes to
specific facilities, laws that grant the right to establish franchises for
collection services and bidding for such franchises, and bans or other
restrictions on the movement of solid wastes into a municipality.




Permits
or other land use approvals with respect to a landfill, as well as state or
local laws and regulations, may specify the quantity of waste that may be
accepted at the landfill during a given time period and/or the types of waste
that may be accepted at the landfill. Once an operating permit for a landfill is
obtained, it generally must be renewed periodically.




There has
been an increasing trend at the state and local level to mandate and encourage
waste reduction at the source and waste recycling, and to prohibit or restrict
the disposal in landfills of certain types of solid wastes, such as yard wastes,
leaves, tires, computers and other electronic equipment waste, and painted wood
and other construction and demolition debris. The enactment of regulations
reducing the volume and types of wastes available for transport to and disposal
in landfills could prevent us from operating our facilities at their full
capacity.




Some
state and local authorities enforce certain federal requirements in addition to
state and local laws and regulations. For example, in some states, local or
state authorities enforce requirements of RCRA, the OSH Act and parts of the
Clean Air Act and the Clean Water Act instead of the EPA or OSHA, as applicable,
and in some states such laws are enforced jointly by state or local and federal
authorities.




Public
Utility Regulation




In some
states, public authorities regulate the rates that landfill operators may
charge. The adoption of rate regulation or the reduction of current rates in
states in which we own or operate landfills could adversely affect our business,
financial condition and operating results.




Solid
waste collection services in all unincorporated areas of Washington and in
electing municipalities in Washington are provided under G Certificates awarded
by the WUTC. In association with the regulation of solid waste collection
service levels in these areas, the WUTC also reviews and approves rates for
regulated solid waste collection and transportation service.




RISK
MANAGEMENT, INSURANCE AND FINANCIAL SURETY BONDS




Risk
Management




We
maintain environmental and other risk management programs that we believe are
appropriate for our business. Our environmental risk management program includes
evaluating existing facilities and potential acquisitions for environmental law
compliance. We do not presently expect environmental compliance costs to
increase materially above current levels, but we cannot predict whether future
acquisitions will cause such costs to increase. We also maintain a worker safety
program that encourages safe practices in the workplace. Operating practices at
our operations emphasize minimizing the possibility of environmental
contamination and litigation. Our facilities comply in all material respects
with applicable federal and state regulations.


10




Insurance




We are
effectively self-insured for automobile liability, property, general liability,
workers’ compensation, employer’s liability claims, and employee group health
insurance. Our loss exposure for insurance claims is generally limited to per
incident deductibles. Losses in excess of deductible levels are insured subject
to policy limits. Under our current insurance program, we carry per incident
deductibles of $2 million for automobile liability claims, $1.5 million for
workers’ compensation and employer’s liability claims, $1 million ($2 million
aggregate) for general liability claims, $25,000 for property claims and
$250,000 for employee group health insurance. During the 12-month policy term,
our automobile liability policy will pay up to $3 million per incident, after we
pay the $2 million per incident deductible. Additionally, we have an umbrella
policy with a third-party insurance company for automobile liability, general
liability and employer’s liability that will pay, during the policy term, up to
$50 million per incident in excess of the $5 million limit for automobile claims
and in excess of the $1.5 million limit for employer’s liability claims and will
pay up to an aggregate of $50 million in excess of the $2 million aggregate
limit for general liability claims. Since workers’ compensation is a statutory
coverage limited only by the various state jurisdictions, the umbrella coverage
is not applicable. Also, our umbrella policy does not cover property claims, as
the insurance limits for these claims are in accordance with the replacement
values of the insured property. From time to time, actions filed against us
include claims for punitive damages, which are generally excluded from coverage
under all of our liability insurance policies.




We carry
environmental protection insurance under a three-year (annual for the state of
California) policy, expiring in November 2011, with coverage of $10 million per
occurrence and a $20 million aggregate limit, after we pay the $250,000 per
incident deductible. This insurance policy covers all owned or operated
landfills, certain transfer stations and other facilities. Subject to policy
terms, insurance coverage is guaranteed for acquired and newly-constructed
facilities, but each addition to the policy is underwritten on a site-specific
basis and the premium is set according to the conditions found at the site. Our
policy provides insurance for new pollution conditions that originate after the
commencement of our coverage. Pollution conditions existing prior to the
commencement of our coverage, if found, could be excluded from
coverage.




Financial
Surety Bonds




We use
financial surety bonds for a variety of corporate guarantees. The financial
surety bonds are primarily used for guaranteeing municipal contract performance
and providing financial assurances to meet final capping, landfill closure and
post-closure obligations as required under certain environmental regulations. In
addition to surety bonds, such guarantees and obligations may also be met
through alternative financial assurance instruments, including insurance,
letters of credit and restricted asset deposits. At December 31, 2007 and 2008,
we had provided customers and various regulatory authorities with surety bonds
in the aggregate amount of approximately $112.5 million and $113.3 million,
respectively, to secure our landfill final capping, closure and post-closure
requirements and $51.8 million and $48.5 million, respectively, to secure
performance under collection contracts and landfill operating
agreements.




We own a
9.9% interest in a company that, among other activities, issues financial surety
bonds to secure final capping, landfill closure and post-closure obligations for
companies operating in the solid waste sector, including a portion of our
own.




EMPLOYEES




At
December 31, 2008, we employed 5,379 full-time employees, of which 573, or
approximately 11% of our workforce, were employed under collective bargaining
agreements, primarily with the Teamsters Union. These employees are subject to
labor agreements that are renegotiated periodically. We have nine collective
bargaining agreements covering 420 employees that are set to expire during 2009.
We do not expect any significant disruption in our overall business in 2009 as a
result of labor negotiations, employee strikes or organizational
efforts.


11




EXECUTIVE
OFFICERS OF THE REGISTRANT




The
following table sets forth certain information concerning our executive officers
and key employee as of February 6, 2009:


NAME
                      
                      
                      AGE
                      
                      POSITIONSRonald
      J. Mittelstaedt (1)
                      
                      45
                      
                      Chief
      Executive Officer and ChairmanSteven
      F. Bouck
                      
                      51
                      
                      PresidentDarrell
      W. Chambliss
                      
                      44
                      
                      Executive
      Vice President and Chief Operating OfficerWorthing
      F. Jackman
                      
                      44
                      
                      Executive
      Vice President and Chief Financial OfficerDavid
      M. Hall
                      
                      51
                      
                      Senior
      Vice President – Sales and MarketingJames
      M. Little
                      
                      47
                      
                      Senior
      Vice President – Engineering and DisposalEric
      M. Merrill
                      
                      56
                      
                      Senior
      Vice President – People, Safety and DevelopmentDavid
      G. Eddie
                      
                      39
                      
                      Vice
      President – Corporate ControllerEric
      O. Hansen
                      
                      43
                      
                      Vice
      President – Chief Information OfficerJerri
      L. Hunt (2)
                      
                      57
                      
                      Vice
      President – Employee RelationsScott
      I. Schreiber
                      
                      52
                      
                      Vice
      President – Disposal OperationsPatrick
      J. Shea
                      
                      38
                      
                      Vice
      President, General Counsel and SecretaryRichard
      K. Wojahn
                      
                      51
                      
                      Vice
      President – Business
Development




(1)
                Member
      of the Executive Committee of the Board of Directors.(2)
                Key
      employee.




Ronald J.
Mittelstaedt has been Chief Executive Officer and a director of Waste
Connections since the company was formed, and was elected Chairman in January
1998. Mr. Mittelstaedt also served as President from Waste Connections’
formation through August 2004. Mr. Mittelstaedt has more than 20 years of
experience in the solid waste industry. Mr. Mittelstaedt holds a B.A. degree in
Business Economics with a finance emphasis from the University of California at
Santa Barbara.




Steven F.
Bouck has been President of Waste Connections since September 1, 2004. From
February 1998 to that date, Mr. Bouck served as Executive Vice President and
Chief Financial Officer. Mr. Bouck held various positions with First Analysis
Corporation from 1986 to 1998, focusing on financial services to the
environmental industry. Mr. Bouck holds B.S. and M.S. degrees in Mechanical
Engineering from Rensselaer Polytechnic Institute, and an M.B.A. in Finance from
the Wharton School.




Darrell
W. Chambliss has been Executive Vice President and Chief Operating Officer of
Waste Connections since October 2003. From October 1, 1997 to that date, Mr.
Chambliss served as Executive Vice President – Operations. Mr. Chambliss has
more than 19 years of experience in the solid waste industry. Mr. Chambliss
holds a B.S. degree in Business Administration from the University of
Arkansas.




Worthing
F. Jackman has been Executive Vice President and Chief Financial Officer of
Waste Connections since September 1, 2004. From April 2003 to that date, Mr.
Jackman served as Vice President – Finance and Investor Relations. Mr. Jackman
held various investment banking positions with Alex. Brown & Sons, now
Deutsche Bank Securities, Inc., from 1991 through 2003, including most recently
as a Managing Director within the Global Industrial & Environmental Services
Group. In that capacity, he provided capital markets and strategic advisory
services to companies in a variety of sectors, including solid waste services.
Mr. Jackman serves as a director for Quanta Services, Inc. He holds a B.S.
degree in Finance from Syracuse University and an M.B.A. from the Harvard
Business School.




David M.
Hall has been Senior Vice President – Sales and Marketing of Waste Connections
since October 2005. From August 1998 to that date, Mr. Hall served as Vice
President – Business Development. Mr. Hall has more than 21 years of experience
in the solid waste industry with extensive operating and marketing experience in
the Western U.S. Mr. Hall received a B.S. degree in Management and Marketing
from Missouri State University.




James M.
Little has been Senior Vice President – Engineering and Disposal of Waste
Connections since February 2009. From September 1999 to that date, Mr. Little
served as Vice President – Engineering. Mr. Little held various management
positions with Waste Management, Inc. (formerly USA Waste Services, Inc., which
acquired Waste Management, Inc. and Chambers Development Co. Inc.) from April
1990 to September 1999, including Regional Environmental Manager and Regional
Landfill Manager, and most recently Division Manager in Ohio, where he was
responsible for the operations of ten operating companies in the Northern Ohio
area. Mr. Little is a certified professional geologist and holds a B.S. degree
in Geology from Slippery Rock University.


12




Eric M.
Merrill has been Senior Vice President – People, Safety and Development of Waste
Connections since January 2009. From June 2007 to that date, Mr. Merrill served
as Senior Vice President – People, Training and Development. Mr. Merrill joined
us in 1998 and since 2000 had served as Regional Vice President – Pacific
Northwest Region. Mr. Merrill has over 20 years of experience in the solid waste
industry. He holds a B.S. degree in Accounting from the University of
Oregon.




David G.
Eddie has been Vice President – Corporate Controller of Waste Connections since
March 2004. From April 2003 to that date, Mr. Eddie served as Vice President –
Public Reporting and Compliance. From May 2001 to March 2003, Mr. Eddie served
as Director of Finance. Mr. Eddie served as Corporate Controller for
International FiberCom, Inc. from April 2000 to May 2001. From September 1999 to
April 2000, Mr. Eddie served as Waste Connections’ Manager of Financial
Reporting. From September 1994 to September 1999, Mr. Eddie held various
positions, including Audit Manager, for PricewaterhouseCoopers LLP. Mr. Eddie is
a Certified Public Accountant and holds a B.S. degree in Accounting from
California State University, Sacramento.




Eric O.
Hansen has been Vice President – Chief Information Officer of Waste Connections
since July 2004. From January 2001 to that date, Mr. Hansen served as Vice
President – Information Technology. From April 1998 to December 2000, Mr. Hansen
served as Director of Management Information Systems. Mr. Hansen holds a B.S.
degree from Portland State University.




Jerri L.
Hunt has been Vice President – Employee Relations of Waste Connections since
June 2007. Ms. Hunt previously served as Vice President – Human Resources from
May 2002 to June 2007, and as Vice President – Human Resources and Risk
Management from December 1999 to April 2002. From 1994 to 1999, Ms. Hunt held
various positions with First Union National Bank (including the Money Store,
which was acquired by First Union National Bank), most recently Vice President
of Human Resources. From 1989 to 1994, Ms. Hunt served as Manager of Human
Resources and Risk Management for Browning-Ferris Industries, Inc. Ms. Hunt also
served as a Human Resources Supervisor for United Parcel Service from 1976 to
1989. She holds a B.S. degree from California State University, Sacramento, and
a Master’s degree in Human Resources from Golden Gate University.




Scott I.
Schreiber has been Vice President – Disposal Operations of Waste Connections
since February 2009. From October 1998 to that date, Mr. Schreiber served as
Director of Landfill Operations. Mr. Schreiber has more than 29 years of
experience in the solid waste industry. From September 1993 to September 1998,
Mr. Schreiber served as corporate Director of Landfill Development and corporate
Director of Environmental Compliance for Allied Waste Industries, Inc. From
August 1988 to September 1993, Mr. Schreiber served as Regional Engineer
(Continental Region) and corporate Director of Landfill Development for Laidlaw
Waste Systems Inc. From June 1979 to August 1988, Mr. Schreiber held several
managerial and technical positions in the solid waste and environmental
industry. Mr. Schreiber holds a B.S. degree in Chemistry from the University of
Wisconsin at Parkside.




Patrick
J. Shea has been Vice President, General Counsel and Secretary of Waste
Connections since February 2009. From February 2008 to that date, Mr. Shea
served as General Counsel and Secretary. He served as Corporate Counsel from
February 2004 to February 2008. Mr. Shea practiced corporate and securities law
with Brobeck, Phleger & Harrison LLP in San Francisco from 1999 to 2003 and
Winthrop, Stimson, Putnam & Roberts (now Pillsbury Winthrop Shaw Pittman
LLP) in New York and London from 1995 to 1999. Mr. Shea holds a B.S. degree in
Managerial Economics from the University of California at Davis and a J.D.
degree from Cornell University.




Richard
K. Wojahn has been Vice President – Business Development of Waste Connections
since February 2009. From September 2005 to that date, Mr. Wojahn served as
Director of Business Development. Mr. Wojahn served as Vice President of
Operations for Mountain Jack Environmental Services, Inc. (which was acquired by
Waste Connections in September 2005) from January 2004 to September 2005. Mr.
Wojahn has more than 25 years of experience in the solid waste industry having
held various management positions with Waste Management, Inc. and Allied Waste
Industries, Inc. Mr. Wojahn attended Western Illinois University.




AVAILABLE
INFORMATION




Our
corporate website address is http://www.wasteconnections.com.
The information on our website is not incorporated by reference in this annual
report on Form 10-K. We make our reports on Forms 10-K, 10-Q and 8-K and any
amendments to such reports available on our website free of charge as soon as
reasonably practicable after we file them with or furnish them to the Securities
and Exchange Commission, or SEC. The public may read and copy any materials we
file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC, 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
internet website at http://www.sec.gov
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.


13




ITEM 1A.
              RISK
      FACTORS





Certain
statements contained in this Annual Report on Form 10-K are forward-looking in
nature. These statements can be identified by the use of forward-looking
terminology such as “believes,” “expects,” “may,” “will,” “should,” or
“anticipates,” or the negative thereof or comparable terminology, or by
discussions of strategy. Our business and operations are subject to a variety of
risks and uncertainties and, consequently, actual results may differ materially
from those projected by any forward-looking statements. Factors that could cause
actual results to differ from those projected include, but are not limited to,
those listed below and elsewhere in this report. There may be additional risks
of which we are not presently aware or that we currently believe are immaterial
which could have an adverse impact on our business. We make no commitment to
revise or update any forward-looking statements in order to reflect events or
circumstances that may change.




Risks
Related to Our Business




A portion of our growth and
future financial performance depends on our ability to integrate acquired
businesses into our organization and operations.




A
component of our growth strategy involves achieving economies of scale and
operating efficiencies by growing through acquisitions. We may not achieve these
goals unless we effectively combine the operations of acquired businesses with
our existing operations. In addition, we are not always able to control the
timing of our acquisitions. Our inability to complete acquisitions within the
time frames that we expect may cause our operating results to be less favorable
than expected, which could cause our stock price to decline.




Our acquisitions may not be
successful, resulting in changes in strategy, operating losses or a loss on sale
of the business acquired.




Even if
we are able to make acquisitions on advantageous terms and are able to integrate
them successfully into our operations and organization, some acquisitions may
not fulfill our objectives in a given market due to factors that we cannot
control, such as market position or customer base. As a result, operating
margins could be less than we originally anticipated when we made those
acquisitions. In addition, we may change our strategy with respect to that
market or those businesses and decide to sell the operations at a loss, or keep
those operations and recognize an impairment of goodwill and/or intangible
assets.




Downturns in the worldwide
economy adversely affect operating results.




Weakness
in the worldwide economy has had a negative effect on our operating results,
including decreases in volume generally associated with the construction
industry and declines in recycled commodity prices. In an economic slowdown, we
may also experience the negative effects of increased competitive pricing
pressure, customer turnover, and reductions in customer service requirements.
Worsening economic conditions or a prolonged or recurring recession could
adversely affect our operating results and expected seasonal fluctuations.
Further, we cannot assure you that an improvement in economic conditions will
result in an immediate, if at all positive, improvement in our operating results
or cash flows.




Our results are vulnerable
to economic conditions and seasonal factors affecting the regions in which we
operate.




Our
business and financial results would be harmed by downturns in the general
economy of the regions in which we operate and other factors affecting those
regions, such as state regulations affecting the solid waste services industry
and severe weather conditions. Based on historic trends, we expect our operating
results to vary seasonally, with revenues typically lowest in the first quarter,
higher in the second and third quarters, and lower in the fourth quarter than in
the second and third quarters. We expect the fluctuation in our revenues between
our highest and lowest quarters to be in the range of approximately 9% to 11%.
This seasonality reflects the lower volume of solid waste generated during the
late fall, winter and early spring because of decreased construction and
demolition activities during the winter months. In addition, some of our
operating costs may be higher in the winter months. Adverse winter weather
conditions slow waste collection activities, resulting in higher labor and
operational costs. Greater precipitation in the winter increases the weight of
collected waste, resulting in higher disposal costs, which are calculated on a
per ton basis. Because of these factors, we expect operating income to be
generally lower in the winter months, and our stock price may be negatively
affected by these variations.




We may be unable to compete
effectively with larger and better capitalized companies and governmental
service providers.




Our
industry is highly competitive and requires substantial labor and capital
resources. Some of the markets in which we compete or will likely compete are
served by one or more large, national companies, as well as by regional and
local companies of varying sizes and resources, some of which we believe have
accumulated substantial goodwill in their markets. Some of our competitors may
also be better capitalized than we are, have greater name recognition than we
do, or be able to provide or be willing to bid their services at a lower price
than we may be willing to offer. Our inability to compete effectively could
hinder our growth or negatively impact our operating results.


14




We also
compete with counties, municipalities and solid waste districts that maintain or
could in the future choose to maintain their own waste collection and disposal
operations, including through the implementation of flow control ordinances or
similar legislation. These operators may have financial advantages over us
because of their access to user fees and similar charges, tax revenues and
tax-exempt financing.




We may lose contracts
through competitive bidding, early termination or governmental
action.




We derive
a significant portion of our revenues from market areas where we have exclusive
arrangements, including franchise agreements, municipal contracts and G
Certificates. Many franchise agreements and municipal contracts are for a
specified term and are or will be subject to competitive bidding in the future.
For example, we have approximately 288 contracts, representing approximately
4.7% of our annual revenues, which are set for expiration or automatic renewal
through December 31, 2009. Although we intend to bid on additional municipal
contracts and franchise agreements, we may not be the successful bidder. In
addition, some of our customers may terminate their contracts with us before the
end of the contract term.




Governmental
action may also affect our exclusive arrangements. Municipalities may annex
unincorporated areas within counties where we provide collection services. As a
result, our customers in annexed areas may be required to obtain services from
competitors that have been franchised by the annexing municipalities to provide
those services. In addition, municipalities in which services are currently
provided on a competitive basis may elect to franchise collection services.
Unless we are awarded franchises by these municipalities, we will lose
customers. Municipalities may also decide to provide services to their residents
themselves, on an optional or mandatory basis, causing us to lose customers.
Municipalities in Washington may, by law, annex any unincorporated territory,
which could remove such territory from an area covered by a G Certificate issued
to us by the WUTC. Such occurrences could subject more of our Washington
operations to competitive bidding. Moreover, legislative action could amend or
repeal the laws governing WUTC regulation, which could harm our competitive
position by subjecting more areas to competitive bidding and/or overlapping
service. If we are not able to replace revenues from contracts lost through
competitive bidding or early termination or from the renegotiation of existing
contracts with other revenues within a reasonable time period, our revenues
could decline.




Price increases may not be
adequate to offset the impact of increased costs or may cause us to lose
volume.




We seek
to secure price increases necessary to offset increased costs, to improve
operating margins and to obtain adequate returns on our deployed capital.
Contractual, general economic or market-specific conditions may limit our
ability to raise prices. As a result of these factors, we may be unable to
offset increases in costs, improve operating margins and obtain adequate
investment returns through price increases. We may also lose volume to
lower-cost competitors.




Increases in the price of
fuel may adversely affect our business and reduce our operating
margins.




The
market price of fuel is volatile and rose substantially in recent years before
falling with the general economic downturn in late 2008. We generally purchase
diesel fuel at market prices, and such prices have fluctuated significantly. A
significant increase in our fuel cost could adversely affect our business and
reduce our operating margins and reported earnings. To manage a portion of this
risk, in the fourth quarter of 2008, we entered into multiple commodity swap
agreements related to forecasted diesel fuel purchases as well as multiple
fixed-price fuel purchase contracts. During periods of falling diesel fuel
prices, such as the recent drop in fuel prices, our hedge payable positions may
increase and it may become more expensive to purchase fuel under our fixed-price
fuel purchase contracts than at market prices.




Increases in labor and
disposal and related transportation costs could impact our financial
results.




Our
continued success will depend on our ability to attract and retain qualified
personnel. We compete with other businesses in our markets for qualified
employees. From time to time, the labor supply is tight in some of our markets.
A shortage of qualified employees would require us to enhance our wage and
benefits packages to compete more effectively for employees, to hire more
expensive temporary employees or to contract for services with more expensive
third-party vendors. Labor is one of our highest costs and relatively small
increases in labor costs per employee could materially affect our cost
structure. If we fail to attract and retain qualified employees, control our
labor costs during periods of declining volumes, or recover any increased labor
costs through increased prices we charge for our services or otherwise offset
such increases with cost savings in other areas, our operating margins could
suffer. Disposal and related transportation costs are our second highest cost
category. If we incur increased disposal and related transportation costs to
dispose of solid waste, and if, in either case, we are unable to pass these
costs on to our customers, our operating results would suffer.


15




We could face significant
withdrawal liability if we withdraw from participation in one or more
multiemployer pension plans in which we participate.




We
participate in various “multiemployer” pension plans administered by employee
and union trustees. We make periodic contributions to these plans to allow them
to meet their pension benefit obligations to their participants. In the event
that we withdraw from participation in one of these plans, then applicable law
could require us to make an additional lump-sum contribution to the plan, and we
would have to reflect that as an expense in our consolidated statement of
operations and as a liability on our consolidated balance sheet. Our withdrawal
liability for any multiemployer plan would depend on the extent of the plan’s
funding of vested benefits. In the ordinary course of our renegotiation of
collective bargaining agreements with labor unions that participate in these
plans, we may decide to discontinue participation in a plan, and in that event,
we could face a withdrawal liability. Some multiemployer plans in which we
participate may have significant underfunded liabilities because of the general
economic downturn in the fourth quarter of 2008. Such underfunding could
increase the size of our potential withdrawal liability.




Efforts by labor unions
could divert management attention and adversely affect operating
results.




From time
to time, labor unions attempt to organize our employees. Some groups of our
employees are represented by unions, and we have negotiated collective
bargaining agreements with most of these groups. We are currently engaged in
negotiations with other groups of employees represented by unions. Additional
groups of employees may seek union representation in the future. Negotiating
collective bargaining agreements with these groups could divert management
attention and adversely affect operating results. If we are unable to negotiate
acceptable collective bargaining agreements, we might have to wait through
“cooling off” periods, which are often followed by union-initiated work
stoppages, including strikes. Additionally, it is expected that the Employee
Free Choice Act will be reintroduced in the new Congress. If reintroduced and
enacted in its most recent form, the Employee Free Choice Act would: (1) allow
unions to become the representative of previously unrepresented employees by
getting so-called “authorization cards” signed by a majority of the employees
involved, without requiring the union to go through a secret ballot election;
(2) require binding arbitration upon an employer and the union if they were
unable to negotiate a first contract within specified timelines; and (3) impose
new penalties on employers who violate provisions of the Act. Furthermore, any
significant work stoppage or slowdown at ports or by railroad workers could
reduce or interrupt the flow of cargo containers through our intermodal
facilities. Depending on the type and duration of any labor disruptions, our
operating expenses could increase significantly, which could adversely affect
our financial condition, results of operations and cash flows.




Increases in insurance costs
and the amount that we self-insure for various risks could reduce our operating
margins and reported earnings.




We
maintain insurance policies for automobile, general, employer’s, environmental
and directors and officers’ liability as well as for employee group health
insurance, property insurance and workers’ compensation. We are effectively
self-insured for automobile liability, property, general liability, workers’
compensation, employer’s liability and employee group health insurance by
carrying high dollar per incident deductibles. We carry umbrella policies for
certain types of claims to provide excess coverage over the underlying policies
and per incident deductibles. The increased amounts that we self-insure could
cause significant volatility in our operating margins and reported earnings
based on the occurrence and claim costs of incidents, accidents and injuries.
Our insurance accruals are based on claims filed and estimates of claims
incurred but not reported and are developed by our management with assistance
from our third-party actuary and our third-party claims administrator. To the
extent these estimates are inaccurate, we may recognize substantial additional
expenses in future periods that would reduce operating margins and reported
earnings. From time to time, actions filed against us include claims for
punitive damages, which are generally excluded from coverage under all of our
liability insurance policies. A punitive damage award could have an adverse
effect on our reported earnings in the period in which it occurs. Significant
increases in premiums on insurance that we retain also could reduce our
margins.




Competition for acquisition
candidates, consolidation within the waste industry and economic and market
conditions may limit our ability to grow through
acquisitions.




Most of
our growth since our inception has been through acquisitions. Although we have
identified numerous acquisition candidates that we believe are suitable, we may
not be able to acquire them at prices or on terms and conditions favorable to
us.




Other
companies have adopted or may in the future adopt our strategy of acquiring and
consolidating regional and local businesses. We expect that increased
consolidation in the solid waste services industry will continue to reduce the
number of attractive acquisition candidates. Moreover, general economic
conditions and the environment for attractive investments may affect the desire
of the owners of acquisition candidates to sell their companies. As a result,
fewer acquisition opportunities may become available to us, which could cause us
to reduce our rate of growth from acquisitions or make acquisitions on less
attractive terms than we have in the past, such as at higher purchase
prices.


16




Additionally,
given the continued credit crisis and related turmoil in the global financial
system, our ability to access the capital markets may be severely restricted at
a time when we would like, or need, to do so. While we expect we will be able to
fund some of our acquisitions with our existing resources, additional financing
to pursue additional acquisitions may be required. However, if current market
conditions continue to persist, or deteriorate further, we may be unable to
secure additional financing or any such additional financing may be available to
us on unfavorable terms, which could have an impact on our flexibility to pursue
additional acquisition opportunities and maintain our desired level of revenue
growth in the future. In addition, disruptions in the capital and credit
markets, as were experienced during 2008, could adversely affect our ability to
draw on our credit facility. Our access to funds under the credit facility is
dependent on the ability of the banks that are parties to the facility to meet
their funding commitments. Those banks may not be able to meet their funding
commitments if they experience shortages of capital and liquidity or if they
experience excessive volumes of borrowing requests within a short period of
time.




Our indebtedness could
adversely affect our financial condition; we may incur substantially more debt
in the future.




As of
December 31, 2008, we had $835.5 million of total indebtedness outstanding. We
may incur substantial additional debt in the future. The incurrence of
substantial additional indebtedness could have important consequences to you.
For example, it could:


●
                increase
      our vulnerability to general adverse economic and industry
      conditions;●
                limit
      our ability to obtain additional financing or refinancings at attractive
      rates;●
                require
      the dedication of a substantial portion of our cash flow from operations
      to the payment of principal of, and interest on, our indebtedness, thereby
      reducing the availability of such cash flow to fund our growth strategy,
      working capital, capital expenditures and other general corporate
      purposes;●
                limit
      our flexibility in planning for, or reacting to, changes in our business
      and the industry; and●
                place
      us at a competitive disadvantage relative to our competitors with less
      debt.




Each business that we
acquire or have acquired may have liabilities that we fail or are unable to
discover, including environmental liabilities.




It is
possible that the corporate entities or sites we have acquired, or which we may
acquire in the future, have liabilities in respect of former or existing
operations or properties, or otherwise, which we have not been able to identify
and assess through our due diligence investigations. As a successor owner, we
may be legally responsible for those liabilities that arise from businesses that
we acquire. Even if we obtain legally enforceable representations, warranties
and indemnities from the sellers of such businesses, they may not cover the
liabilities fully or the sellers may not have sufficient funds to perform their
obligations. Some environmental liabilities, even if we do not expressly assume
them, may be imposed on us under various regulatory schemes and other applicable
laws. In addition, our insurance program may not cover such sites and will not
cover liabilities associated with some environmental issues that may exist prior
to attachment of coverage. A successful uninsured claim against us could harm
our financial condition or operating results.




Liabilities for
environmental damage may adversely affect our financial condition, business and
earnings.




We may be
liable for any environmental damage that our current or former facilities cause,
including damage to neighboring landowners or residents, particularly as a
result of the contamination of soil, groundwater or surface water, and
especially drinking water, or to natural resources. We may be liable for damage
resulting from conditions existing before we acquired these facilities. We may
also be liable for any on-site environmental contamination caused by pollutants
or hazardous substances whose transportation, treatment or disposal we or our
predecessors arranged or conducted. If we were to incur liability for
environmental damage, environmental cleanups, corrective action or damage not
covered by insurance or in excess of the amount of our coverage, our financial
condition or operating results could be materially adversely
affected.




Our accruals for our
landfill site closure and post-closure costs may be
inadequate.




We are
required to pay capping, closure and post-closure maintenance costs for landfill
sites that we own or operate. Our obligations to pay closure or post-closure
costs may exceed the amount we have accrued and reserved and other amounts
available from funds or reserves established to pay such costs. In addition, the
completion or closure of a landfill site does not end our environmental
obligations. After completion or closure of a landfill site there exists the
potential for unforeseen environmental problems to occur that could result in
substantial remediation costs. Paying additional amounts for closure or
post-closure costs and/or for environmental remediation could harm our financial
condition or operating results.


17




We may be subject in the
normal course of business to judicial, administrative or other third party
proceedings that could interrupt our operations, require expensive remediation,
result in adverse judgments, settlements or fines and create negative
publicity.




Governmental
agencies may, among other things, impose fines or penalties on us relating to
the conduct of our business, attempt to revoke or deny renewal of our operating
permits, franchises or licenses for violations or alleged violations of
environmental laws or regulations, require us to install additional pollution
control equipment or require us to remediate potential environmental problems
relating to any real property that we or our predecessors ever owned, leased or
operated or any waste that we or our predecessors ever collected, transported,
disposed of or stored. Individuals or citizens groups may also bring actions
against us in connection with our operations. Any adverse outcome in such
proceedings could harm our operations and financial results and create negative
publicity, which could damage our reputation, competitive position and stock
price.




The financial soundness of
our customers could affect our business and operating
results.




As a
result of the disruptions in the financial markets and other macro-economic
challenges currently affecting the economy of the United States and other parts
of the world, our customers may experience cash flow concerns. As a result, if
customers’ operating and financial performance deteriorates, or if they are
unable to make scheduled payments or obtain credit, customers may not be able to
pay, or may delay payment of, accounts receivable owed to us. Any inability of
current and/or potential customers to pay us for services may adversely affect
our financial condition, results of operations and cash flows.




We depend significantly on
the services of the members of our senior, regional and district management
team, and the departure of any of those persons could cause our operating
results to suffer.




Our
success depends significantly on the continued individual and collective
contributions of our senior, regional and district management team. Key members
of our management have entered into employment agreements, but we may not be
able to enforce these agreements. The loss of the services of any member of our
senior, regional or district management or the inability to hire and retain
experienced management personnel could harm our operating results.




Our decentralized
decision-making structure could allow local managers to make decisions that
adversely affect our operating results.




We manage
our operations on a decentralized basis. Local managers have the authority to
make many decisions concerning their operations without obtaining prior approval
from executive officers, subject to compliance with general company-wide
policies. Poor decisions by local managers could result in the loss of customers
or increases in costs, in either case adversely affecting operating
results.




Because we depend on
railroads for our intermodal operations, our operating results and financial
condition are likely to be adversely affected by any reduction or deterioration
in rail service.




We depend
on two major railroads for the intermodal services we provide – the Burlington
Northern Santa Fe and Union Pacific. Consequently, a reduction in, or
elimination of, rail service to a particular market is likely to adversely
affect our ability to provide intermodal transportation services to some of our
customers. In addition, the railroads are relatively free to adjust shipping
rates up or down as market conditions permit when existing contracts expire.
Rate increases would result in higher intermodal transportation costs, reducing
the attractiveness of intermodal transportation compared to solely trucking or
other transportation modes, which could cause a decrease in demand for our
services. Our business could also be adversely affected by harsh weather
conditions or other factors that hinder the railroads’ ability to provide
reliable transportation services.




We may incur additional
charges related to capitalized expenditures, which would decrease our
earnings.




In
accordance with U.S. generally accepted accounting principles, we capitalize
some expenditures and advances relating to landfill development projects. We
expense indirect costs such as executive salaries, general corporate overhead
and other corporate services as we incur those costs. We charge against earnings
any unamortized capitalized expenditures and advances (net of any amount that we
estimate we will recover, through sale or otherwise) that relate to any
operation that is permanently shut down or determined to be impaired and any
landfill development project that we do not expect to complete. Any such charges
against earnings could decrease our stock price.


18




Our financial results are
based upon estimates and assumptions that may differ from actual
results .




In
preparing our consolidated financial statements in accordance with U.S.
generally accepted accounting principles, several estimates and assumptions are
made that affect the accounting for and recognition of assets, liabilities,
revenues and expenses. These estimates and assumptions must be made because
certain information that is used in the preparation of our financial statements
is dependent on future events, cannot be calculated with a high degree of
precision from data available or is not capable of being readily calculated
based on generally accepted methodologies. In some cases, these estimates are
particularly difficult to determine and we must exercise significant judgment.
The estimates and the assumptions having the greatest amount of uncertainty,
subjectivity and complexity are related to our accounting for landfills,
self-insurance, intangibles, allocation of acquisition purchase price, income
taxes, asset impairments and litigation, claims and assessments. Actual results
for all estimates could differ materially from the estimates and assumptions
that we use, which could have an adverse effect on our financial condition and
results of operations.




The adoption of new
accounting standards or interpretations could adversely affect our financial
results .




Our
implementation of and compliance with changes in accounting rules and
interpretations could adversely affect our operating results or cause
unanticipated fluctuations in our results in future periods. The accounting
rules and regulations that we must comply with are complex and continually
changing. Recent actions and public comments from the SEC have focused on the
integrity of financial reporting generally. The Financial Accounting Standards
Board, or FASB, has recently introduced several new or proposed accounting
standards, or is developing new proposed standards, which would represent a
significant change from current industry practices. For example, Statement of
Financial Accounting Standards No. 141 (revised 2007), Business Combinations, which
became effective for us on January 1, 2009, changes how the purchase price is
calculated and fair values are determined in connection with an acquisition and
also requires acquisition-related transaction and restructuring costs to be
expensed rather than treated as part of the cost of the acquisition. Another
example, FASB Staff Position No. APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement), which became effective for us on January 1, 2009, changes
the accounting for convertible debt and requires the liability and equity
components to be accounted for separately in a manner that will reflect the
entity’s nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. In addition, many companies’ accounting policies are being
subjected to heightened scrutiny by regulators and the public. While we believe
that our financial statements have been prepared in accordance with U.S.
generally accepted accounting principles, we cannot predict the impact of future
changes to accounting principles or our accounting policies on our financial
statements going forward.




Risks
Related to Our Industry




Our financial and operating
performance may be affected by the inability to renew landfill operating
permits, obtain new landfills and expand existing ones .




We
currently own and/or operate a number of landfills. Our ability to meet our
financial and operating objectives may depend in part on our ability to renew
landfill operating permits, acquire, lease and expand existing landfills and
develop new landfill sites. It has become increasingly difficult and expensive
to obtain required permits and approvals to build, operate and expand solid
waste management facilities, including landfills and transfer stations.
Operating permits for landfills in states where we operate must generally be
renewed every five to ten years, although some permits are required to be
renewed more frequently. These operating permits often must be renewed several
times during the permitted life of a landfill. The permit and approval process
is often time consuming, requires numerous hearings and compliance with zoning,
environmental and other requirements, is frequently challenged by citizens,
public interest and other groups, and may result in the denial of a permit or
renewal, the award of a permit or renewal for a shorter duration than we
believed was otherwise required by law, or burdensome terms and conditions being
imposed on our operations. We may not be able to obtain new landfill sites or
expand the permitted capacity of our landfills when necessary. Obtaining new
landfill sites is important to our expansion into new, non-exclusive markets. If
we do not believe that we can obtain a landfill site in a non-exclusive market,
we may choose not to enter that market. Expanding existing landfill sites is
important in those markets where the remaining lives of our landfills are
relatively short. We may choose to forego acquisitions and internal growth in
these markets because increased volumes would further shorten the lives of these
landfills. Any of these circumstances could adversely affect our operating
results.




Future changes in laws
regulating the flow of solid waste in interstate commerce could adversely affect
our operating results .




The U.S.
Supreme Court has held that states may not regulate the flow of solid waste in
interstate commerce if the effect would be to discriminate between interstate
and intrastate commerce with respect to private facilities. In 2007, the U.S.
Supreme Court upheld a flow control scheme directing waste to be processed at a
municipally owned transfer station. If one or more of the municipalities or
states in which we dispose of interstate waste takes action that would prohibit
or increase the costs of our continued disposal of interstate waste, our
operating results could be adversely affected.


19




Fluctuations in prices for
recycled commodities that we sell and rebates we offer to customers may cause
our revenues and operating results to decline .




We
provide recycling services to some of our customers. The majority of the
recyclables we process for sale are paper products that are shipped to customers
in Asia. The sale prices of and demands for recyclable commodities, particularly
paper products, are frequently volatile and when they decline, as they did
beginning in the fourth quarter of 2008, our revenues, operating results and
cash flows will be affected. Our recycling operations offer rebates to
suppliers, based on the market prices of commodities we buy to process for
resale. Therefore, if we recognize increased revenues resulting from higher
prices for recyclable commodities, the rebates we pay to suppliers will also
increase, which also may impact our operating results.




Extensive and evolving
environmental and health and safety laws and regulations may restrict our
operations and growth and increase our costs .




Existing
environmental laws and regulations have become more stringently enforced in
recent years because of greater public interest in protecting the environment.
In addition, our industry is subject to regular enactment of new or amended
federal, state and local environmental and health and safety statutes,
regulations and ballot initiatives, such as those regulating GHG emissions, as
well as judicial decisions interpreting these requirements. These requirements
impose substantial capital and operating costs and operational limitations on us
and may adversely affect our business. In addition, federal, state and local
governments may change the rights they grant to, and the restrictions they
impose on, solid waste services companies, and those changes could restrict our
operations and growth.




Extensive regulations that
govern the design, operation and closure of landfills may restrict our
landfill operations or increase our costs of operating
landfills .




Regulations
that govern landfill design, operation, closure and financial assurances include
the regulations that establish minimum federal requirements adopted by the EPA
in October 1991 under Subtitle D of RCRA. If we fail to comply with these
regulations or their state counterparts, we could be required to undertake
investigatory or remedial activities, curtail operations or close landfills
temporarily or permanently. Future changes to these regulations may require us
to modify, supplement or replace equipment or facilities at substantial costs.
If regulatory agencies fail to enforce these regulations vigorously or
consistently, our competitors whose facilities are not forced to comply with the
Subtitle D regulations or their state counterparts may obtain an advantage over
us. Our financial obligations arising from any failure to comply with these
regulations could harm our business and operating results.




Unusually adverse weather
conditions may interfere with our operations, harming our operating
results .




Our
operations could be adversely affected, beyond the normal seasonal variations
described above, by unusually long periods of inclement weather, which could
interfere with collection, landfill and intermodal operations, reduce the volume
of waste generated by our customers, delay the development of landfill capacity,
and increase the costs we incur in connection with the construction of landfills
and other facilities. Periods of particularly harsh weather may force us to
temporarily suspend some of our operations.


ITEM 1B.
              UNRESOLVED
      STAFF COMMENTS




None.


ITEM 2.
              PROPERTIES




As of
December 31, 2008, we owned 135 collection operations, 39 transfer stations, 25
municipal solid waste landfills, two construction and demolition landfills, 34
recycling operations, and fiveintermodal operations
and operated, but did not own, an additional 13transfer stations,
tenmunicipal solid
waste landfills and one intermodal operation. We lease certain of the sites on
which these facilities are located. We lease various office facilities,
including our corporate offices in Folsom, California, where we occupy
approximately 31,000 square feet of space. We have signed a lease for new
corporate offices of approximately 54,000 square feet in Folsom, California,
which we expect to occupy in February 2009. We own various equipment, including
waste collection and transportation vehicles, related support vehicles,
double-stack rail cars, carts, containers, chassis and heavy equipment used in
landfill and intermodal operations. We believe that our existing facilities and
equipment are adequate for our current operations. However, we expect to make
additional investments in property and equipment for expansion and replacement
of assets in connection with future acquisitions.


20





ITEM 3.
              LEGAL
      PROCEEDINGS




Our
subsidiary, High Desert Solid Waste Facility, Inc. (formerly known as Rhino
Solid Waste, Inc.), owns undeveloped property in Chaparral, New Mexico, for
which it sought a permit to operate a municipal solid waste landfill. After a
public hearing, the New Mexico Environment Department (the “Department”)
approved the permit for the facility on January 30, 2002. Colonias Development
Council (“CDC”), a nonprofit organization, opposed the permit at the public
hearing and appealed the Department’s decision to the courts of New Mexico,
primarily on the grounds that the Department failed to consider the social
impact of the landfill on the community of Chaparral, and failed to consider
regional planning issues. On July 18, 2005, in Colonias Dev. Council v. Rhino
Envtl. Servs., Inc. (In re Rhino Envtl. Servs.), 2005 NMSC 24, 117 P.3d 939,
the New Mexico Supreme Court remanded the matter back to the Department to
conduct a limited public hearing on certain evidence that CDC claims was
wrongfully excluded from consideration by the hearing officer, and to allow the
Department to reconsider the evidence already proffered concerning the impact of
the landfill on the surrounding community’s quality of life. The parties have
agreed to postpone the hearing until November 2009 at the earliest to allow us
time to explore a possible relocation of the landfill. At December 31, 2008, we
had $9.9 million of capitalized expenditures related to this landfill
development project. If we are not ultimately issued a permit to operate the
landfill, we will be required to expense in a future period the $9.9 million of
capitalized expenditures, less the recoverable value of the undeveloped property
and other amounts recovered, which would likely have a material adverse effect
on our results of operations for that period.




We opened
a municipal solid waste landfill in Harper County, Kansas in January 2006,
following the issuance by the Kansas Department of Health and Environment
(“KDHE”) of a final permit to operate the landfill. The landfill has operated
continuously since that time. On October 3, 2005, landfill opponents filed a
suit (Board of Comm’rs of
Sumner County, Kansas, Tri-County Concerned Citizens and Dalton Holland v.
Roderick Bremby, Sec’y of the Kansas Dep’t of Health and Env’t, et al.)
in the District Court of Shawnee County, Kansas, seeking a judicial review of
KDHE’s decision to issue the permit, alleging that a site analysis prepared for
us and submitted to the KDHE as part of the process leading to the issuance of
the permit was deficient in several respects. The action sought to stay the
effectiveness of the permit and to nullify it. On April 7, 2006, the District
Court issued an order denying the plaintiffs’ request for judicial review on the
grounds that they lacked standing to bring the action. The plaintiffs appealed
this decision to the Kansas Court of Appeals, and on October 12, 2007, the Court
of Appeals issued an opinion reversing and remanding the District Court’s
decision. We appealed the decision to the Kansas Supreme Court, and on July 25,
2008, the Supreme Court affirmed the decision of the Court of Appeals and
remanded the case to the District Court for further proceedings on the merits.
Plaintiffs filed a second amended petition on October 22, 2008, and we filed a
motion to strike various allegations contained within the second amended
petition. The motion to strike was heard before the District Court on January
26, 2009, and the Court took the matter under submission. The outcome of the
issues raised in the motion will impact the scope of briefing on the ultimate
issue before the District Court. It is anticipated that the briefing will be
completed during the 2009 calendar year. While we believe that we will prevail
in this case, the District Court could remand the matter back to KDHE for
additional review of its decision or could revoke the permit. An order of remand
to KDHE would not necessarily affect our continued operation of the landfill.
Only in the event that a final adverse determination with respect to the permit
is received would there likely be a material adverse effect on our reported
income in the future. We cannot estimate the amount of any such material adverse
effect.




On
October 25, 2006, a purported shareholder derivative complaint captioned Travis v. Mittelstaedt, et al.was filed in the United States District Court for the Eastern District of
California, naming certain of our directors and officers as defendants, and
naming us as a nominal defendant. On January 30, 2007, a similar purported
derivative action, captioned Pierce and Banister v. Mittelstaedt,
et al.,was filed in the same federal court as theTraviscase. The Travis and Pierce and Banister cases
have been consolidated. The consolidated complaint in the action alleges
violations of various federal and California securities laws, breach of
fiduciary duty, waste, and related claims in connection with the timing of
certain historical stock option grants. The consolidated complaint names as
defendants certain of our current and former directors and officers, and names
us as a nominal defendant. On June 22, 2007, we and the individual defendants
filed motions to dismiss the consolidated action. On March 19, 2008, the Court
granted our motion to dismiss and provided the plaintiffs leave to file an
amended consolidated complaint, which the plaintiffs filed with the Court on
April 8, 2008.




On
October 30, 2006, we were served with another purported shareholder derivative
complaint, naming certain of our current and former directors and officers as
defendants, and naming us as a nominal defendant. The suit, captionedNichols v. Mittelstaedt, et
al. and filed in the Superior Court of California, County of Sacramento,
contains allegations substantially similar to the consolidated federal action
described above. On April 3, 2007, a fourth purported derivative action,
captioned Priest v.
Mittelstaedt, et al., was filed in the Superior Court of California,
County of Sacramento, and contains allegations substantially similar to the
consolidated federal action and the Nichols suit. The Nichols and Priest suits have been
consolidated and captioned In
re Waste Connections, Inc. Shareholder Derivative Litigation and stayed
pending the outcome of the consolidated federal action.


21




In July
2008, the parties reached a preliminary agreement to settle all of these
derivative actions, and in August 2008 the consolidated federal action was
stayed as a result of the preliminary agreement. Under the terms of the
preliminary agreement, we agreed to reaffirm and/or implement certain corporate
governance measures and our insurance carrier agreed to pay not more than $3
million to plaintiffs’ counsel to cover plaintiffs’ counsel’s fees and costs,
which are subject to court approval. The defendants expressly deny any
wrongdoing and will receive a complete release of all claims. The preliminary
agreement is subject to standard conditions, including final court approval.
There can be no assurance that final court approval will be
obtained.




In 2006,
we completed a review of our historical stock option granting practices,
including all option grants since our initial public offering in May 1998, and
reported the results of the review to the Audit Committee of our Board of
Directors. The review identified a small number of immaterial exceptions to
non-cash compensation expense attributable to administrative and clerical
errors. These exceptions are not material to our current and historical
financial statements, and the Audit Committee concluded that no further action
was necessary. As with any litigation proceeding, we cannot predict with
certainty the eventual outcome of the pending federal and state derivative
litigation, nor can we estimate the amount of any losses that might
result.




On
January 15, 2009, a purported class action complaint captioned Heath Belcher and Denessa Arguello
v. Waste Connections, Inc., and Waste Connections of California, Inc. was
filed in the United States District Court for the Eastern District of
California, naming us and our subsidiary, Waste Connections of California, Inc.,
as defendants. The complaint alleges violations under the Fair Labor Standards
Act related to overtime compensation, and alleges violations under California
labor laws related to overtime compensation, unpaid wages, meal and rest breaks,
and wage statements. The complaint also alleges violations under the California
Unfair Competition Law based on the foregoing alleged violations. The complaint
seeks class certification and various forms of relief, including declaratory
judgment, statutory penalties, unpaid back wages, liquidated damages,
restitution, interest, and attorneys’ fees and costs. We intend to vigorously
defend this matter. As with any litigation proceeding, we cannot predict with
certainty the eventual outcome of this matter, nor can we estimate the amount of
any losses that might result.




In the
normal course of our business and as a result of the extensive governmental
regulation of the solid waste industry, we are subject to various other judicial
and administrative proceedings involving federal, state or local agencies. In
these proceedings, an agency may seek to impose fines on us or to revoke or deny
renewal of an operating permit held by us. From time to time, we may also be
subject to actions brought by citizens’ groups or adjacent landowners or
residents in connection with the permitting and licensing of landfills and
transfer stations, or alleging environmental damage or violations of the permits
and licenses pursuant to which we operate.




In
addition, we are a party to various claims and suits pending for alleged damages
to persons and property, alleged violations of certain laws and alleged
liabilities arising out of matters occurring during the normal operation of the
waste management business. Except as noted in the legal cases described above,
as of December 31, 2008, there is no current proceeding or litigation involving
us that we believe will have a material adverse impact on our business,
financial condition, results of operations or cash flows.


ITEM 4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS




There
were no matters submitted to a vote of security holders during the fourth
quarter of 2008.


22




PART II


ITEM 5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY
SECURITIES




Our
common stock is listed on the New York Stock Exchange under the symbol “WCN.”
The following table sets forth, for the periods indicated, the high and low
prices per share of our common stock, as reported on the New York Stock
Exchange. Prices have been adjusted to reflect our three-for-two stock split, in
the form of a 50% stock dividend, effective as of March 13, 2007.


HIGH
                      
                      
                      LOW2007First
      Quarter
                      
                      $
                      31.72
                      
                      
                      $
                      27.18Second
      Quarter
                      
                      
                      32.25
                      
                      
                      
                      29.50Third
      Quarter
                      
                      
                      33.33
                      
                      
                      
                      29.05Fourth
      Quarter
                      
                      
                      34.17
                      
                      
                      
                      29.102008First
      Quarter
                      
                      $
                      31.77
                      
                      
                      $
                      28.05Second
      Quarter
                      
                      
                      34.93
                      
                      
                      
                      29.99Third
      Quarter
                      
                      
                      40.74
                      
                      
                      
                      30.31Fourth
      Quarter
                      
                      
                      36.64
                      
                      
                      
                      26.542009First
      Quarter (through January 23, 2009)
                      
                      $
                      31.77
                      
                      
                      $
                      25.97




As of
January 23, 2009, there were 84record holders of our
common stock.




We have
never paid cash dividends on our common stock and do not currently anticipate
paying any cash dividends on our common stock. We have the ability under our
senior revolving credit facility to repurchase our common stock and pay
dividends subject to us maintaining specified financial ratios.




Performance
Graph




The
following performance graph compares the total cumulative stockholder returns on
our common stock over the past five fiscal years with the total cumulative
returns for the S&P 500 Index and a peer group index selected by us. The
graph assumes an investment of $100 in our common stock on December 31, 2003,
and the reinvestment of all dividends (we have not paid any dividends during the
period indicated). This chart has been calculated in compliance with SEC
requirements and prepared by Standard & Poor’s Compustat®.


23




Comparison
of Cumulative Five Year Total Return









This
graph and the accompanying text is not “soliciting material,” is not deemed
filed with the SEC, and is not to be incorporated by reference in any filing by
us under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, whether made before or after the date hereof and
irrespective of any general incorporation language in any such
filing.




Market
prices and dividends have been adjusted to give retroactive effect to our
three-for-two stock split, effective as of June 24, 2004, and our three-for-two
stock split, effective as of March 13, 2007.


Base
                                                                                          PeriodDec03
                                                                                    
                                                                                    
                                                                                    Indexed
      ReturnsYears
      EndingCompany
      Name / Index
                                                                                    
                                                                                    
                                                                                    
                                                                                    Dec04
                                                                                    
                                                                                    
                                                                                    Dec05
                                                                                    
                                                                                    
                                                                                    Dec06
                                                                                    
                                                                                    
                                                                                    Dec07
                                                                                    
                                                                                    
                                                                                    Dec08Waste
      Connections, Inc.
                                                                                    
                                                                                    
                                                                                    100
                                                                                    
                                                                                    
                                                                                    $
                                                                                    136.02
                                                                                    
                                                                                    
                                                                                    $
                                                                                    136.85
                                                                                    
                                                                                    
                                                                                    $
                                                                                    165.01
                                                                                    
                                                                                    
                                                                                    $
                                                                                    184.07
                                                                                    
                                                                                    
                                                                                    $
                                                                                    188.07S&P
      500 Index
                                                                                    
                                                                                    
                                                                                    100
                                                                                    
                                                                                    
                                                                                    $
                                                                                    110.88
                                                                                    
                                                                                    
                                                                                    $
                                                                                    116.33
                                                                                    
                                                                                    
                                                                                    $
                                                                                    134.70
                                                                                    
                                                                                    
                                                                                    $
                                                                                    142.10
                                                                                    
                                                                                    
                                                                                    $
                                                                                    89.53Peer
      Group*
                                                                                    
                                                                                    
                                                                                    100
                                                                                    
                                                                                    
                                                                                    $
                                                                                    109.24
                                                                                    
                                                                                    
                                                                                    $
                                                                                    115.84
                                                                                    
                                                                                    
                                                                                    $
                                                                                    139.53
                                                                                    
                                                                                    
                                                                                    $
                                                                                    135.31
                                                                                    
                                                                                    
                                                                                    $
                                                                                    132.11







*Peer
Group Companies: Casella Waste Systems, Inc.; Republic Services, Inc.; Waste
Management, Inc. The companies comprising our peer group in this Annual Report
on Form 10-K for the year ended December 31, 2008, did not include Allied Waste
Industries, Inc. and Waste Industries USA, Inc., which were both included in our
peer group in our Annual Report on Form 10-K for the year ended December 31,
2007, because both companies ceased to be publicly traded companies in 2008.
Allied Waste Industries, Inc. ceased to be a publicly traded company when it
merged with Republic Services, Inc. in December 2008, and Waste Industries USA,
Inc. ceased to be a publicly traded company when it went private in May
2008.




THE STOCK
PRICE PERFORMANCE INCLUDED IN THIS GRAPH IS NOT NECESSARILY INDICATIVE OF FUTURE
STOCK PRICE PERFORMANCE.


24





ITEM 6.
                SELECTED
      FINANCIAL DATA




This
table sets forth our selected financial data for the periods indicated. This
data should be read in conjunction with, and is qualified by reference to,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included in Item 7 of this Annual Report on Form 10-K and our
audited consolidated financial statements, including the related notes and our
independent registered public accounting firm’s report and the other financial
information included in Item 8 of this Annual Report on Form 10-K. The selected
data in this section is not intended to replace the consolidated financial
statements included in this report.


YEARS
      ENDED DECEMBER 31,2004
              
              
              2005
              
              
              2006
      (a)
              
              
              2007
      (a)
              
              
              2008(a)(in
      thousands, except share and per share data)STATEMENT
      OF OPERATIONS DATA:Revenues
              
              $
              624,544
              
              
              $
              721,899
              
              
              $
              824,354
              
              
              $
              958,541
              
              
              $
              1,049,603Operating
      expenses:Cost
      of operations
              
              
              354,901
              
              
              
              416,883
              
              
              
              492,766
              
              
              
              566,089
              
              
              
              628,075Selling,
      general and administrative
              
              
              61,223
              
              
              
              72,395
              
              
              
              84,541
              
              
              
              99,565
              
              
              
              111,114Depreciation
      and amortization
              
              
              54,630
              
              
              
              64,788
              
              
              
              74,865
              
              
              
              85,628
              
              
              
              97,429Loss
      (gain) on disposal of assets
              
              
              2,120
              
              
              
              (216
              )
              
              
              796
              
              
              
              250
              
              
              
              629Operating
      income
              
              
              151,670
              
              
              
              168,049
              
              
              
              171,386
              
              
              
              207,009
              
              
              
              212,356Interest
      expense
              
              
              (22,039
              )
              
              
              (23,966
              )
              
              
              (30,110
              )
              
              
              (35,023
              )
              
              
              (38,824
              )Interest
      income
              
              
              315
              
              
              
              477
              
              
              
              1,140
              
              
              
              1,593
              
              
              
              3,297Other
      income (expense), net
              
              
              (2,817
              )
              
              
              450
              
              
              
              (3,759
              )
              
              
              289
              
              
              
              (633
              )Income
      before income tax provision and minority interests
              
              
              127,129
              
              
              
              145,010
              
              
              
              138,657
              
              
              
              173,868
              
              
              
              176,196Minority
      interests
              
              
              (11,520
              )
              
              
              (12,422
              )
              
              
              (12,905
              )
              
              
              (14,870
              )
              
              
              (12,240
              )Income
      from continuing operations before income taxes
              
              
              115,609
              
              
              
              132,588
              
              
              
              125,752
              
              
              
              158,998
              
              
              
              163,956Income
      tax provision
              
              
              (42,251
              )
              
              
              (48,066
              )
              
              
              (48,329
              )
              
              
              (59,917
              )
              
              
              (58,400
              )Income
      from continuing operations
              
              
              73,358
              
              
              
              84,522
              
              
              
              77,423
              
              
              
              99,081
              
              
              
              105,556Loss
      on discontinued operations, net of tax
              
              
              (1,087
              )
              
              
              (579
              )
              
              
              —
              
              
              
              —
              
              
              
              —Net
      income
              
              $
              72,271
              
              
              $
              83,943
              
              
              $
              77,423
              
              
              $
              99,081
              
              
              $
              105,556Basic
      earnings per common share:Income
      from continuing operations
              
              $
              1.05
              
              
              $
              1.21
              
              
              $
              1.14
              
              
              $
              1.45
              
              
              $
              1.51Discontinued
      operations
              
              
              (0.02
              )
              
              
              (0.01
              )
              
              
              —
              
              
              
              —
              
              
              
              —Net
      income per common share
              
              $
              1.03
              
              
              $
              1.20
              
              
              $
              1.14
              
              
              $
              1.45
              
              
              $
              1.51Diluted
      earnings per common share:Income
      from continuing operations
              
              $
              1.02
              
              
              $
              1.17
              
              
              $
              1.10
              
              
              $
              1.42
              
              
              $
              1.48Discontinued
      operations
              
              
              (0.02
              )
              
              
              (0.01
              )
              
              
              —
              
              
              
              —
              
              
              
              —Net
      income per common share
              
              $
              1.00
              
              
              $
              1.16
              
              
              $
              1.10
              
              
              $
              1.42
              
              
              $
              1.48Shares
      used in calculating basic income per share (b)
              
              
              69,872,162
              
              
              
              70,050,974
              
              
              
              68,136,126
              
              
              
              68,238,523
              
              
              
              70,024,874Shares
      used in calculating diluted income per share (b)
              
              
              74,205,326
              
              
              
              72,316,952
              
              
              
              70,408,673
              
              
              
              69,994,713
              
              
              
              71,419,712


25





YEARS
      ENDED DECEMBER 31,2004
                                          
                                          
                                          2005
                                          
                                          
                                          2006
      (a)
                                          
                                          
                                          2007
      (a)
                                          
                                          
                                          2008(a)(in
      thousands, except share and per share data)BALANCE
      SHEET DATA:Cash
      and equivalents
                                          
                                          $
                                          3,610
                                          
                                          
                                          $
                                          7,514
                                          
                                          
                                          $
                                          34,949
                                          
                                          
                                          $
                                          10,298
                                          
                                          
                                          $
                                          265,264Working
      capital (deficit)
                                          
                                          
                                          (12,824
                                          )
                                          
                                          
                                          (25,625
                                          )
                                          
                                          
                                          10,368
                                          
                                          
                                          
                                          (24,849
                                          )
                                          
                                          
                                          213,747Property
      and equipment, net
                                          
                                          
                                          640,730
                                          
                                          
                                          
                                          700,508
                                          
                                          
                                          
                                          736,428
                                          
                                          
                                          
                                          865,330
                                          
                                          
                                          
                                          984,124Total
      assets
                                          
                                          
                                          1,491,483
                                          
                                          
                                          
                                          1,676,307
                                          
                                          
                                          
                                          1,773,891
                                          
                                          
                                          
                                          1,981,958
                                          
                                          
                                          
                                          2,600,640Long-term
      debt
                                          
                                          
                                          489,343
                                          
                                          
                                          
                                          586,104
                                          
                                          
                                          
                                          637,308
                                          
                                          
                                          
                                          719,518
                                          
                                          
                                          
                                          830,758Total
      stockholders’ equity
                                          
                                          
                                          707,522
                                          
                                          
                                          
                                          718,200
                                          
                                          
                                          
                                          736,482
                                          
                                          
                                          
                                          775,145
                                          
                                          
                                          
                                          1,254,727




(a)
            For
      more information regarding this financial data, see the Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
      section included in this report. For disclosures associated with the
      impact of the adoption of new accounting pronouncements and the
      comparability of this information, see Note 1 of the consolidated
      financial statements.(b)
            Shares
      have been adjusted to reflect our three-for-two stock split, paid as a 50%
      stock dividend, effective as of June 24, 2004, and our three-for-two stock
      split, paid as a 50% stock dividend, effective as of March 13,
      2007.


26




ITEM 7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




The
following discussion should be read in conjunction with the “Selected Financial
Data,” our consolidated financial statements and the related notes included
elsewhere in this report.




Industry
Overview




The solid
waste industry is a local and highly competitive business, requiring substantial
labor and capital resources. The participants compete for collection accounts
primarily on the basis of price and, to a lesser extent, the quality of service,
and compete for landfill business on the basis of tipping fees, geographic
location and quality of operations. The solid waste industry has been
consolidating and continues to consolidate as a result of a number of factors,
including the increasing costs and complexity associated with waste management
operations and regulatory compliance. Many small independent operators and
municipalities lack the capital resources, management, operating skills and
technical expertise necessary to operate effectively in such an environment. The
consolidation trend has caused solid waste companies to operate larger landfills
that have complementary collection routes that can use company-owned disposal
capacity. Controlling the point of transfer from haulers to landfills has become
increasingly important as landfills continue to close and disposal capacity
moves further from collection markets.




Generally,
the most profitable industry operators are those companies that are vertically
integrated or enter into long-term collection contracts. A vertically integrated
operator will benefit from: (1) the internalization of waste, which is
bringing waste to a company-owned landfill; (2) the ability to charge
third-party haulers tipping fees either at landfills or at transfer stations;
and (3) the efficiencies gained by being able to aggregate and process
waste at a transfer station prior to landfilling.




Executive
Overview




We are an
integrated solid waste services company that provides solid waste collection,
transfer, disposal and recycling services in mostly secondary markets in the
Western and Southern U.S. We also provide intermodal services for the rail haul
movement of cargo and solid waste containers in the Pacific Northwest through a
network of intermodal facilities. We seek to avoid highly competitive, large
urban markets and instead target markets where we can provide either solid waste
services under exclusive arrangements, or markets where we can be integrated and
attain high market share. In markets where waste collection services are
provided under exclusive arrangements, or where waste disposal is municipally
funded or available at multiple municipal sources, we believe that controlling
the waste stream by providing collection services under exclusive arrangements
is often more important to our growth and profitability than owning or operating
landfills.




Operating
Results




Revenue
in 2008 grew 9.5% as internal growth from operations owned at least
12 months was 3.0%, and acquisitions contributed an additional 6.5% growth
in revenue. As shown in the table below, internal growth decreased from 10.4% in
2007, to 3.0% in 2008.


2007
                      
                      
                      2008Price
                      
                      
                      4.7
                      %
                      
                      
                      5.6
                      %Volume
                      
                      
                      4.0
                      %
                      
                      
                      (1.9
                      %
      )Intermodal,
      Recycling and Other
                      
                      
                      1.7
                      %
                      
                      
                      (0.7
                      %
      )Internal
      Growth
                      
                      
                      10.4
                      %
                      
                      
                      3.0
                      %




In 2008,
the pricing component of our internal growth increased to 5.6% as a result of
broad-based pricing initiatives to offset or recover significant cost increases,
primarily in fuel and related items. Volume growth was a negative 1.9% for the
full year, but volume declines accelerated throughout 2008 as the economic
recession worsened. Volume losses for the year peaked in the fourth quarter at
5.8%. Recycling, intermodal and other negatively impacted internal growth by
approximately 0.7% in 2008 primarily due to a significant drop in recycled
commodity prices during the fourth quarter.




Operating
margins decreased from 21.6% in 2007, to 20.2% in 2008. This 1.4 percentage
point decrease was primarily attributable to higher fuel prices, which increased
fuel costs as a percentage of revenue by approximately 2 percentage points,
partially offset by a reduction in insurance expense. We remain intensely
focused on reducing our cost structure and controlling capital expenditures
given the continuing deterioration in the overall economy.


27




Free Cash
Flow




Net cash
provided by operating activities increased 23.4% to $270.4 million in 2008 from
$219.1 million in 2007. Free cash flow, a non-GAAP financial measure (refer to
page 42
of this report for a definition and reconciliation of free cash flow), increased
44.2% to $153.2 million in 2008, from $106.2 million in 2007. Free
cash flow increased as a percentage of revenue to 14.6% in 2008, from 11.1% in
2007, primarily due to increased earnings, improved accounts receivable
turnover, a decrease in tax payments, and a reduction in capital expenditures in
light of volume losses due to the weakening economy. We believe our growth in
free cash flow reflects the resiliency of our strategy during difficult economic
times.




Capital
Position




Despite
the significant deterioration in the credit and equity markets during 2008, we
were able to expand our credit facility by $45.0 million, issue
$175.0 million of new senior notes, and complete a common stock offering
raising approximately $393.9 million in net proceeds. The successful
execution of our financing plan in 2008 positioned us with a strong balance
sheet with over $625 million of available capital at year end 2008 to fund
additional growth opportunities.  On
February 6, 2009, we and some of our subsidiaries entered into an Asset Purchase
Agreement with Republic Services, Inc. and some of its subsidiaries and other
affiliates (“sellers”) pursuant to which we agreed to purchase from the sellers
assets principally used by the sellers in connection with their solid waste
collection and disposal business.  The purchase price for the assets
is approximately $313.2 million, subject to pre- and post-closing pro-rations
and other adjustments.  We anticipate paying for the transaction with
available cash and equivalents, together with borrowings on our senior revolving
credit facility.  For additional information, see Part II, Item 9B of
this Annual Report on Form 10-K.


We
maintain a targeted leverage ratio, as defined in our credit facility, between
2.5x and 2.75x of total debt to earnings before interest, taxes, depreciation
and amortization, or EBITDA. We deployed $355.2 million during 2008 for
acquisitions, $113.5 million for capital expenditures, and
$31.5 million for common stock repurchases. As a result of our free cash
flow and previously discussed financings and outlays, our leverage ratio
remained below our targeted range at year-end 2008 while cash and equivalents
increased $255.0 million over the prior year.




Critical
Accounting Estimates and Assumptions




The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and expenses and related
disclosures of contingent assets and liabilities in the consolidated financial
statements. As described by the SEC, critical accounting estimates and
assumptions are those that may be material due to the levels of subjectivity and
judgment necessary to account for highly uncertain matters or the susceptibility
of such matters to change, and that have a material impact on the financial
condition or operating performance of a company. Based on this definition, we
believe the following are our critical accounting estimates.




Insurance
liabilities. We maintain insurance policies for automobile, general,
employer’s, environmental and directors and officers’ liability as well as for
employee group health insurance, property insurance and workers’ compensation.
Our insurance accruals are based on claims filed and estimates of claims
incurred but not reported and are developed by our management with assistance
from our third-party actuary and third-party claims administrator. The insurance
accruals are influenced by our past claims experience factors, which have a
limited history, and by published industry development factors. If we experience
insurance claims or costs above or below our historically evaluated levels, our
estimates could be materially affected. The frequency and amount of claims or
incidents could vary significantly over time, which could materially affect our
self-insurance liabilities. Additionally, the actual costs to settle the
self-insurance liabilities could materially differ from the original estimates
and cause us to incur additional costs in future periods associated with prior
year claims.




Income taxes. We use
the liability method to account for income taxes. Accordingly, deferred tax
assets and liabilities are determined based on differences between financial
reporting and income tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse. If our judgment and estimates concerning
assumptions made in calculating our expected future income tax rates are
incorrect, our deferred tax assets and liabilities would change. Based on our
net deferred tax liability balance at December 31, 2008, each 0.1
percentage point change to our expected future income tax rate would change our
net deferred tax liability balance and income tax expense by approximately
$0.6 million.




Effective
January 2007, we adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes – an Interpretation of FASB Statement No. 109, or
FIN 48. FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with SFAS
No. 109, Accounting for
Income Taxes. FIN 48 requires a company to evaluate whether the tax
position taken by a company will more likely than not be sustained upon
examination by the appropriate taxing authority. It also provides guidance on
how a company should measure the amount of benefit that the company is to
recognize in its financial statements. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. Our reassessment of our tax positions in
accordance with FIN 48 did not have a material impact on our results of
operations, financial condition or liquidity. For additional information
regarding FIN 48, see Note 13, Income Taxes, of the Notes to
Consolidated Financial Statements in Item 8 of this Annual Report on
Form 10-K.


28




Accounting for
landfills. We recognize landfill depletion expense as airspace of a
landfill is consumed. Our landfill depletion rates are based on the remaining
disposal capacity at our landfills, considering both permitted and expansion
airspace. Landfill final capping, closure and post-closure liabilities are
calculated by estimating the total obligation in current dollars, inflating the
obligation based upon the expected date of the expenditure and discounting the
inflated total to its present value using a credit-adjusted, risk-free rate. The
resulting final capping, closure and post-closure obligation is recorded on the
balance sheet as an addition to site costs and amortized as depletion expense as
the landfill’s total airspace is consumed. The accounting methods discussed
below require us to make certain estimates and assumptions. Changes to these
estimates and assumptions could have a material effect on our financial
condition and results of operations. Any changes to our estimates are applied
prospectively.




Landfill development
costs. Landfill development costs include the costs of acquisition,
construction associated with excavation, liners, site berms, groundwater
monitoring wells and leachate collection systems. We estimate the total costs
associated with developing each landfill site to its final capacity. Total
landfill costs include the development costs associated with expansion airspace.
Expansion airspace is described below. Landfill development costs depend on
future events and thus actual costs could vary significantly from our estimates.
Material differences between estimated and actual development costs may affect
our cash flows by increasing our capital expenditures and thus affect our
results of operations by increasing our landfill depletion expense.




Final capping, closure and
post-closure obligations. We accrue for estimated final capping, closure
and post-closure maintenance obligations at the landfills we own, and the
landfills that we operate, but do not own, under life-of-site agreements. We
could have additional material financial obligations relating to final capping,
closure and post-closure costs at other disposal facilities that we currently
own or operate or that we may own or operate in the future. In 2008, we
calculated the net present value of our final capping, closure and post closure
commitments assuming a 2.5% inflation rate and a 7.5% discount rate. The
resulting final capping, closure and post-closure obligation is recorded on the
balance sheet as an addition to site costs and amortized as depletion expense as
the landfill’s total airspace is consumed. Significant reductions in our
estimates of the remaining lives of our landfills or significant increases in
our estimates of the landfill final capping, closure and post-closure
maintenance costs could have a material adverse effect on our financial
condition and results of operations. Additionally, changes in regulatory or
legislative requirements could increase our costs related to our landfills,
resulting in a material adverse effect on our financial condition and results of
operations.




We own
two landfills for which the prior owners are obligated to reimburse us for
certain costs we incur for final capping, closure and post-closure activities on
the portion of the landfill utilized by the prior owners. We accrue the prior
owner’s portion of the final capping, closure and post-closure obligation within
the balance sheet classification of other long-term liabilities, and a
corresponding receivable from the prior owner in long-term other
assets.




Disposal capacity.
Our internal and third-party engineers perform surveys at least annually to
estimate the remaining disposal capacity at our landfills. Our landfill
depletion rates are based on the remaining disposal capacity, considering both
permitted and expansion airspace, at the landfills that we own and at the
landfills that we operate, but do not own, under life-of-site agreements. Our
landfill depletion rates are based on the term of the operating agreement at our
operated landfills that have capitalized expenditures. Expansion airspace
consists of additional disposal capacity being pursued through means of
expansion but is not actually permitted. Expansion airspace that meets certain
internal criteria is included in our estimate of total landfill airspace. The
internal criteria we use to determine when expansion airspace may be included as
disposal capacity are as follows:


1)
                the
      land where the expansion is being sought is contiguous to the current
      disposal site, and we either own the expansion property or it is under an
      option, purchase, operating or other similar agreement;2)
                total
      development costs, final capping costs, and closure/post-closure costs
      have been determined;3)
                internal
      personnel have performed a financial analysis of the proposed expansion
      site and have determined that it has a positive financial and operational
      impact;4)
                internal
      personnel or external consultants are actively working to obtain the
      necessary approvals to obtain the landfill expansion permit;
      and5)
                we
      consider it probable that we will achieve the expansion (for a pursued
      expansion to be considered probable, there must be no significant known
      technical, legal, community, business or political restrictions or similar
      issues existing that could impair the success of the
      expansion).




We may be
unsuccessful in obtaining permits for expansion disposal capacity at our
landfills. In such cases, we will charge the previously capitalized development
costs to expense. This will adversely affect our operating results and cash
flows and could result in greater landfill depletion expense being recognized on
a prospective basis.




We
periodically evaluate our landfill sites for potential impairment indicators.
Our judgments regarding the existence of impairment indicators are based on
regulatory factors, market conditions and operational performance of our
landfills. Future events could cause us to conclude that impairment indicators
exist and that our landfill carrying costs are impaired. Any resulting
impairment loss could have a material adverse effect on our financial condition
and results of operations.


29




Goodwill and
indefinite-lived intangible testing. Goodwill and indefinite-lived
intangibles are tested for impairment on at least an annual basis in the fourth
quarter of the year. In the first step of testing for goodwill impairment, we
estimate the fair value of each reporting unit, which we have determined to be
our geographic operating segments, and compare the fair value with the carrying
value of the net assets assigned to each reporting unit. If the fair value of a
reporting unit is greater than the carrying value of the net assets assigned to
the reporting unit, then no impairment results. If the fair value is less than
its carrying value, then we would perform a second step and determine the fair
value of the goodwill. In this second step, the fair value of goodwill is
determined by deducting the fair value of a reporting unit’s identifiable assets
and liabilities from the fair value of the reporting unit as a whole, as if that
reporting unit had just been acquired and the purchase price were being
initially allocated. If the fair value of the goodwill is less than its carrying
value for a reporting unit, an impairment charge would be recorded to earnings
in our Consolidated Statement of Income. In testing indefinite-lived intangibles
for impairment, we compare the estimated fair value of each indefinite-lived
intangible to its carrying value. If the fair value of the indefinite-lived
intangible is less than its carrying value, an impairment charge would be
recorded to earnings in our Consolidated Statement of Income.




To
determine the fair value of each of our reporting units as a whole and each
indefinite-lived intangible asset, we use discounted cash flow analyses, which
require significant assumptions and estimates about the future operations of
each reporting unit and the future discrete cash flows related to each
indefinite-lived intangible asset. Significant judgments inherent in these
analyses include the determination of appropriate discount rates, the amount and
timing of expected future cash flows and growth rates. The cash flows employed
in our 2008 discounted cash flow analyses were based on ten-year financial
forecasts, which in turn were based on the 2009 annual budget developed
internally by management. These forecasts reflect perpetual revenue growth rates
of 5.0% and operating profit margins that were consistent with 2008 results. Our
discount rate assumptions are based on an assessment of the Company’s weighted
average cost of capital. In assessing the reasonableness of our determined fair
values of our reporting units, we evaluate our results against our current
market capitalization.




In
addition, we would evaluate a reporting unit for impairment if events or
circumstances change between annual tests indicating a possible impairment.
Examples of such events or circumstances include the following:


●
              A
      significant adverse change in legal factors or in the business
      climate,●
              An
      adverse action or assessment by a regulator,●
              A
      more likely than not expectation that a segment or a significant portion
      thereof will be sold, or●
              The
      testing for recoverability under Statement of Financial Accounting
      Standards No. 144, Accounting for the Impairment
      or Disposal of Long-Lived Assets, of a significant asset group
      within the segment.




We did
not record an impairment charge as a result of our goodwill and indefinite-lived
intangibles impairment test in 2008. However, there can be no assurance that
goodwill and indefinite-lived intangibles will not be impaired at any time in
the future.




Allocation of acquisition
purchase price. We allocate acquisition purchase prices to identified
intangible assets and tangible assets acquired and liabilities assumed based on
their estimated fair values at the dates of acquisition, with any residual
amounts allocated to goodwill.




From time
to time, we consummate acquisitions in which we exchange operations we own for
operations owned by another solid waste company. These exchange transactions
require us to estimate the fair market value of either the operations we receive
or the operations we dispose of, whichever is more clearly evident. To the
extent that the fair market value of the operations we dispose of differs from
the fair market value of the operations we obtain, cash is either paid or
received to offset the difference in fair market values. One method we use to
estimate the fair value of solid waste companies is based on a multiple of
EBITDA. We determine the appropriate EBITDA multiple to be used in the valuation
of exchange transactions based on factors such as the size of the transaction,
the type and location of markets serviced, the existence of long-term contracts
and the EBITDA multiples we have paid in other similar cash-based
transactions.




Stock-based
compensation. Effective January 2006, we adopted the provisions of
SFAS 123(R), Share-Based
Payment, for our share-based compensation plans. We previously accounted
for these plans under the recognition and measurement principles of APB 25
and related interpretations and disclosure requirements established by
SFAS 123, Accounting for
Stock-Based Compensation. We adopted SFAS 123(R) using the modified
prospective method. Under this method, all share-based compensation cost is
measured at the grant date, based on the estimated fair value of the award, and
is recognized as expense over the employee’s requisite service period. Prior
periods are not restated.


30




Consistent
with prior years, we used the Black-Scholes option pricing model which requires
extensive use of accounting judgment and financial estimation, including
estimates of the expected term option holders will retain their vested stock
options before exercising them, the estimated volatility of our common stock
price over the expected term, and the number of options that will be forfeited
prior to the completion of their vesting requirements. Application of
alternative assumptions could produce significantly different estimates of the
fair value of stock-based compensation and, consequently, the related amounts
recognized for the year ended December 31, 2008, in the Consolidated
Statements of Income within this report.




General




Our solid
waste revenues consist mainly of fees we charge customers for collection,
transfer, disposal and recycling services. Our collection business also
generates revenues from the sale of recyclable commodities, which have
significant variability. A large part of our collection revenues comes from
providing residential, commercial and industrial services. We frequently perform
these services under service agreements, municipal contracts or franchise
agreements with governmental entities. Our existing franchise agreements and all
of our existing municipal contracts give us the exclusive right to provide
specified waste services in the specified territory during the contract term.
These exclusive arrangements are awarded, at least initially, on a competitive
bid basis and subsequently on a bid or negotiated basis. We also provide
residential collection services on a subscription basis with individual
households.




We charge
transfer station and landfill customers a tipping fee on a per ton and/or per
yard basis for disposing their solid waste at our transfer stations and landfill
facilities. Many of our transfer station and landfill customers have entered
into one to ten year disposal contracts with us, most of which provide for
annual indexed price increases.




We
typically determine the prices of our solid waste services by the collection
frequency and level of service, route density, volume, weight and type of waste
collected, type of equipment and containers furnished, the distance to the
disposal or processing facility, the cost of disposal or processing and prices
charged by competitors for similar services. The terms of our contracts
sometimes limit our ability to pass on price increases. Long-term solid waste
collection contracts often contain a formula, generally based on a published
price index, that automatically adjusts fees to cover increases in some, but not
all, operating costs, or that limit increases to less than 100% of the increase
in the applicable price index.




Our
revenues from intermodal services consist mainly of fees we charge customers for
the movement of cargo containers between our intermodal facilities. We also
generate revenue from the storage, maintenance and repair of cargo and solid
waste containers and the sale or lease of containers and chassis.




The table
below shows for the periods indicated our total reported revenues attributable
to services provided in thousands and as percentages of revenues.


Years
      Ended December 31,2006
                                                
                                                
                                                2007
                                                
                                                
                                                2008Collection
                                                
                                                $
                                                602,762
                                                
                                                
                                                
                                                64.2
                                                %
                                                
                                                $
                                                693,675
                                                
                                                
                                                
                                                63.8
                                                %
                                                
                                                $
                                                787,713
                                                
                                                
                                                
                                                66.4
                                                %Disposal
      and transfer
                                                
                                                
                                                259,190
                                                
                                                
                                                
                                                27.6
                                                
                                                
                                                
                                                298,954
                                                
                                                
                                                
                                                27.5
                                                
                                                
                                                
                                                308,811
                                                
                                                
                                                
                                                26.0Recycling
      and other
                                                
                                                
                                                77,202
                                                
                                                
                                                
                                                8.2
                                                
                                                
                                                
                                                95,212
                                                
                                                
                                                
                                                8.7
                                                
                                                
                                                
                                                89,594
                                                
                                                
                                                
                                                7.6Total
                                                
                                                $
                                                939,154
                                                
                                                
                                                
                                                100.0
                                                %
                                                
                                                $
                                                1,087,841
                                                
                                                
                                                
                                                100.0
                                                %
                                                
                                                $
                                                1,186,118
                                                
                                                
                                                
                                                100.0
                                                %Intercompany
      elimination
                                                
                                                $
                                                114,800
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                129,300
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                136,515




Cost of
operations includes labor and benefits, tipping fees paid to third-party
disposal facilities, vehicle and equipment maintenance, workers’ compensation,
vehicle and equipment insurance, insurance and employee group health claims
expense, third-party transportation expense, fuel, the cost of materials we
purchase for recycling, district and state taxes and host community fees and
royalties. Our significant costs of operations in 2008 were labor, third-party
disposal and transportation, cost of vehicle and equipment maintenance, taxes
and fees, insurance and fuel. We use a number of programs to reduce overall cost
of operations, including increasing the use of automated routes to reduce labor
and workers’ compensation exposure, utilizing comprehensive maintenance and
health and safety programs, and increasing the use of transfer stations to
further enhance internalization rates. We carry high-deductible insurance for
automobile liability, property, general liability, workers’ compensation,
employer’s liability and employer group health claims. If we experience
insurance claims or costs above or below our historically evaluated levels, our
estimates could be materially affected.


31




Selling,
general and administrative, or SG&A, expenses include management, sales
force, clerical and administrative employee compensation and benefits, legal,
accounting and other professional services, bad debt expense and rent expense
for our corporate headquarters.




Depreciation
expense includes depreciation of equipment and fixed assets over their estimated
useful lives using the straight-line method. Depletion expense includes
depletion of landfill site costs and total future development costs as remaining
airspace of the landfill is consumed. Remaining airspace at our landfills
includes both permitted and expansion airspace. Amortization expense includes
the amortization of definite-lived intangible assets, consisting primarily of
long-term franchise agreements and contracts and non-competition agreements,
over their estimated useful lives using the straight-line method. Goodwill and
indefinite-lived intangible assets, consisting primarily of certain perpetual
rights to provide solid waste collection and transportation services in
specified territories, are not amortized.




We
capitalize some third-party expenditures related to pending acquisitions or
development projects, such as legal, engineering and interest expenses. We
expense indirect acquisition costs, such as executive and corporate overhead,
public relations and other corporate services, as we incur them. We charge
against net income any unamortized capitalized expenditures and advances (net of
any portion that we believe we may recover, through sale or otherwise) that may
become impaired, such as those that relate to any operation that is permanently
shut down and any pending acquisition or landfill development project that we
believe will not be completed. We routinely evaluate all capitalized costs, and
expense those related to projects that we believe are not likely to succeed.
During the year ended December 31, 2008, we capitalized less than
$0.1 million of interest related to landfill and facility development
projects. At December 31, 2008, we had less than $0.1 million in
capitalized expenditures relating to pending acquisitions.




At
December 31, 2008, we had $9.9 million in capitalized expenditures for
a landfill project in Chaparral, New Mexico, with respect to which we had
obtained a permit to operate the landfill; on July 18, 2005, the Supreme
Court of New Mexico ordered the New Mexico Environment Department to conduct an
additional limited hearing to consider evidence that landfill opponents claim
was wrongfully excluded. The parties have agreed to postpone the hearing until
November 2009 at the earliest to allow us time to explore a possible relocation
of the landfill. If we are not ultimately issued a permit to operate the
landfill, we will be required to expense in a future period the capitalized
expenditures for this project, less the recoverable value of the applicable
property and any other amounts recovered, which would likely have a material
adverse effect on our financial position and results of operations for that
period.


32




Results
of Operations




The
following table sets forth items in our consolidated statement of operations in
thousands and as a percentage of revenues for the periods
indicated:


Years
      Ended December 31,2006
              
              
              As
      a % of 2006
                Revenues
              
              
              2007
              
              
              As
      a % of 2007
                Revenues
              
              
              2008
              
              
              As
      a % of 2008
                RevenuesRevenues
              
              $
              824,354
              
              
              
              100.0
              %
              
              $
              958,541
              
              
              
              100.0
              %
              
              $
              1,049,603
              
              
              
              100.0
              %Cost
      of operations
              
              
              492,766
              
              
              
              59.8
              
              
              
              566,089
              
              
              
              59.1
              
              
              
              628,075
              
              
              
              59.8Selling,
      general and administrative
              
              
              84,541
              
              
              
              10.2
              
              
              
              99,565
              
              
              
              10.4
              
              
              
              111,114
              
              
              
              10.6Depreciation
      and amortization
              
              
              74,865
              
              
              
              9.1
              
              
              
              85,628
              
              
              
              8.9
              
              
              
              97,429
              
              
              
              9.3Loss
      on disposal of assets
              
              
              796
              
              
              
              0.1
              
              
              
              250
              
              
              
              —
              
              
              
              629
              
              
              
              0.1Operating
      income
              
              
              171,386
              
              
              
              20.8
              
              
              
              207,009
              
              
              
              21.6
              
              
              
              212,356
              
              
              
              20.2Interest
      expense
              
              
              (30,110
              )
              
              
              (3.6
              )
              
              
              (35,023
              )
              
              
              (3.6
              )
              
              
              (38,824
              )
              
              
              (3.7
              )Interest
      income
              
              
              1,140
              
              
              
              0.1
              
              
              
              1,593
              
              
              
              0.1
              
              
              
              3,297
              
              
              
              0.4Other
      income (expense), net
              
              
              (3,759
              )
              
              
              (0.4
              )
              
              
              289
              
              
              
              —
              
              
              
              (633
              )
              
              
              (0.1
              )Minority
      interests
              
              
              (12,905
              )
              
              
              (1.6
              )
              
              
              (14,870
              )
              
              
              (1.6
              )
              
              
              (12,240
              )
              
              
              (1.2
              )Income
      tax provision
              
              
              (48,329
              )
              
              
              (5.9
              )
              
              
              (59,917
              )
              
              
              (6.2
              )
              
              
              (58,400
              )
              
              
              (5.5
              )Net
      income
              
              $
              77,423
              
              
              
              9.4
              %
              
              $
              99,081
              
              
              
              10.3
              %
              
              $
              105,556
              
              
              
              10.1
              %




Years
Ended December 31, 2008 and 2007




Revenues.
Total revenues increased $91.1 million, or 9.5%, to $1.05 billion for
the year ended December 31, 2008, from $958.5 million for the year
ended December 31, 2007.




Acquisitions
closed during, or subsequent to, the year ended December 31, 2007,
increased revenues by approximately $62.1 million.




During
the year ended December 31, 2008, increased prices and surcharges charged
to our customers increased revenue by $53.6 million. For 2009, we currently
estimate that between $50 million to $55 million of price increases
charged to customers will be partially offset by an approximate $20 million
decrease in surcharges primarily related to declining fuel costs.




During
the year ended December 31, 2008, revenues generated from a long-term
contract that commenced in March 2007 resulted in a net revenue increase of
approximately $3.9 million. Volume decreases in our existing business
during the year ended December 31, 2008, reduced revenue by approximately
$22.2 million. The net decrease in volume was primarily attributable to
declines in roll off activity and landfill volumes for landfills owned in the
comparable periods. During the first quarter of 2008, our volume growth, net of
revenues generated from a long-term contract that commenced in March 2007, was
$1.0 million. During the second, third and fourth quarters of 2008, our
volume declined by $3.7 million, $5.3 million and $14.2 million,
respectively, from the comparable periods in 2007. Our volume decline increased
throughout 2008 as a result of the overall economic recession currently
affecting the United States. We currently estimate that the economic recession
will result in our 2009 volume declining between approximately 3% and 4% from
2008.




Recyclable
commodity revenue was $40.4 million for the year ended December 31, 2008.
Reductions in recyclable commodity prices and volumes during the fourth quarter
of 2008, partially offset by increased recyclable commodity prices and volume
during the first nine months of 2008, reduced revenue by $3.3 million from
2007. During the first, second and third quarters of 2008, our recyclable
commodity revenue increased $2.2 million, $1.5 million and
$0.2 million, respectively, from the comparable periods in 2007. During the
fourth quarter of 2008, our recyclable commodity revenue declined
$7.2 million from the comparable period in 2007 due to a sharp decline in
commodity pricing resulting from decreased overseas demand for recyclable
commodities. We believe this reduction in overseas demand will continue
throughout 2009, resulting in our 2009 recyclable commodity revenue declining
between 40% and 50% from 2008.


33




Other
revenues decreased by $3.1 million during the year ended December 31,
2008.




Cost
of Operations. Total cost of operations increased $62.0 million, or
10.9%, to $628.1 million for the year ended December 31, 2008, from
$566.1 million for the year ended December 31, 2007. The increase was
attributable to operating costs associated with acquisitions closed during, or
subsequent to, the year ended December 31, 2007, operating costs incurred
to support a long-term contract that commenced in March 2007, increased diesel
fuel expense resulting from higher market prices for fuel and certain operating
locations entering into short-term, fixed price, fuel purchase agreements in the
second quarter of 2008 that resulted in the purchase of their remaining 2008
fuel volume at prices in excess of market value, increased labor expenses
resulting from employee pay rate increases, increased employee medical benefit
expenses resulting from an increase in medical claims cost and severity,
increased franchise taxes, increased third party trucking and transportation
expenses and increased disposal expenses, partially offset by a decrease in
major vehicle and equipment repairs, decreases in auto and workers’ compensation
claims under our high deductible insurance program and a reduction in expected
development costs recorded in prior years for open auto and workers’
compensation claims. This adjustment to claim development costs was based on
changes in estimates of actuarially projected losses on open claims determined
by our third party administrator’s review and a third party actuarial review of
our estimated insurance liability.




Cost
of operations as a percentage of revenues increased 0.7 percentage points
to 59.8% for the year ended December 31, 2008, from 59.1% for the year
ended December 31, 2007. The increase as a percentage of revenues was
primarily attributable to increased diesel fuel expense and increased employee
medical benefit expense, partially offset by decreased major vehicle and
equipment repairs expense, increased prices charged to our customers being
higher, on a percentage basis, than certain expense increases recognized
subsequent to December 31, 2007, and decreased auto and workers’
compensation insurance expense related to current and prior year
claims.




SG&A.
SG&A expenses increased $11.5 million, or 11.6%, to $111.1 million
for the year ended December 31, 2008, from $99.6 million for the year
ended December 31, 2007. The increase in SG&A expenses was primarily
the result of additional personnel from acquisitions closed during, or
subsequent to, the year ended December 31, 2007, increased payroll expense
due to increased headcount to support our base operations, increased medical
benefit expense, and increased incentive and equity compensation expenses,
partially offset by decreased employee deferred compensation expense resulting
from deferred compensation liabilities to employees being reduced as a result of
declines in the market value of investments to which employee deferred
compensation balances are tracked.




SG&A
expenses as a percentage of revenues increased 0.2 percentage points to
10.6% for the year ended December 31, 2008, from 10.4% for the year ended
December 31, 2007. The increase as a percentage of revenues was primarily
attributable to increased payroll expense, increased incentive and equity
compensation expense, partially offset by decreased employee deferred
compensation expense.




Depreciation
and Amortization. Depreciation and amortization expense increased
$11.8 million, or 13.8%, to $97.4 million for the year ended
December 31, 2008, from $85.6 million for the year ended
December 31, 2007. The increase was primarily attributable to depreciation
and amortization associated with acquisitions closed during, or subsequent to,
the year ended December 31, 2007, additions to our fleet and equipment
purchased to support our existing operations, and higher landfill depletion
expense due to increased landfill construction and closure costs.




Depreciation
and amortization expense as a percentage of revenues increased
0.4 percentage points to 9.3% for the year ended December 31, 2008,
from 8.9% for the year ended December 31, 2007. The increase as a
percentage of revenues was the result of amortization expense associated with
intangible assets acquired during, or subsequent to, the year ended
December 31, 2007, and fleet and equipment purchased to support our
existing operations.




Operating
Income. Operating income increased $5.4 million, or 2.6%, to
$212.4 million for the year ended December 31, 2008, from
$207.0 million for the year ended December 31, 2007. The increase for
the year ended December 31, 2008, was primarily attributable to increased
revenues, partially offset by increased operating costs, increased SG&A
expenses to support the revenue growth and increased depreciation and
amortization expenses.




Operating
income as a percentage of revenues decreased 1.4 percentage points to 20.2%
for the year ended December 31, 2008, from 21.6% for the year ended
December 31, 2007. The decrease as a percentage of revenues was due to the
previously described percentage of revenue increases in cost of operations,
SG&A, and depreciation and amortization expense.




Interest
Expense. Interest expense increased $3.8 million, or 10.9%, to
$38.8 million for the year ended December 31, 2008, from
$35.0 million for the year ended December 31, 2007. The increase for
the year ended December 31, 2008, was attributable to increased average
debt balances, partially offset by reduced average borrowing rates on the
portion of our credit facility borrowings not fixed under interest rate swap
agreements.


34




Interest
Income. Interest income increased $1.7 million, or 107.0%, to
$3.3 million for the year ended December 31, 2008, from
$1.6 million for the year ended December 31, 2007. The increase for
the year ended December 31, 2008, was attributable to higher average cash
balances.




Minority
Interests. Minority interests decreased $2.7 million, or 17.7%, to
$12.2 million for the year ended December 31, 2008, from
$14.9 million for the year ended December 31, 2007. The decrease was
due to decreased earnings at PCRCD, primarily resulting from a decrease in
revenues associated with reduced disposal volumes, and our acquisition of the
remaining 49% interest in PCRCD, effective November 3, 2008. Our minority
interests expense would have been $13.7 million for the year ended
December 31, 2008, if we had not purchased the remaining 49% interest in
PCRCD.




Income
Tax Provision. Income taxes decreased $1.5 million, or 2.5%, to
$58.4 million for the year ended December 31, 2008, from
$59.9 million for the year ended December 31, 2007.




Our
effective tax rates for the years ended December 31, 2007 and 2008, were
37.7% and 35.6%, respectively. The decrease in the effective tax rate during the
year ended December 31, 2008, was due to recording adjustments to reduce
income tax expense by $4.9 million, resulting primarily from changes to the
geographical apportionment of our state taxes, the reversal of certain tax
contingencies for which the statute of limitations expired in 2008, and the
reconciliation of the income tax provision to the 2007 federal and state tax
returns, which were filed during 2008.




Years
Ended December 31, 2007 and 2006




Revenues.
Total revenues increased $134.1 million, or 16.3%, to $958.5 million
for the year ended December 31, 2007, from $824.4 million for the year
ended December 31, 2006. Acquisitions closed during, or subsequent to, the
year ended December 31, 2006, increased revenues by approximately
$51.9 million. Operating locations disposed of during the year ended
December 31, 2006, contributed $3.6 million of revenues during the
year ended December 31, 2006. During the year ended December 31, 2007,
increased prices charged to our customers, increased volume in our existing
business, and revenues generated from two long-term contracts that commenced in
2007 resulted in net revenue increases of approximately $38.2 million,
$12.6 million and $20.2 million, respectively. Increased recyclable
commodity prices and volume during the year ended December 31, 2007,
increased revenues by $13.0 million. Other revenues increased by
$1.8 million during the year ended December 31, 2007.




Cost
of Operations. Total cost of operations increased $73.3 million, or
14.9%, to $566.1 million for the year ended December 31, 2007, from
$492.8 million for the year ended December 31, 2006. The increase was
attributable to operating costs associated with acquisitions closed during, or
subsequent to, the year ended December 31, 2006, operating costs incurred
to support two long-term contracts that commenced in 2007, increased diesel fuel
prices, increased labor expenses resulting from employee pay rate increases,
increased vehicle and equipment maintenance and repair costs, increased
franchise taxes, landfill taxes, third party trucking expenses and increased
disposal expenses resulting from higher disposal volumes.




Cost
of operations as a percentage of revenues decreased 0.7percentage
points to 59.1% for the year ended December 31, 2007, from 59.8% for the
year ended December 31, 2006. The decrease as a percentage of revenues was
primarily attributable to leveraging existing personnel to support increased
collection and disposal volumes, and increased prices charged to our customers
being higher, on a percentage basis, than the majority of expense increases
recognized subsequent to December 31, 2006. This decrease was partially
offset by acquisitions closed during, or subsequent to, the year ended
December 31, 2006, and the commencement of a long-term hauling contract in
California that commenced in 2007, which had an operating margin below our
company average.




SG&A.
SG&A expenses increased $15.1 million, or 17.8%, to $99.6 million
for the year ended December 31, 2007, from $84.5 million for the year
ended December 31, 2006. The increase in SG&A expenses was primarily
the result of additional personnel from acquisitions closed during, or
subsequent to, the year ended December 31, 2006, SG&A costs incurred to
support two long-term contracts that commenced in 2007, increased payroll
expense due to increased headcount to support our base operations, increased
equity compensation expense, cash compensation increases and increased bonus
compensation expense based on the results of operations during the year ended
December 31, 2007.




SG&A
expenses as a percentage of revenues increased 0.2percentage
points to 10.4% for the year ended December 31, 2007, from 10.2% for the
year ended December 31, 2006. The increase as a percentage of revenues was
primarily attributable to increased equity and bonus compensation
expense.




Depreciation
and Amortization. Depreciation and amortization expense increased
$10.7 million, or 14.4%, to $85.6 million for the year ended
December 31, 2007, from $74.9 million for the year ended
December 31, 2006. The increase was primarily attributable to depreciation
of property and equipment and amortization of intangibles associated with
acquisitions closed during, or subsequent to, the year ended December 31,
2006, higher landfill depletion expense due to increased disposal volumes at our
landfills, and depreciation expense resulting from facilities, fleet and
equipment purchased to support two long-term contracts that commenced in
2007.


35




Depreciation
and amortization expense as a percentage of revenues decreased 0.2percentage
points to 8.9% for the year ended December 31, 2007, from 9.1% for the year
ended December 31, 2006. The decrease as a percentage of revenues was the
result of increased prices charged to our customers and leveraging our existing
fleet and equipment to support increases in collection and landfill
volumes.




Operating
Income. Operating income increased $35.6 million, or 20.8%, to
$207.0 million for the year ended December 31, 2007, from
$171.4 million for the year ended December 31, 2006. The increase was
primarily attributable to increased revenues, partially offset by increased
operating costs, increased SG&A expenses to support the revenue growth and
increased depreciation and amortization expenses.




Operating
income as a percentage of revenues increased 0.8percentage
points to 21.6% for the year ended December 31, 2007, from 20.8% for the
year ended December 31, 2006. The increase as a percentage of revenues was
due to the previously described decreases in cost of operations and depreciation
and amortization expenses as a percentage of revenues, partially offset by
increased SG&A expense.




Interest
Expense. Interest expense increased $4.9 million, or 16.3%, to
$35.0 million for the year ended December 31, 2007, from
$30.1 million for the year ended December 31, 2006. The increase was
attributable to higher average borrowing rates on our credit facility, higher
average debt balances and a $1.0 million reduction of interest expense for
the year ended December 31, 2006 on our Floating Rate Convertible
Subordinated Notes due 2022, or 2022 Notes, as a result of the timing of
the conversion of the 2022 Notes into common stock by the note holders
after we called the notes for redemption, partially offset by a reduction in our
average interest rate on debt incurred outside of our credit facility resulting
from completing our offering of our 3.75% Convertible Senior Notes due 2026, or
2026 Notes, on March 20, 2006. The higher average borrowing rates on
our credit facility were the result of the expiration in the first quarter of
2007 of $250.0 million of interest rate swap agreements with a
weighted-average fixed borrowing cost of 2.55%, plus applicable margin, which we
were a party to during the year ended December 31, 2006. Upon the
expiration of these interest rate swaps, we entered into $250.0 million of
new interest rate swaps with a weighted-average fixed borrowing cost of 4.33%,
plus applicable margin.




Other
Income (Expense). Other income (expense) changed to an income total of
$0.3 million for the year ended December 31, 2007, from an expense
total of $3.8 million for the year ended December 31, 2006. Other
expense in the year ended December 31, 2006, primarily consisted of
$4.2 million of costs associated with the write-off of the unamortized debt
issuance costs associated with our 2022 Notes.




Minority
Interests. Minority interests increased $2.0 million, or 15.2%, to
$14.9 million for the year ended December 31, 2007, from
$12.9 million for the year ended December 31, 2006. The increase in
minority interests was due to increased earnings by our majority-owned
subsidiaries.




Income
Tax Provision. Income taxes increased $11.6 million, or 24.0%, to
$59.9 million for the year ended December 31, 2007, from
$48.3 million for the year ended December 31, 2006.




Our
effective tax rates for the years ended December 31, 2006 and 2007, were
38.4% and 37.7%, respectively. The decrease in the effective tax rate during the
year ended December 31, 2007, was due to recording adjustments to reduce
income tax expense by $2.1 million, resulting from the reconciliation of
our current and deferred income tax liability accounts, the reversal of certain
tax contingencies that expired in 2007, and the reconciliation of the income tax
provision to the 2006 federal tax return, which was filed in September
2007.




Net
Income. Net income increased $21.7 million, or 28.0%, to
$99.1 million for the year ended December 31, 2007, from
$77.4 million for the year ended December 31, 2006. The increase was
primarily attributable to increased operating income partially offset by
increased interest expense and increased income tax expense.


36


Liquidity
and Capital Resources




The
following table sets forth certain cash flow information for the years ended
December 31, 2006, 2007 and 2008 (in thousands):


2006
                    
                    
                    2007
                    
                    
                    2008Net
      cash provided by operating activities
                    
                    $
                    204,234
                    
                    
                    $
                    219,069
                    
                    
                    $
                    270,409Net
      cash used in investing activities
                    
                    
                    (134,550
                    )
                    
                    
                    (235,609
                    )
                    
                    
                    (467,647
                    )Net
      cash provided by (used in) financing activities
                    
                    
                    (42,249
                    )
                    
                    
                    (8,111
                    )
                    
                    
                    452,204Net
      increase (decrease) in cash
                    
                    
                    27,435
                    
                    
                    
                    (24,651
                    )
                    
                    
                    254,966Cash
      at beginning of year
                    
                    
                    7,514
                    
                    
                    
                    34,949
                    
                    
                    
                    10,298Cash
      at end of year
                    
                    $
                    34,949
                    
                    
                    $
                    10,298
                    
                    
                    $
                    265,264




Operating
Activities Cash Flows




For
the year ended December 31, 2008, net cash provided by operating activities
was $270.4 million. For the year ended December 31, 2007, net cash
provided by operating activities was $219.1 million. The $51.3 million
net increase in cash attributable to operating activities was primarily due to
the following:


1)
              An
      increase in the change in deferred income taxes of $19.5 million due
      primarily to an increase in tax deductible timing differences for
      depreciation expense, amortization expense and landfill closure and
      post-closure expense;2)
              An
      increase in depreciation and amortization expense of
      $11.8 million;3)
              An
      increase of $7.7 million attributable to a decrease in the excess tax
      benefit associated with equity-based compensation, due to a reduction in
      stock option exercises resulting in reduced taxable income recognized by
      employees that is tax deductible by us; and4)
              An
      increase in cash flows from operating assets and liabilities, net of
      effects from acquisitions, of $6.3 million to $18.4 million for
      the year ended December 31, 2008, from $12.1 million for the
      year ended December 31, 2007. The significant components of the
      $18.4 million in cash flows from changes in operating assets and
      liabilities include the following:a)
              an
      increase from accounts receivable of $18.8 million, due to improved
      accounts receivable turnover in 2008,b)
              a
      combined increase from accounts payable and accrued liabilities of
      $6.4 million, due primarily to an increase in accrued interest due to
      changes in the payment timing for LIBOR-based borrowings and our issuance
      in 2008 of $175 million of senior unsecured notes due October 1,
      2015, which pay interest semi-annually on April 1 and October 1,
      less,c)
              a
      decrease from other long-term liabilities of $6.2 million due
      primarily to the 2008 expiration of certain accrued tax contingencies and
      interim capping expenditures at one of our
  landfills.




For
the year ended December 31, 2007, net cash provided by operating activities
was $219.1 million. For the year ended December 31, 2006, net cash
provided by operating activities was $204.2 million. The $14.9 million
net increase in cash attributable to operating activities was primarily due to
the following:


1)
              An
      increase in net income of $21.7 million;2)
              An
      increase in depreciation and amortization expense of $10.8 million;
      less3)
              A
      decrease in the change in deferred income taxes of $14.1 million due
      primarily due to our receipt in 2006 of written approval from the Internal
      Revenue Service to exclude probable expansion airspace from our
      calculation of landfill final capping, closure and post-closure costs for
      tax purposes, which resulted in the recording of a $11.2 million
      deferred tax liability in 2006; and4)
              A
      decrease of $6.4 million attributable to an increase in the excess
      tax benefit associated with equity-based compensation, due to an increase
      in stock option exercises resulting in increased taxable income recognized
      by employees that is tax deductible by
us.




As
of December 31, 2008, we had working capital of $213.7 million,
including cash and equivalents of $265.3 million. Our working capital
increased $238.5 million from a working capital deficit of
$24.8 million at December 31, 2007. To date, we have experienced no
loss or lack of access to our invested cash or cash equivalents; however, we can
provide no assurances that access to our invested cash and cash equivalents will
not be impacted by adverse conditions in the financial markets. Our strategy in
managing our working capital is generally to apply the cash generated from our
operations that remains after satisfying our working capital and capital
expenditure requirements to reduce our indebtedness under our credit facility
and to minimize our cash balances. Our increased cash and working capital
positions at December 31, 2008, were primarily due to the proceeds received
from the September 2008 sale of 12,650,000 shares of our common stock in a
public offering and issuance in October 2008 of $175 million of senior
unsecured notes being in excess of cash used to fund acquisitions closed in the
later portion of 2008.


37




Investing
Activities Cash Flows




Net
cash used in investing activities increased $232.0 million to
$467.6 million for the year ended December 31, 2008, from
$235.6 million for the year ended December 31, 2007. The significant
components of the increase include the following:


1)
              An
      increase in payments for acquisitions of $245.7 million;
    less2)
              A
      decrease in capital expenditures for property and equipment of
      $10.7 million, due primarily to non-recurring capital expenditures
      incurred during the year ended December 31, 2007, associated with a
      new long-term contract in
California.




Net
cash used in investing activities increased $101.1 million to
$235.6 million for the year ended December 31, 2007, from
$134.5 million for the year ended December 31, 2006. The significant
components of the increase include the following:


1)
              An
      increase in capital expenditures for property and equipment of
      $27.7 million, due to the aforementioned expenditures incurred in
      2007 associated with a new long-term contract in California and equipment
      purchases at other operations to support our growth;
and2)
              An
      increase in payments for acquisitions of
    $70.8 million.




Financing
Activities Cash Flows




Net
cash flows from financing activities increased $460.3 million to a net cash
provided by financing activities total of $452.2 million for the year ended
December 31, 2008, from a net cash used in financing activities total of
$8.1 million for the year ended December 31, 2007. The significant
components of the increase include the following:


1)
              An
      increase in proceeds from our common stock offering of
      $393.9 million, due to the September 2008 sale of 12,650,000 shares
      of our common stock in a public offering;2)
              An
      increase in proceeds from long-term debt, net of principal payments, of
      $20.7 million; less3)
              A
      decrease in payments to repurchase common stock of $78.8 million, due
      to our election not to repurchase stock after March 31, 2008, and to
      use our available capital to fund acquisition
      opportunities; less4)
              A
      change in book overdraft of $13.3 million resulting from fluctuations
      in our outstanding cash balances at banks for which outstanding check
      balances can be offset; less5)
              A
      decrease in proceeds from option and warrant exercises of
      $16.5 million due to a decrease in the number of options and warrants
      exercised in 2008; and6)
              A
      decrease in the excess tax benefit associated with equity-based
      compensation of $7.7 million, due to the aforementioned decrease in
      options and warrants exercised in
2008.




Net
cash used in financing activities decreased $34.1 million to
$8.1 million for the year ended December 31, 2007, from
$42.2 million for the year ended December 31, 2006. The significant
components of the decrease include the following:


1)
            A
      change in book overdraft of $17.7 million resulting from fluctuations
      in our outstanding cash balances at banks for which outstanding check
      balances can be offset;2)
            An
      increase in proceeds from long-term debt, net of principal repayments, of
      $12.5 million;3)
            An
      increase in the excess tax benefit associated with equity-based
      compensation of $6.4 million, due to an increase in stock option
      exercises resulting in increased taxable income recognized by employees
      that is tax deductible by us;4)
            A
      decrease in debt issuance costs of $5.5 million due to our incurring
      $5.5 million of non-recurring debt issuance costs in 2006 associated
      with our sale of $200 million of the 2026 Notes;
  less5)
            An
      increase in payments to repurchase common stock of $10.3 million, due
      to differences in the timing and amount of
  repurchases.




Our
business is capital intensive. Our capital requirements include acquisitions and
fixed asset purchases. We expect that we will also make capital expenditures for
landfill cell construction, landfill development, landfill closure activities
and intermodal facility construction in the future.


38




Our
Board of Directors has authorized a common stock repurchase program for the
repurchase of up to $500 million of common stock through December 31, 2009. As
of December 31, 2007 and 2008, we had repurchased 16.2 million and 17.3 million
shares, respectively of our common stock at a cost of $397.2 million and $428.7
million, respectively. As of December 31, 2008, the remaining maximum dollar
value of shares available for purchase under the program was approximately $80.2
million.




We
made $113.5 million in capital expenditures during the year ended
December 31, 2008. We expect to make capital expenditures of approximately
$110 million in 2009 in connection with our existing business. We intend to
fund our planned 2009 capital expenditures principally through internally
generated funds. In addition, we may make substantial additional capital
expenditures in acquiring solid waste collection and disposal businesses. If we
acquire additional landfill disposal facilities, we may also have to make
significant expenditures to bring them into compliance with applicable
regulatory requirements, obtain permits or expand our available disposal
capacity. We cannot currently determine the amount of these expenditures because
they will depend on the number, nature, condition and permitted status of any
acquired landfill disposal facilities. We believe that our cash and equivalents,
credit facility and the funds we expect to generate from operations will provide
adequate cash to fund our working capital and other cash needs for the
foreseeable future. However, disruptions in the capital and credit markets, as
were experienced during 2008, could adversely affect our ability to draw on our
credit facility. Our access to funds under the credit facility is dependent on
the ability of the banks that are parties to the facility to meet their funding
commitments. Those banks may not be able to meet their funding commitments if
they experience shortages of capital and liquidity or if they experience
excessive volumes of borrowing requests within a short period of
time.




We
have an $845 million senior revolving credit facility, or the credit facility,
with a syndicate of banks for which Bank of America, N.A. acts as agent. As of
December 31, 2006, $400.0 million was outstanding under our previous
credit facility, exclusive of outstanding standby letters of credit of
$59.1 million. As of December 31, 2007, $479.0 million was
outstanding under our credit facility, exclusive of outstanding standby letters
of credit of $68.3 million. As of December 31, 2008,
$400.0 million was outstanding under the credit facility, exclusive of
outstanding standby letters of credit of $81.4 million.




The
credit facility requires interest payments as outlined in the credit agreement
and matures in September 2012. Under the credit facility, there is no
maximum amount of standby letters of credit that can be issued; however, the
issuance of standby letters of credit reduces the amount of total borrowings
available. The credit facility requires us to pay a commitment fee ranging from
0.15% to 0.20% of the unused portion of the facility. The borrowings under the
credit facility bear interest, at our option, at either the base rate plus the
applicable base rate margin on base rate loans, or the Eurodollar rate plus the
applicable Eurodollar margin on Eurodollar loans. The base rate for any day is a
fluctuating rate per annum equal to the higher of: (1) the federal funds
rate plus one half of one percent (0.5%); and (2) the rate of interest in
effect for such day as publicly announced from time to time by Bank of America
as its “prime rate.” The Eurodollar rate is determined by the administrative
agent pursuant to a formula in the credit agreement governing the credit
facility. The applicable margins under the credit facility vary depending on our
leverage ratio, as defined in the credit agreement, and range from 0.625% to
1.125% for Eurodollar loans and 0.00% for base rate loans. The borrowings under
the credit facility are not collateralized. The credit agreement governing the
credit facility contains representations and warranties and places certain
business, financial and operating restrictions on us relating to, among other
things, indebtedness, liens and other encumbrances, investments, mergers and
acquisitions, asset sales, sale and leaseback transactions, and dividends,
distributions and redemptions of capital stock. The credit facility requires
that we maintain specified financial ratios. As of December 31, 2007 and
2008, we were in compliance with all applicable covenants in the credit
facility. We use the credit facility for acquisitions, capital expenditures,
working capital, standby letters of credit and general corporate
purposes.




On
July 15, 2008, we entered into a Master Note Purchase Agreement with certain
accredited institutional investors pursuant to which we issued and sold to the
investors at a closing on October 1, 2008, $175 million of senior
uncollateralized notes due October 1, 2015 (the “2015 Notes”), in a
private placement. The 2015 Notes bear interest at the fixed rate of 6.22%
per annum with interest payable in arrears semi-annually on April 1 and
October 1 beginning on April 1, 2009, and with principal payable at
the maturity of the 2015 Notes on October 1, 2015.




The
2015 Notes are uncollateralized obligations and rank equally with
obligations under our senior uncollateralized revolving credit facility. The
2015 Notes are subject to representations, warranties, covenants and events
of default. Upon the occurrence of an event of default, payment of the
2015 Notes may be accelerated by the holders of the 2015 Notes. The
2015 Notes may also be prepaid by us at any time at par plus a make-whole
amount determined in respect of the remaining scheduled interest payments on the
2015 Notes, using a discount rate of the then current market standard for
United States treasury bills plus 0.50%. In addition, we will be required to
offer to prepay the 2015 Notes upon certain changes in
control.




39




We
may issue additional series of senior uncollateralized notes pursuant to the
terms and conditions of the Agreement, provided that the purchasers of the
2015 Notes shall not have any obligation to purchase any additional notes
issued pursuant to the Master Note Purchase Agreement and the aggregate
principal amount of the 2015 Notes and any additional notes issued pursuant
to the Master Note Purchase Agreement shall not exceed
$500 million.




On
March 20, 2006, we completed the offering of $200 million aggregate
principal amount of our 2026 Notes pursuant to a private placement. The
terms and conditions of the 2026 Notes are set forth in the Indenture,
dated as of March 20, 2006, between us and U.S. Bank National Association,
as trustee. The 2026 Notes rank equally in right of payment to all of our
other existing and future senior uncollateralized and unsubordinated
indebtedness. The 2026 Notes rank senior in right of payment to all of our
existing and future subordinated indebtedness and are subordinated in right of
payment to our collateralized obligations to the extent of the assets
collateralizing such obligations. The 2026 Notes bear interest at
3.75% per annum payable semi-annually in arrears on April 1 and
October 1 of each year, beginning on October 1, 2006, until the
maturity date of April 1, 2026.




The
2026 Notes are convertible into cash and, if applicable, shares of common
stock based on an initial conversion rate of 29.4118 shares of common stock
per $1,000 principal amount of 2026 Notes (which is equal to an initial
conversion price of approximately $34.00 per share), subject to adjustment, and
only under certain circumstances. Upon a surrender of the 2026 Notes for
conversion, we will deliver cash equal to the lesser of the aggregate principal
amount of notes to be converted and our total conversion obligation. We will
deliver shares of our common stock in respect of the remainder, if any, of our
conversion obligation. The holders of the 2026 Notes who convert their
notes in connection with a change in control (as defined in the Indenture) may
be entitled to a make-whole premium in the form of an increase in the conversion
rate.




Holders
may surrender the 2026 Notes for conversion into cash and, if applicable,
shares of our common stock at any time prior to the close of business on the
maturity date, if the closing sale price of our common stock for at least
20 trading days in the period of 30 consecutive trading days ending on
the last trading day of the quarter preceding the quarter in which the
conversion occurs, is more than 130% of the conversion price per share of our
common stock on that 30th
day.




Beginning
on April 1, 2010, we may redeem in cash all or part of the 2026 Notes
at a price equal to 100% of the principal amount plus accrued and unpaid
interest, including additional interest, if any, and, if redeemed prior to
April 1, 2011, an interest make-whole payment. The holders of the
2026 Notes can require us to repurchase all or a part of the
2026 Notes in cash on each of April 1, 2011, 2016 and 2021, and in the
event of a change of control of Waste Connections, at a purchase price of 100%
of the principal amount of the 2026 Notes plus any accrued and unpaid
interest, including additional interest, if any. We are amortizing the
$5.5 million debt issuance costs over a five-year term through the first
put date, or April 1, 2011.




As
of December 31, 2008, we had the following contractual obligations (in
thousands):




Payments
      Due by PeriodRecorded
      Obligations
                                                                    
                                                                    Total
                                                                    
                                                                    
                                                                    Less
      Than
                                                                      1 Year
                                                                    
                                                                    
                                                                    1
      to 3
                                                                      Years
                                                                    
                                                                    
                                                                    3
      to 5 Years
                                                                    
                                                                    
                                                                    Over
                                                                      5 yearsLong-term
      debt
                                                                    
                                                                    $
                                                                    835,456
                                                                    
                                                                    
                                                                    $
                                                                    4,698
                                                                    
                                                                    
                                                                    $
                                                                    203,978
                                                                    
                                                                    
                                                                    $
                                                                    403,628
                                                                    
                                                                    
                                                                    $
                                                                    223,152Cash
      interest payments
                                                                    
                                                                    
                                                                    176,499
                                                                    
                                                                    
                                                                    
                                                                    41,991
                                                                    
                                                                    
                                                                    
                                                                    71,647
                                                                    
                                                                    
                                                                    
                                                                    33,044
                                                                    
                                                                    
                                                                    
                                                                    29,817







Long-term debt payments
include:




(1)
      $400.0 million in principal payments due 2012 related to our credit
      facility. Our credit facility bears interest, at our option, at either the
      base rate plus the applicable base rate margin (approximately 3.25% at
      December 31, 2008) on base rate loans, or the Eurodollar rate plus
      the applicable Eurodollar margin (approximately 2.5% at December 31,
      2008) on Eurodollar loans. As of December 31, 2008, our credit
      facility allowed us to borrow up to $845 million.(2)
      $200.0 million in principal payments due 2026 related to our 2026
      Notes. Holders of the 2026 Notes may require us to purchase their
      notes in cash at a purchase price of 100% of the principal amount of the
      2026 Notes plus accrued and unpaid interest, if any, upon a change in
      control, as defined in the indenture, or, for the first time, on
      April 1, 2011. The 2026 Notes bear interest at a rate of
      3.75%.(3)
      $175.0 million in principal payments due 2015 related to our
      2015 Notes. Holders of the 2015 Notes may require us to purchase
      their notes in cash at a purchase price of 100% of the principal amount of
      the 2015 Notes plus accrued and unpaid interest, if any, upon a
      change in control, as defined in the master note purchase agreement. The
      2015 Notes bear interest at a rate of 6.22%.(4)
      $54.0 million in principal payments related to our tax-exempt bonds,
      of which $10.8 million bears interest at fixed rates (between 7.0% and
      7.25%) and $43.2 million bears interest at variable rates (between 0.97%
      to 1.25%) at December 31, 2008. The tax-exempt bonds have maturity
      dates ranging from 2012 to 2033.(5)
      $4.9 million in principal payments related to our notes payable to
      sellers. Our notes payable to sellers bear interest at rates between 5.5%
      and 10.35% at December 31, 2008, and have maturity dates ranging from
      2009 to 2036.(6)
      $1.6 million in principal payments related to our notes payable to
      third parties. Our notes payable to third parties bear interest at rates
      between 9.0% and 10.9% at December 31, 2008, and have maturity dates
      ranging from 2009 to 2019.




40
 
  The
following assumptions were made in calculating cash interest
payments:




(1)
      We calculated cash interest payments on the credit facility using the
      Eurodollar rate plus the applicable Eurodollar margin at December 31,
      2008. We assumed the credit facility is paid off when the credit facility
      matures in 2012.(2)
      We calculated cash interest payments on our interest rate swaps using the
      stated interest rate in the swap agreement less the Eurodollar rate
      through the term of the swap.(3)
      We calculated cash interest payments on the tax-exempt bonds using the
      interest rate at December 31,
2008.




The
total liability for uncertain tax positions under FIN 48 at
December 31, 2008, is approximately $2 million (refer to Note 13
to the consolidated financial statements). We are not able to reasonably
estimate the amount by which the liability will increase or decrease over time;
however, at this time, we do not expect a significant payment related to these
obligations within the next year.




Amount
      of Commitment Expiration Per PeriodUnrecorded
      Obligations
                                      
                                      Total
                                      
                                      
                                      Less
      Than
                                        1 Year
                                      
                                      
                                      1
      to 3
                                        Years
                                      
                                      
                                      3
      to 5 Years
                                      
                                      
                                      Over
                                        5 yearsOperating leases
      (1)
                                      
                                      $
                                      71,169
                                      
                                      
                                      $
                                      8,350
                                      
                                      
                                      $
                                      15,132
                                      
                                      
                                      $
                                      12,632
                                      
                                      
                                      $
                                      35,055Unconditional
      purchase obligations (1)
                                      
                                      
                                      27,543
                                      
                                      
                                      
                                      27,543
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —98,712
                                      
                                      
                                      
                                      35,893
                                      
                                      
                                      
                                      15,132
                                      
                                      
                                      
                                      12,632
                                      
                                      
                                      
                                      35,055







(1)
      We are party to operating lease agreements and unconditional purchase
      obligations as discussed in Note 10 to the consolidated financial
      statements. These lease agreements and purchase obligations are
      established in the ordinary course of our business and are designed to
      provide us with access to facilities and products at competitive,
      market-driven prices. At December 31, 2008, our unconditional
      purchase obligations consist of multiple fixed-price fuel purchase
      contracts under which we have 10.5 million gallons remaining to be
      purchased for a total of $27.5 million, plus taxes and transportation
      upon delivery. The current fuel purchase contracts expire on or before
      December 31, 2009. These arrangements have not materially affected
      our financial position, results of operations or liquidity during the year
      ended December 31, 2008, nor are they expected to have a material
      impact on our future financial position, results of operations or
      liquidity.




We
have obtained standby letters of credit as discussed in Note 8 to the
consolidated financial statements and financial surety bonds as discussed in
Note 10 to the consolidated financial statements. These standby letters of
credit and financial surety bonds are generally obtained to support our
financial assurance needs and landfill operations. These arrangements have not
materially affected our financial position, results of operations or liquidity
during the year ended December 31, 2008, nor are they expected to have a
material impact on our future financial position, results of operations or
liquidity.




From
time to time we evaluate our existing operations and their strategic importance
to us. If we determine that a given operating unit does not have future
strategic importance, we may sell or otherwise dispose of those operations.
Although we believe our operations would not be impaired by such dispositions,
we could incur losses on them.




New
Accounting Pronouncements




For
a description of the new accounting standards that affect us, see Note 1 to
our Consolidated Financial Statements included in this Annual Report on
Form 10-K.




41




FREE CASH
FLOW




We
are providing free cash flow, a non-GAAP financial measure, because it is widely
used by investors as a valuation and liquidity measure in the solid waste
industry. This measure should be used in conjunction with GAAP financial
measures. Management uses free cash flow as one of the principal measures to
evaluate and monitor the ongoing financial performance of our operations. We
define free cash flow as net cash provided by operating activities plus proceeds
from disposal of assets and excess tax benefit associated with equity-based
compensation, plus or minus change in book overdraft, less capital expenditures
for property and equipment and distributions to minority interest holders. Other
companies may calculate free cash flow differently. Our free cash flow for the
years ended December 31, 2007 and 2008, is calculated as follows (in
thousands):




Years
      Ended December 31,2007
                      
                      
                      2008Net
      cash provided by operating activities
                      
                      $
                      219,069
                      
                      
                      $
                      270,409Change
      in book overdraft
                      
                      
                      8,835
                      
                      
                      
                      (4,520
                      )Plus:
      Proceeds from disposal of assets
                      
                      
                      1,016
                      
                      
                      
                      2,560Plus:
      Excess tax benefit associated with equity-based
      compensation
                      
                      
                      14,137
                      
                      
                      
                      6,441Less:
      Capital expenditures for property and equipment
                      
                      
                      (124,234
                      )
                      
                      
                      (113,496
                      )Less:
      Distributions to minority interest holders
                      
                      
                      (12,642
                      )
                      
                      
                      (8,232
                      )Free
      cash flow
                      
                      $
                      106,181
                      
                      
                      $
                      153,162




INFLATION




Other
than volatility in fuel prices, inflation has not materially affected our
operations. Consistent with industry practice, many of our contracts allow us to
pass through certain costs to our customers, including increases in landfill
tipping fees and, in some cases, fuel costs. Therefore, we believe that we
should be able to increase prices to offset many cost increases that result from
inflation in the ordinary course of business. However, competitive or economic
pressures, or delays in the timing of rate increases under our contracts, may
require us to absorb at least part of these cost increases, especially if cost
increases exceed the average rate of inflation. Management’s estimates
associated with inflation have an impact on our accounting for landfill
liabilities.




SEASONALITY




Based
on historic trends, we expect our operating results to vary seasonally, with
revenues typically lowest in the first quarter, higher in the second and third
quarters and lower in the fourth quarter than in the second and third quarters.
We expect the fluctuation in our revenues between our highest and lowest
quarters to be approximately 9% to 11%. This seasonality reflects the lower
volume of solid waste generated during the late fall, winter and early spring
because of decreased construction and demolition activities during winter months
in the U.S. In addition, some of our operating costs may be higher in the winter
months. Adverse winter weather conditions slow waste collection activities,
resulting in higher labor and operational costs. Greater precipitation in the
winter increases the weight of collected waste, resulting in higher disposal
costs, which are calculated on a per ton basis. A continuing economic recession
could also influence the percent change in revenues associated with seasonal
fluctuations.




ITEM 7A.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




In
the normal course of business, we are exposed to market risk, including changes
in interest rates and prices of certain commodities. We use hedge agreements to
manage a portion of our risks related to interest rates and fuel prices. While
we are exposed to credit risk in the event of non-performance by counterparties
to our hedge agreements, in all cases such counterparties are highly rated
financial institutions and we do not anticipate non-performance. We do not hold
or issue derivative financial instruments for trading purposes. We monitor our
hedge positions by regularly evaluating the positions at market and by
performing sensitivity analyses.


42




At
December 31, 2008, our derivative instruments included nine interest rate
swap agreements that effectively fix the interest rate on the applicable
notional amounts of our variable rate debt as follows (dollars in
thousands):




Date
      Entered
                                      
                                      Notional
                                        Amount
                                      
                                      Fixed
                                        Interest
                                        Rate
      Paid*
                                      
                                      Variable
                                        Interest
      Rate
                                        Received
                                      
                                      Effective
      Date
                                      
                                      Expiration
      DateSeptember
      2005
                                      
                                      $
                                      175,000
                                      
                                      4.33%
                                      
                                      
                                      1-month
      LIBOR
                                      
                                      
                                      February
      2007
                                      
                                      
                                      February
      2009September
      2005
                                      
                                      $
                                      75,000
                                      
                                      4.34%
                                      
                                      
                                      1-month
      LIBOR
                                      
                                      
                                      March
      2007
                                      
                                      
                                      March
      2009December
      2005
                                      
                                      $
                                      150,000
                                      
                                      4.76%
                                      
                                      
                                      1-month
      LIBOR
                                      
                                      
                                      June
      2006
                                      
                                      
                                      June
      2009November
      2007
                                      
                                      $
                                      50,000
                                      
                                      4.37%
                                      
                                      
                                      1-month
      LIBOR
                                      
                                      
                                      February
      2009
                                      
                                      
                                      February
      2011November
      2007
                                      
                                      $
                                      50,000
                                      
                                      4.37%
                                      
                                      
                                      1-month
      LIBOR
                                      
                                      
                                      February
      2009
                                      
                                      
                                      February
      2011November
      2007
                                      
                                      $
                                      75,000
                                      
                                      4.37%
                                      
                                      
                                      1-month
      LIBOR
                                      
                                      
                                      February
      2009
                                      
                                      
                                      February
      2011November
      2007
                                      
                                      $
                                      75,000
                                      
                                      4.40%
                                      
                                      
                                      1-month
      LIBOR
                                      
                                      
                                      March
      2009
                                      
                                      
                                      March
      2011November
      2007
                                      
                                      $
                                      50,000
                                      
                                      4.29%
                                      
                                      
                                      1-month
      LIBOR
                                      
                                      
                                      June
      2009
                                      
                                      
                                      June
      2011November
      2007
                                      
                                      $
                                      100,000
                                      
                                      4.35%
                                      
                                      
                                      1-month
      LIBOR
                                      
                                      
                                      June
      2009
                                      
                                      
                                      June
      2011







*
      plus applicable
margin.




Under
FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities ("SFAS 133"), all the interest rate
swap agreements are considered cash flow hedges for a portion of our variable
rate debt, and we apply hedge accounting to account for these instruments. The
notional amounts and all other significant terms of the swap agreements are
matched to the provisions and terms of the variable rate debt being
hedged.




We
have performed sensitivity analyses to determine how market rate changes will
affect the fair value of our market risk sensitive hedge positions and all other
debt. Such an analysis is inherently limited in that it reflects a singular,
hypothetical set of assumptions. Actual market movements may vary significantly
from our assumptions. Fair value sensitivity is not necessarily indicative of
the ultimate cash flow or earnings effect we would recognize from the assumed
market rate movements. We are exposed to cash flow risk due to changes in
interest rates with respect to the unhedged floating rate balances owed at
December 31, 2007 and 2008, of $114.8 million and $43.2 million,
respectively, including floating rate debt under our credit facility, various
floating rate notes payable to third parties and floating rate municipal bond
obligations. A one percent increase in interest rates on our variable-rate debt
as of December 31, 2007 and 2008, would decrease our annual pre-tax income
by approximately $1.1 million and $0.4 million, respectively. All of
our remaining debt instruments are at fixed rates, or effectively fixed under
the interest rate swap agreements described above; therefore, changes in market
interest rates under these instruments would not significantly impact our cash
flows or results of operations.




The
market price of diesel fuel is unpredictable and can fluctuate significantly. A
significant increase in the price of fuel could adversely affect our business
and reduce our operating margins. To manage a portion of this risk, in the
fourth quarter of 2008, we entered into multiple commodity swap agreements
related to forecasted diesel fuel purchases (“fuel hedges”).




The
following table summarizes the fuel hedges as of December 31, 2008:




Date Entered
                  
                  Notional
                    Amount
                    (in
      gallons per
                    month)
                  
                  Diesel
                    Rate
                    Paid
                    Fixed
                  
                  Diesel
      Rate Received
                    Variable
                  
                  Effective
                    Date
                  
                  Expiration
                    DateOctober
      2008
                  
                  
                  250,000
                  
                  $
                  3.750
                  
                  
                  DOE
      Diesel Fuel Index*
                  
                  
                  January
      2009
                  
                  
                  December
      2010October
      2008
                  
                  
                  100,000
                  
                  
                  3.745
                  
                  
                  DOE
      Diesel Fuel Index*
                  
                  
                  January
      2009
                  
                  
                  December
      2010October
      2008
                  
                  
                  250,000
                  
                  
                  3.500
                  
                  
                  DOE
      Diesel Fuel Index*
                  
                  
                  January
      2009
                  
                  
                  December
      2010December
      2008
                  
                  
                  100,000
                  
                  
                  3.000
                  
                  
                  DOE
      Diesel Fuel Index*
                  
                  
                  January
      2010
                  
                  
                  December
      2010December
      2008
                  
                  
                  150,000
                  
                  
                  3.000
                  
                  
                  DOE
      Diesel Fuel Index*
                  
                  
                  January
      2010
                  
                  
                  December
      2010December
      2008
                  
                  
                  150,000
                  
                  
                  2.820
                  
                  
                  DOE
      Diesel Fuel Index*
                  
                  
                  January
      2010
                  
                  
                  December
      2010December
      2008
                  
                  
                  150,000
                  
                  
                  2.700
                  
                  
                  DOE
      Diesel Fuel Index*
                  
                  
                  January
      2010
                  
                  
                  December
      2010December
      2008
                  
                  
                  400,000
                  
                  
                  2.950
                  
                  
                  DOE
      Diesel Fuel Index*
                  
                  
                  January
      2011
                  
                  
                  December
      2011December
      2008
                  
                  
                  400,000
                  
                  
                  3.030
                  
                  
                  DOE
      Diesel Fuel Index*
                  
                  
                  January
      2012
                  
                  
                  December
      2012







*If
      the national U.S. on-highway average price for a gallon of diesel fuel
      (“average price”), as published by the Department of Energy, exceeds the
      contract price per gallon, we receive the difference between the average
      price and the contract price (multiplied by the notional gallons) from the
      counterparty. If the national U.S. on-highway average price for a gallon
      of diesel fuel is less than the contract price per gallon, we pay the
      difference to the counterparty.  43




Under
SFAS 133, all the fuel hedges are considered cash flow hedges for a portion of
our forecasted diesel fuel purchases, and we will apply hedge accounting to
account for these instruments.




Additionally,
we purchase a majority of our fuel at market prices; however, in order to
mitigate the impact of adverse fuel price changes, we entered into multiple
fixed-price fuel purchase contracts which expire on or before December 31,
2009. As of December 31, 2008, we had 10.5 million gallons remaining
to be purchased for a total unconditional purchase obligation of
$27.5 million, plus taxes and transportation upon delivery.




We
have performed sensitivity analyses to determine how market rate changes will
affect the fair value of our market risk sensitive hedge positions and all other
diesel fuel purchases. Such an analysis is inherently limited in that it
reflects a singular, hypothetical set of assumptions. Actual market movements
may vary significantly from our assumptions. Fair value sensitivity is not
necessarily indicative of the ultimate cash flow or earnings effect we would
recognize from the assumed market rate movements. We purchase approximately 24
million gallons of diesel fuel per year. We have entered into fixed-price fuel
purchase contracts for a total of 10.5 million gallons of diesel fuel which
expire on or before December 31, 2009, and have hedged 7.2 million gallons of
diesel fuel for the year ending December 31, 2009. If we purchased all of our
unhedged fuel at market prices, a $0.10 per gallon increase in the price of fuel
over a one-year period would decrease our annual pre-tax income by approximately
$0.6 million.




We
market a variety of recyclable materials, including cardboard, office paper,
plastic containers, glass bottles and ferrous and aluminum metals. We own and
operate 34 recycling processing operations and sell other collected
recyclable materials to third parties for processing before resale. Certain of
our municipal recycling contracts in the state of Washington specify benchmark
resale prices for recycled commodities. If the prices we actually receive for
the processed recycled commodities collected under the contract exceed the
prices specified in the contract, we share the excess with the municipality,
after recovering any previous shortfalls resulting from actual market prices
falling below the prices specified in the contract. To reduce our exposure to
commodity price risk with respect to recycled materials, we have adopted a
pricing strategy of charging collection and processing fees for recycling volume
collected from third parties. In the event of a decline in recycled commodity
prices, a 10% decrease in average recycled commodity prices from the average
prices that were in effect during the years ending December 31, 2007 and
2008, would have had a $3.9 million and $3.7 million impact on
revenues for the years ended December 31, 2007 and 2008,
respectively.


44




ITEM 8.
              FINANCIAL
      STATEMENTS AND SUPPLEMENTARY
DATA




INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS




WASTE
CONNECTIONS, INC.


PageReport
      of Independent Registered Public Accounting Firm
            
            46Consolidated
      Balance Sheets as of December 31, 2007 and 2008
            
            47Consolidated
      Statements of Income for the years ended December 31, 2006, 2007 and
      2008
            
            48Consolidated
      Statements of Stockholders’ Equity and Comprehensive Income for the years
      ended December 31, 2006, 2007 and 2008
            
            49Consolidated
      Statements of Cash Flows for the years ended December 31, 2006, 2007
      and 2008
            
            50Notes
      to Consolidated Financial Statements
            
            52Financial
      Statement Schedule
            
            90




45




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To
      the Board of Directors and Stockholders ofWaste
      Connections, Inc.:




In our
opinion, the consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Waste
Connections, Inc. and its subsidiaries at December 31, 2008 and December 31,
2007, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2008 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying
indexpresents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in Management’s Report on Internal Control Over Financial Reporting
under Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company’s internal
control over financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.




As
discussed in Note 13 to the consolidated financial statements, the Company
changed the manner in which it accounts for uncertainty in income taxes in
2007.




A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.


/s/
      PricewaterhouseCoopers LLPSacramento,
      CAFebruary
      10, 2009


46




WASTE
CONNECTIONS, INC.


CONSOLIDATED
BALANCE SHEETS


(IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


December
      31,2007
                
                
                2008ASSETSCurrent
      assets:Cash
      and equivalents
                
                $
                10,298
                
                
                $
                265,264Accounts
      receivable, net of allowance for doubtful accounts of $4,387 and $3,846 at
      December 31, 2007 and 2008, respectively
                
                
                123,882
                
                
                
                118,456Deferred
      income taxes
                
                
                14,732
                
                
                
                22,347Prepaid
      expenses and other current assets
                
                
                21,953
                
                
                
                23,144Total
      current assets
                
                
                170,865
                
                
                
                429,211Property
      and equipment, net
                
                
                865,330
                
                
                
                984,124Goodwill
                
                
                811,049
                
                
                
                836,930Intangible
      assets, net
                
                
                93,957
                
                
                
                306,444Restricted
      assets
                
                
                19,300
                
                
                
                23,009Other
      assets, net
                
                
                21,457
                
                
                
                20,922$
                1,981,958
                
                
                $
                2,600,640LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                59,912
                
                
                $
                65,537Book
      overdraft
                
                
                8,835
                
                
                
                4,315Accrued
      liabilities
                
                
                69,578
                
                
                
                95,220Deferred
      revenue
                
                
                44,074
                
                
                
                45,694Current
      portion of long-term debt and notes payable
                
                
                13,315
                
                
                
                4,698Total
      current liabilities
                
                
                195,714
                
                
                
                215,464Long-term
      debt and notes payable
                
                
                719,518
                
                
                
                830,758Other
      long-term liabilities
                
                
                38,053
                
                
                
                47,509Deferred
      income taxes
                
                
                223,308
                
                
                
                251,514Total
      liabilities
                
                
                1,176,593
                
                
                
                1,345,245Commitments
      and contingencies (Note 10)Minority
      interests
                
                
                30,220
                
                
                
                668Stockholders’
      equity:Preferred
      stock: $0.01 par value per share; 7,500,000 shares authorized;
      none issued and outstanding
                
                
                —
                
                
                
                —Common
      stock: $0.01 par value per share; 150,000,000 shares authorized;
      67,052,135 and 79,842,239shares
      issued and outstanding at December 31, 2007 and 2008,
      respectively
                
                
                670
                
                
                
                798Additional
      paid-in capital
                
                
                254,284
                
                
                
                647,829Retained
      earnings
                
                
                524,481
                
                
                
                630,037Accumulated
      other comprehensive loss
                
                
                (4,290
                )
                
                
                (23,937
                )Total
      stockholders’ equity
                
                
                775,145
                
                
                
                1,254,727$
                1,981,958
                
                
                $
                2,600,640




The
accompanying notes are an integral part of these consolidated financial
statements.


47




WASTE
CONNECTIONS, INC.


CONSOLIDATED
STATEMENTS OF INCOME


(IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


Years
      Ended December 31,2006
                
                
                2007
                
                
                2008Revenues
                
                $
                824,354
                
                
                $
                958,541
                
                
                $
                1,049,603Operating
      expenses:Cost
      of operations
                
                
                492,766
                
                
                
                566,089
                
                
                
                628,075Selling,
      general and administrative
                
                
                84,541
                
                
                
                99,565
                
                
                
                111,114Depreciation
      and amortization
                
                
                74,865
                
                
                
                85,628
                
                
                
                97,429Loss
      on disposal of assets
                
                
                796
                
                
                
                250
                
                
                
                629Operating
      income
                
                
                171,386
                
                
                
                207,009
                
                
                
                212,356Interest
      expense
                
                
                (30,110
                )
                
                
                (35,023
                )
                
                
                (38,824
                )Interest
      income
                
                
                1,140
                
                
                
                1,593
                
                
                
                3,297Other
      income (expense), net
                
                
                (3,759
                )
                
                
                289
                
                
                
                (633
                )Income
      before income tax provision and minority interests
                
                
                138,657
                
                
                
                173,868
                
                
                
                176,196Minority
      interests
                
                
                (12,905
                )
                
                
                (14,870
                )
                
                
                (12,240
                )Income
      from continuing operations before income taxes
                
                
                125,752
                
                
                
                158,998
                
                
                
                163,956Income
      tax provision
                
                
                (48,329
                )
                
                
                (59,917
                )
                
                
                (58,400
                )Net
      income
                
                $
                77,423
                
                
                $
                99,081
                
                
                $
                105,556Basic
      earnings per common share
                
                $
                1.14
                
                
                $
                1.45
                
                
                $
                1.51Diluted
      earnings per common share
                
                $
                1.10
                
                
                $
                1.42
                
                
                $
                1.48Shares
      used in calculating basic income per share
                
                
                68,136,126
                
                
                
                68,238,523
                
                
                
                70,024,874Shares
      used in calculating diluted income per share
                
                
                70,408,673
                
                
                
                69,994,713
                
                
                
                71,419,712




The
accompanying notes are an integral part of these consolidated financial
statements.


48




WASTE
CONNECTIONS, INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME


YEARS
ENDED DECEMBER 31, 2006, 2007 AND 2008


(IN
THOUSANDS, EXCEPT SHARE AMOUNTS)


STOCKHOLDERS’
      EQUITYADDITIONALPAID-INCAPITAL
                                                                                                                
                                                                                                                ACCUMULATED
                                                                                                                  OTHER
      COMPRE-
                                                                                                                  HENSIVE
      INCOME
                                                                                                                  (LOSS)
                                                                                                                
                                                                                                                DEFERRED
      STOCK
                                                                                                                  COMPENSATIONCOMPREHENSIVE
      INCOME
                                                                                                                
                                                                                                                COMMON
      STOCK
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                TREASURY
      STOCK
                                                                                                                
                                                                                                                RETAINEDEARNINGSSHARES
                                                                                                                
                                                                                                                AMOUNT
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                SHARES
                                                                                                                
                                                                                                                AMOUNT
                                                                                                                
                                                                                                                
                                                                                                                TOTALBalances
      at December 31, 2005
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                68,887,025
                                                                                                                
                                                                                                                $
                                                                                                                459
                                                                                                                
                                                                                                                $
                                                                                                                373,382
                                                                                                                
                                                                                                                $
                                                                                                                4,957
                                                                                                                
                                                                                                                $
                                                                                                                (2,234
                                                                                                                )
                                                                                                                159,900
                                                                                                                
                                                                                                                $
                                                                                                                (3,672
                                                                                                                )
                                                                                                                $
                                                                                                                345,308
                                                                                                                
                                                                                                                $
                                                                                                                718,200Vesting
      of restricted stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                56,628
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Cancellation
      of restricted stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (19,182
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (446
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (446
                                                                                                                )Stock-based
      compensation
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                3,451
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                3,451Exercise
      of stock options and warrants
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2,082,708
                                                                                                                
                                                                                                                
                                                                                                                14
                                                                                                                
                                                                                                                
                                                                                                                32,132
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                32,146Excess
      tax benefit associated with equity-based compensation
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                7,728
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                7,728Repurchase
      of common stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (4,182,900
                                                                                                                )
                                                                                                                
                                                                                                                (28
                                                                                                                )
                                                                                                                
                                                                                                                (100,217
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (100,245
                                                                                                                )Retirement
      of treasury stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (3,672
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                (159,900
                                                                                                                )
                                                                                                                
                                                                                                                3,672
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Conversion
      of 2022 Floating Rate Convertible Subordinated Notes
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,441,762
                                                                                                                
                                                                                                                
                                                                                                                10
                                                                                                                
                                                                                                                
                                                                                                                (10
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Issuance
      of common stock warrants to consultants
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                115
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                115Cumulative
      change from adoption of accounting policy – SFAS 123(R)
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (2,234
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                2,234
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Amounts
      reclassified into earnings, net of taxes
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (4,243
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (4,243
                                                                                                                )Changes
      in fair value of interest rate swaps, net of taxes
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                2,353
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                2,353Net
      income
                                                                                                                
                                                                                                                $
                                                                                                                77,423
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                77,423
                                                                                                                
                                                                                                                
                                                                                                                77,423Other
      comprehensive loss
                                                                                                                
                                                                                                                
                                                                                                                (2,887
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Income
      tax effect of other comprehensive loss
                                                                                                                
                                                                                                                
                                                                                                                997
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Comprehensive
      income
                                                                                                                
                                                                                                                $
                                                                                                                75,533
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Balances
      at December 31, 2006
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                68,266,041
                                                                                                                
                                                                                                                $
                                                                                                                455
                                                                                                                
                                                                                                                $
                                                                                                                310,229
                                                                                                                
                                                                                                                $
                                                                                                                3,067
                                                                                                                
                                                                                                                $
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                $
                                                                                                                —
                                                                                                                
                                                                                                                $
                                                                                                                422,731
                                                                                                                
                                                                                                                $
                                                                                                                736,482Stock
      split
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                228
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (228
                                                                                                                )
                                                                                                                
                                                                                                                —Vesting
      of restricted stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                168,268
                                                                                                                
                                                                                                                
                                                                                                                2
                                                                                                                
                                                                                                                
                                                                                                                (2
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Cancellation
      of restricted stock and warrants
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (54,498
                                                                                                                )
                                                                                                                
                                                                                                                (1
                                                                                                                )
                                                                                                                
                                                                                                                (1,636
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (1,637
                                                                                                                )Stock-based
      compensation
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                6,128
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                6,128Exercise
      of stock options and warrants
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                2,246,454
                                                                                                                
                                                                                                                
                                                                                                                22
                                                                                                                
                                                                                                                
                                                                                                                35,598
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                35,620Excess
      tax benefit associated with equity-based compensation
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                14,137
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                14,137Repurchase
      of common stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (3,574,130
                                                                                                                )
                                                                                                                
                                                                                                                (36
                                                                                                                )
                                                                                                                
                                                                                                                (110,293
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (110,329
                                                                                                                )Issuance
      of common stock warrants to consultants
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                123
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                123Cumulative
      change from adoption of accounting policy – FIN 48
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                2,897
                                                                                                                
                                                                                                                
                                                                                                                2,897Amounts
      reclassified into earnings, net of taxes
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (2,320
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (2,320
                                                                                                                )Changes
      in fair value of interest rate swaps, net of taxes
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (5,037
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (5,037
                                                                                                                )Net
      income
                                                                                                                
                                                                                                                $
                                                                                                                99,081
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                99,081
                                                                                                                
                                                                                                                
                                                                                                                99,081Other
      comprehensive loss
                                                                                                                
                                                                                                                
                                                                                                                (11,981
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Income
      tax effect of other comprehensive loss
                                                                                                                
                                                                                                                
                                                                                                                4,624
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Comprehensive
      income
                                                                                                                
                                                                                                                $
                                                                                                                91,724
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Balances
      at December 31, 2007
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                67,052,135
                                                                                                                
                                                                                                                $
                                                                                                                670
                                                                                                                
                                                                                                                $
                                                                                                                254,284
                                                                                                                
                                                                                                                $
                                                                                                                (4,290
                                                                                                                )
                                                                                                                $
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                $
                                                                                                                —
                                                                                                                
                                                                                                                $
                                                                                                                524,481
                                                                                                                
                                                                                                                $
                                                                                                                775,145Vesting
      of restricted stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                222,863
                                                                                                                
                                                                                                                
                                                                                                                2
                                                                                                                
                                                                                                                
                                                                                                                (2
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Cancellation
      of restricted stock and warrants
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (72,082
                                                                                                                )
                                                                                                                
                                                                                                                (1
                                                                                                                )
                                                                                                                
                                                                                                                (2,192
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (2,193
                                                                                                                )Stock-based
      compensation
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                7,854
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                7,854Exercise
      of stock options and warrants
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                1,030,594
                                                                                                                
                                                                                                                
                                                                                                                10
                                                                                                                
                                                                                                                
                                                                                                                19,079
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                19,089Issuance
      of common stock, net of issuance costs of $17,195
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                12,650,000
                                                                                                                
                                                                                                                
                                                                                                                127
                                                                                                                
                                                                                                                
                                                                                                                393,803
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                393,930Excess
      tax benefit associated with equity-based compensation
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                6,441
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                6,441Repurchase
      of common stock
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                (1,041,271
                                                                                                                )
                                                                                                                
                                                                                                                (10
                                                                                                                )
                                                                                                                
                                                                                                                (31,517
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (31,527
                                                                                                                )Issuance
      of common stock warrants to consultants
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                79
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                79Amounts
      reclassified into earnings, net of taxes
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                4,010
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                4,010Changes
      in fair value of swaps, net of taxes
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (23,657
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                (23,657
                                                                                                                )Net
      income
                                                                                                                
                                                                                                                $
                                                                                                                105,556
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                105,556
                                                                                                                
                                                                                                                
                                                                                                                105,556Other
      comprehensive loss
                                                                                                                
                                                                                                                
                                                                                                                (31,609
                                                                                                                )
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Income
      tax effect of other comprehensive loss
                                                                                                                
                                                                                                                
                                                                                                                11,962
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Comprehensive
      income
                                                                                                                
                                                                                                                $
                                                                                                                85,909
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                
                                                                                                                —Balances
      at December 31, 2008
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                                                79,842,239
                                                                                                                
                                                                                                                $
                                                                                                                798
                                                                                                                
                                                                                                                $
                                                                                                                647,829
                                                                                                                
                                                                                                                $
                                                                                                                (23,937
                                                                                                                )
                                                                                                                $
                                                                                                                —
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                $
                                                                                                                —
                                                                                                                
                                                                                                                $
                                                                                                                630,037
                                                                                                                
                                                                                                                $
                                                                                                                1,254,727




The
accompanying notes are an integral part of these consolidated financial
statements.


49


WASTE
CONNECTIONS, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(IN
THOUSANDS)


Years
      Ended December 31,2006
                
                
                2007
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                77,423
                
                
                $
                99,081
                
                
                $
                105,556Adjustments
      to reconcile net income to net cash provided by operating
      activities:Loss
      on disposal of assets
                
                
                796
                
                
                
                250
                
                
                
                629Depreciation
                
                
                70,785
                
                
                
                81,287
                
                
                
                91,095Amortization
      of intangibles
                
                
                4,080
                
                
                
                4,341
                
                
                
                6,334Deferred
      income taxes, net of acquisitions
                
                
                26,585
                
                
                
                12,440
                
                
                
                31,902Minority
      interests
                
                
                12,905
                
                
                
                14,870
                
                
                
                12,240Amortization
      of debt issuance costs
                
                
                6,238
                
                
                
                2,182
                
                
                
                1,966Stock-based
      compensation
                
                
                3,451
                
                
                
                6,128
                
                
                
                7,854Interest
      income on restricted assets
                
                
                (618
                )
                
                
                (684
                )
                
                
                (543
                )Closure
      and post-closure accretion
                
                
                623
                
                
                
                1,155
                
                
                
                1,400Excess
      tax benefit associated with equity-based compensation
                
                
                (7,728
                )
                
                
                (14,137
                )
                
                
                (6,441
                )Changes
      in operating assets and liabilities, net of effects from
      acquisitions:Accounts
      receivable, net
                
                
                (4,928
                )
                
                
                (17,514
                )
                
                
                18,768Prepaid
      expenses and other current assets
                
                
                (1,083
                )
                
                
                (8,077
                )
                
                
                335Accounts
      payable
                
                
                (4,306
                )
                
                
                2,888
                
                
                
                (54
                )Deferred
      revenue
                
                
                324
                
                
                
                7,870
                
                
                
                (829
                )Accrued
      liabilities
                
                
                19,245
                
                
                
                27,162
                
                
                
                6,426Other
      long-term liabilities
                
                
                442
                
                
                
                (173
                )
                
                
                (6,229
                )Net
      cash provided by operating activities
                
                
                204,234
                
                
                
                219,069
                
                
                
                270,409CASH
      FLOWS FROM INVESTING ACTIVITIES:Payments
      for acquisitions, net of cash acquired
                
                
                (38,594
                )
                
                
                (109,429
                )
                
                
                (355,150
                )Capital
      expenditures for property and equipment
                
                
                (96,519
                )
                
                
                (124,234
                )
                
                
                (113,496
                )Proceeds
      from disposal of assets
                
                
                2,198
                
                
                
                1,016
                
                
                
                2,560Increase
      in restricted assets, net of interest income
                
                
                (1,411
                )
                
                
                (2,698
                )
                
                
                (2,653
                )Decrease
      (increase) in other assets
                
                
                (224
                )
                
                
                (264
                )
                
                
                1,092Net
      cash used in investing activities
                
                
                (134,550
                )
                
                
                (235,609
                )
                
                
                (467,647
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from long-term debt
                
                
                666,035
                
                
                
                626,000
                
                
                
                302,000Principal
      payments on notes payable and long-term debt
                
                
                (621,161
                )
                
                
                (568,607
                )
                
                
                (223,854
                )Change
      in book overdraft
                
                
                (8,869
                )
                
                
                8,835
                
                
                
                (4,520
                )Proceeds
      from option and warrant exercises
                
                
                32,146
                
                
                
                35,620
                
                
                
                19,089Excess
      tax benefit associated with equity-based compensation
                
                
                7,728
                
                
                
                14,137
                
                
                
                6,441Distributions
      to minority interest holders
                
                
                (11,270
                )
                
                
                (12,642
                )
                
                
                (8,232
                )Payments
      for repurchase of common stock
                
                
                (100,245
                )
                
                
                (110,329
                )
                
                
                (31,527
                )Proceeds
      from common stock offering, net
                
                
                —
                
                
                
                —
                
                
                
                393,930Debt
      issuance costs
                
                
                (6,613
                )
                
                
                (1,125
                )
                
                
                (1,123
                )Net
      cash (used in) provided by financing activities
                
                
                (42,249
                )
                
                
                (8,111
                )
                
                
                452,204Net
      increase (decrease) in cash and equivalents
                
                
                27,435
                
                
                
                (24,651
                )
                
                
                254,966Cash
      and equivalents at beginning of year
                
                
                7,514
                
                
                
                34,949
                
                
                
                10,298Cash
      and equivalents at end of year
                
                $
                34,949
                
                
                $
                10,298
                
                
                $
                265,264




The
accompanying notes are an integral part of these consolidated financial
statements.


50


WASTE
      CONNECTIONS, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS(IN
      THOUSANDS)




SUPPLEMENTARY
DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH TRANSACTIONS:




Years
      Ended December 31,2006
                
                
                2007
                
                
                2008Cash
      paid for income taxes
                
                $
                15,006
                
                
                $
                35,260
                
                
                $
                24,635Cash
      paid for interest
                
                $
                28,534
                
                
                $
                33,418
                
                
                $
                32,626Conversion
      of 2022 Convertible Subordinated Notes to equity
                
                $
                10
                
                
                $
                —
                
                
                $
                —In
      connection with its acquisitions, the Company assumed liabilities as
      follows:Fair
      value of assets acquired
                
                $
                44,919
                
                
                $
                162,425
                
                
                $
                359,114Elimination
      of minority interest
                
                
                —
                
                
                
                —
                
                
                
                33,560Cash
      paid and warrants issued for current year acquisitions
                
                
                (37,560
                )
                
                
                (107,772
                )
                
                
                (354,180
                )Net
      assets used as consideration for acquisitions
                
                
                (893
                )
                
                
                —
                
                
                
                —Liabilities
      assumed and notes payable issued to sellers of businesses
      acquired
                
                $
                6,466
                
                
                $
                54,653
                
                
                $
                38,494




The
accompanying notes are an integral part of these consolidated financial
statements.


51




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


1.
                ORGANIZATION,
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES




Organization
and Business




Waste
Connections, Inc. (“WCI” or “the Company”) was incorporated in Delaware on
September 9, 1997, and commenced its operations on October 1, 1997,
through the purchase of certain solid waste operations in the state of
Washington. The Company is an integrated, non-hazardous solid waste services
company that provides collection, transfer, disposal and recycling services to
commercial, industrial and residential customers in the states of Alabama,
Arizona, California, Colorado, Idaho, Illinois, Iowa, Kansas, Kentucky,
Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, Oklahoma, Oregon,
South Dakota, Tennessee, Texas, Utah, Washington and Wyoming. The Company also
provides intermodal services for the movement of containers in the Pacific
Northwest.




Basis
of Presentation




These
consolidated financial statements include the accounts of WCI and its
wholly-owned and majority-owned subsidiaries. The consolidated entity is
referred to herein as the Company. All significant intercompany accounts and
transactions have been eliminated in consolidation.




Cash
Equivalents




The
Company considers all highly liquid investments with a maturity of three months
or less at purchase to be cash equivalents. As of December 31, 2007 and
2008, cash equivalents consisted of demand money market accounts.




Concentrations
of Credit Risk




Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and accounts receivable. The Company maintains
cash and cash equivalents with banks that at times exceed applicable insurance
limits. The Company reduces its exposure to credit risk by maintaining such
deposits with high quality financial institutions. The Company has not
experienced any losses in such accounts. The Company generally does not require
collateral on its trade receivables. Credit risk on accounts receivable is
minimized as a result of the large and diverse nature of the Company’s customer
base. The Company maintains allowances for losses based on the expected
collectability of accounts receivable.




Revenue
Recognition and Accounts Receivable




Revenues
are recognized when persuasive evidence of an arrangement exists, the service
has been provided, the price is fixed or determinable and collection is
reasonably assured. Certain customers are billed in advance and, accordingly,
recognition of the related revenues is deferred until the services are provided.
In accordance with Emerging Issues Task Force (“EITF”) 06-3, How
Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement (That Is, Gross versus Net
Presentation), any tax assessed by a governmental authority that is
directly imposed on a revenue-producing transaction between a seller and a
customer is presented in the statements of income on a net basis (excluded from
revenues).




The
Company’s receivables are recorded when billed or accrued and represent claims
against third parties that will be settled in cash. The carrying value of the
Company’s receivables, net of the allowance for doubtful accounts, represents
their estimated net realizable value. The Company estimates its allowance for
doubtful accounts based on historical collection trends, type of customer such
as municipal or non-municipal, the age of outstanding receivables and existing
economic conditions. If events or changes in circumstances indicate that
specific receivable balances may be impaired, further consideration is given to
the collectability of those balances and the allowance is adjusted accordingly.
Past-due receivable balances are written off when the Company’s internal
collection efforts have been unsuccessful in collecting the amount
due.




Property
and Equipment




Property
and equipment are stated at cost. Improvements or betterments, not considered to
be maintenance and repair, which add new functionality or significantly extend
the life of an asset are capitalized. Third-party expenditures related to
pending development projects, such as legal, engineering and interest expenses,
are capitalized. Expenditures for maintenance and repair costs, including
planned major maintenance activities, are charged to expense as incurred. The
cost of assets retired or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts in the year of disposal. Gains and
losses resulting from disposals of property and equipment are recognized in the
period in which the property and equipment is disposed. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets or
the lease term, whichever is shorter.


52




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




The
estimated useful lives are as follows:




Buildings
                  
                  20
      yearsLand
      improvements
                  
                  3 -
      20 yearsMachinery
      and equipment
                  
                  3 -
      12 yearsRolling
      stock
                  
                  5 -
      10 yearsContainers
                  
                  5 -
      12 yearsRail
      cars
                  
                  20
      years




Landfill
Accounting




The
Company utilizes the life cycle method of accounting for landfill costs. This
method applies the costs to be capitalized associated with acquiring,
developing, closing and monitoring the landfills over the associated consumption
of landfill capacity. The Company utilizes the units of consumption method to
amortize landfill development costs over the estimated remaining capacity of a
landfill. Under this method, the Company includes future estimated construction
costs using current dollars, as well as costs incurred to date, in the
amortization base. When certain criteria are met, the Company includes expansion
airspace, which has not been permitted, in the calculation of the total
remaining capacity of the landfill.


–
              Landfill
      development costs. Landfill development costs include the costs of
      acquisition, construction associated with excavation, liners, site berms,
      groundwater monitoring wells and leachate collection systems. The Company
      estimates the total costs associated with developing each landfill site to
      its final capacity. This includes certain projected landfill site costs
      that are uncertain because they are dependent on future events and thus
      actual costs could vary significantly from estimates. The total cost to
      develop a site to its final capacity includes amounts previously expended
      and capitalized, net of accumulated depletion, and projections of future
      purchase and development costs, liner construction costs, operating
      construction costs and capitalized interest costs. Total landfill costs
      include the development costs associated with expansion airspace.
      Expansion airspace is addressed below.–
              Final
      capping, closure and post-closure obligations. The Company accrues
      for estimated final capping, closure and post-closure maintenance
      obligations at the landfills it owns and the landfills that it operates,
      but does not own under life-of-site agreements. Accrued final capping,
      closure and post-closure costs represent an estimate of the current value
      of the future obligation associated with final capping, closure and
      post-closure monitoring of non-hazardous solid waste landfills currently
      owned or operated under life-of-site agreements by the Company. Final
      capping costs represent the costs related to installation of clay liners,
      drainage and compacted soil layers and topsoil constructed over areas of
      the landfill where total airspace capacity has been consumed. Closure and
      post-closure monitoring and maintenance costs represent the costs related
      to cash expenditures yet to be incurred when a landfill facility ceases to
      accept waste and closes. Accruals for final capping, closure and
      post-closure monitoring and maintenance requirements in the U.S. consider
      site inspection, groundwater monitoring, leachate management, methane gas
      control and recovery, and operating and maintenance costs to be incurred
      during the period after the facility closes. Certain of these
      environmental costs, principally capping and methane gas control costs,
      are also incurred during the operating life of the site in accordance with
      the landfill operation requirements of Subtitle D and the air emissions
      standards. Daily maintenance activities, which include many of these
      costs, are expensed as incurred during the operating life of the landfill.
      Daily maintenance activities include leachate disposal; surface water,
      groundwater, and methane gas monitoring and maintenance; other pollution
      control activities; mowing and fertilizing the landfill final cap; fence
      and road maintenance; and third party inspection and reporting costs. Site
      specific final capping, closure and post-closure engineering cost
      estimates are prepared annually for landfills owned or operated under
      life-of-site agreements by the Company for which it is responsible for
      final capping, closure and
  post-closure.




Since
the adoption of Statement of Financial Accounting Standards (“SFAS”)
No. 143, Accounting
for Asset Retirement Obligations(“SFAS 143”), landfill final capping,
closure and post-closure liabilities are calculated by estimating the total
obligation in current dollars, inflating the obligation based upon the expected
date of the expenditure using an inflation rate (2.5% during 2007 and 2008) and
discounting the inflated total to its present value using a discount rate (7.5%
during 2007 and 2008). At December 31, 2007 and 2008, accruals for landfill
final capping, closure and post-closure costs (including costs assumed through
acquisitions) were $17,853 and $22,002, respectively.


53




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




In
accordance with SFAS 143, final capping, closure and post-closure liability is
recorded as an addition to site costs and amortized to depletion expense on a
units-of-consumption basis as remaining landfill airspace is consumed. The
impact of changes determined to be changes in estimates, based on an annual
update, is accounted for on a prospective basis. Depletion expense resulting
from final capping, closure and post-closure obligations recorded as a component
of landfill site costs will generally be less during the early portion of a
landfill’s operating life and increase thereafter. The final capping, closure
and post-closure liabilities reflect owned landfills and landfills operated
under life-of-site agreements with estimated remaining lives, based on remaining
permitted capacity, probable expansion capacity and projected annual disposal
volumes, that range from approximately 3to
206years,
with an average remaining life of approximately 53years.
The costs for final capping, closure and post-closure obligations at landfills
the Company owns or operates under life-of-site agreements are generally
estimated based on interpretations of current requirements and proposed or
anticipated regulatory changes.




The
estimates for landfill final capping, closure and post-closure costs, including
final capping costs, consider when the costs would actually be paid and factor
in inflation and discount rates. Interest is accreted on the recorded liability
using the corresponding discount rate. When using discounted cash flow
techniques, reliable estimates of market premiums may not be obtainable. In the
waste industry, there is no market for selling the responsibility for final
capping, closure and post-closure obligations independent of selling the
landfill in its entirety. Accordingly, the Company does not believe that it is
possible to develop a methodology to reliably estimate a market risk premium and
has therefore excluded any such market risk premium from its determination of
expected cash flows for landfill asset retirement obligations. The possibility
of changing legal and regulatory requirements and the forward-looking nature of
these types of costs make any estimation or assumption less
certain.




The
following is a rollforward of the Company’s final capping, closure and
post-closure liability balance from December 31, 2006 to December 31,
2008:


Final
      capping, closure and post-closure liability at December 31,
      2006
                      
                      $
                      11,638Adjustments
      to final capping, closure and post-closure liabilities
                      
                      
                      1,310Liabilities
      incurred
                      
                      
                      1,354Accretion
      expense
                      
                      
                      1,155Closure
      payments
                      
                      
                      (1,008
                      )Assumption
      of closure liabilities from acquisitions
                      
                      
                      3,404Final
      capping, closure and post-closure liability at December 31,
      2007
                      
                      
                      17,853Adjustments
      to final capping, closure and post-closure liabilities
                      
                      
                      1,812Liabilities
      incurred
                      
                      
                      1,598Accretion
      expense
                      
                      
                      1,400Closure
      payments
                      
                      
                      (1,361
                      )Assumption
      of closure liabilities from acquisitions
                      
                      
                      700Final
      capping, closure and post-closure liability at December 31,
      2008
                      
                      $
                      22,002




The
Company recorded adjustments to its final capping, closure and post-closure
liabilities for the year ended December 31, 2007, due to revisions in cost
estimates, a decrease in the expansion airspace at a landfill for which an
expansion is being pursued, and estimated increases in annual volume at an owned
landfill, causing the remaining life, in years, of the landfill to decrease. The
Company recorded adjustments to its final capping, closure and post-closure
liabilities for the year ended December 31, 2008, due primarily to
revisions in cost estimates and changes in the timing of capping events at an
owned landfill, partially offset by an increase in airspace at a landfill where
an expansion is being pursued. The Company performs its annual review of its
cost and capacity estimates in the first quarter of each year.


54




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




At
December 31, 2008, $20,729 of the Company’s restricted assets balance was
for purposes of settling future final capping, closure and post-closure
liabilities.


–
              Disposal
      capacity. The Company’s internal and third-party engineers perform
      surveys at least annually to estimate the disposal capacity at its
      landfills. This is done by using surveys and other methods to calculate,
      based on the terms of the permit, height restrictions and other factors,
      how much airspace is left to fill and how much waste can be disposed of at
      a landfill before it has reached its final capacity. The Company’s
      landfill depletion rates are based on the remaining disposal capacity,
      considering both permitted and expansion airspace, at the landfills it
      owns, and certain landfills it operates, but does not own, under
      life-of-site agreements. The Company’s landfill depletion rates are based
      on the term of the operating agreement at its operated landfills that have
      capitalized expenditures. Expansion airspace consists of additional
      disposal capacity being pursued through means of an expansion but is not
      actually permitted. Expansion airspace that meets certain internal
      criteria is included in the estimate of total landfill airspace. The
      Company’s internal criteria to determine when expansion airspace may be
      included as disposal capacity is as
  follows:




1)
              The
      land where the expansion is being sought is contiguous to the current
      disposal site, and the Company either owns the expansion property or is
      under an option, purchase, operating or other similar
      agreement;2)
              Total
      development costs, final capping costs, and closure/post-closure costs
      have been determined;3)
              Internal
      personnel have performed a financial analysis of the proposed expansion
      site and have determined that it has a positive financial and operational
      impact;4)
              Internal
      personnel or external consultants are actively working to obtain the
      necessary approvals to obtain the landfill expansion permit;
      and5)
              Obtaining
      the expansion is considered probable (for a pursued expansion to be
      considered probable, there must be no significant known technical, legal,
      community, business, or political restrictions or similar issues existing
      that could impair the success of the
expansion).




It
is possible that the Company’s estimates or assumptions could ultimately be
significantly different from actual results. In some cases the Company may be
unsuccessful in obtaining an expansion permit or the Company may determine that
an expansion permit that the Company previously thought was probable has become
unlikely. To the extent that such estimates, or the assumptions used to make
those estimates, prove to be significantly different than actual results, or the
belief that the Company will receive an expansion permit changes adversely in a
significant manner, the costs of the landfill, including the costs incurred in
the pursuit of the expansion, may be subject to impairment testing, as described
below, and lower profitability may be experienced due to higher amortization
rates, higher capping, closure and post-closure rates, and higher expenses or
asset impairments related to the removal of previously included expansion
airspace.




The
Company periodically evaluates its landfill sites for potential impairment
indicators. The Company’s judgments regarding the existence of impairment
indicators are based on regulatory factors, market conditions and operational
performance of its landfills. Future events could cause the Company to conclude
that impairment indicators exist and that its landfill carrying costs are
impaired.




Allocation
of Acquisition Purchase Price




A
summary of the Company’s acquisition purchase price allocation policies is as
follows:


●
              The
      purchase price of acquisitions is allocated to identified intangible
      assets and tangible assets acquired and liabilities assumed based on their
      estimated fair values at the dates of acquisition, with any residual
      amounts allocated to goodwill.●
              The
      Company accrues the payment of contingent purchase price if the events
      surrounding the contingency are deemed assured beyond a reasonable
      doubt.




Goodwill
and Indefinite-Lived Intangible Assets




The
Company acquired indefinite-lived intangible assets in connection with certain
of its acquisitions.  The amounts assigned to indefinite-lived intangible
assets consist of the value of certain perpetual rights to provide solid waste
collection and transportation services in specified territories.  The
estimated fair value of the acquired indefinite-lived intangible assets was
determined by management based on the discounted net cash flows associated with
the rights, agreements and contracts.  Indefinite-lived intangible assets
are not amortized. Goodwill represents the excess of the purchase price
over the estimated fair value of the net tangible and intangible assets of the
acquired entities.  Goodwill and intangible assets, deemed to have
indefinite lives, are subject to annual impairment tests as described
below.
  55




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




Goodwill
and indefinite-lived intangibles are tested for impairment on at least an annual
basis in the fourth quarter of the year.  In the first step of testing for
goodwill impairment, the Company estimates the fair value of each reporting
unit, which it has determined to be its geographic operating segments, and
compares the fair value with the carrying value of the net assets assigned to
each unit.  If the fair value of a reporting unit is greater than the
carrying value of the net assets assigned to the reporting unit, then no
impairment results.  If the fair value is less than its carrying value,
then the Company would perform a second step and determine the fair value of the
goodwill.  In this second step, the fair value of goodwill is determined by
deducting the fair value of a reporting unit’s identifiable assets and
liabilities from the fair value of the reporting unit as a whole, as if that
reporting unit had just been acquired and the purchase price were being
initially allocated.  If the fair value of the goodwill is less than its
carrying value for a reporting unit, an impairment charge would be recorded to
earnings in the Company’s Consolidated Statement of Income.  In testing
indefinite-lived intangibles for impairment, the Company compares the estimated
fair value of each indefinite-lived intangible to its carrying
value.  If the fair value of the indefinite-lived intangible is less
than its carrying value, an impairment charge would be recorded to earnings in
the Company's Consolidated Statement of Income.
  To
determine the fair value of each of the Company's  reporting units as
a whole and each indefinite-lived intangible asset, the Company uses discounted
cash flow analyses, which require significant assumptions and estimates about
the future operations of each reporting unit and the future discrete cash flows
related to each indefinite-lived intangible asset.  Significant
judgments inherent in these analyses include the determination of appropriate
discount rates, the amount and timing of expected future cash flows and growth
rates.  The cash flows employed in the Company’s 2008 discounted cash
flow analyses were based on ten-year financial forecasts, which in turn were
based on the 2009 annual budget developed internally by
management.  These forecasts reflect perpetual revenue growth rates of
5.0% and operating profit margins that were consistent with 2008 results. 
The Company’s discount rate assumptions are based on an assessment of the
Company’s weighted average cost of capital.  In assessing the
reasonableness of the Company’s determined fair values of its reporting units,
the Company evaluates its results against its current market
capitalization.


In
addition, the Company would evaluate a reporting unit for impairment if events
or circumstances change between annual tests indicating a possible impairment.
Examples of such events or circumstances include the following:


●
              A
      significant adverse change in legal factors or in the business
      climate,●
              An
      adverse action or assessment by a regulator,●
              A
      more likely than not expectation that a segment or a significant portion
      thereof will be sold, or●
              The
      testing for recoverability under Statement of Financial Accounting
      Standards No. 144, Accounting
      for the Impairment or Disposal of Long-Lived Assets, of a
      significant asset group within the
segment.




As
a result of performing the tests for potential impairment, the Company
determined that no impairment existed as of December 31, 2007 or 2008, and,
therefore, there were no write-downs to any of its goodwill or indefinite-lived
intangible assets.




Impairments of
Property, Plant and Equipment and Other Intangible Assets




Other
intangible assets consist of long-term franchise agreements, contracts and
non-competition agreements. Property, plant, equipment and other intangible
assets are carried on the Company’s consolidated financial statements based on
their cost less accumulated depreciation or amortization. The recoverability of
these assets is tested whenever events or changes in circumstances indicate that
their carrying amount may not be recoverable.




Typical
indicators that an asset may be impaired include:


●
                A
      significant adverse change in legal factors or in the business
      climate●
                An
      adverse action or assessment by a regulator;●
                A
      more likely than not expectation that a segment or a significant portion
      thereof will be sold, or●
                The
      testing for recoverability under Statement of Financial Accounting
      Standards No. 144, Accounting
      for the Impairment or Disposal of Long-Lived Assets, of a
      significant asset group within a
segment.




If
any of these or other indicators occur, a test of recoverability is performed by
comparing the carrying value of the asset or asset group to its undiscounted
expected future cash flows. If the carrying values are in excess of undiscounted
expected future cash flows, impairment is measured by comparing the fair value
of the asset to its carrying value. Fair value is determined by an internally
developed discounted projected cash flow analysis of the asset. Cash flow
projections are sometimes based on a group of assets, rather than a single
asset. If cash flows cannot be separately and independently identified for a
single asset, the Company will determine whether an impairment has occurred for
the group of assets for which the projected cash flows can be identified. If the
fair value of an asset is determined to be less than the carrying amount of the
asset or asset group, an impairment in the amount of the difference is recorded
in the period that the impairment indicator occurs. Several impairment
indicators are beyond the Company’s control, and whether or not they will occur
cannot be predicted with any certainty. Estimating future cash flows requires
significant judgment and projections may vary from cash flows eventually
realized. There are other considerations for impairments of landfills, as
described below.


56




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




The
estimated fair value of the acquired long-term franchise agreements and
contracts was determined by management based on the discounted net cash flows
associated with the rights, agreements and contracts. The estimated fair value
of the non-competition agreements reflects management’s estimates based on the
amount of revenue protected under such agreements. The amounts assigned to the
franchise agreements, contracts, and non-competition agreements are being
amortized on a straight-line basis over the expected term of the related
agreements (ranging from 1 to 56 years).




Landfills – There are certain indicators listed above that require
significant judgment and understanding of the waste industry when applied to
landfill development or expansion projects. For example, a regulator may
initially deny a landfill expansion permit application though the expansion
permit is ultimately granted. In addition, management may periodically divert
waste from one landfill to another to conserve remaining permitted landfill
airspace. Therefore, certain events could occur in the ordinary course of
business and not necessarily be considered indicators of impairment due to the
unique nature of the waste industry.




Restricted
Assets




Restricted
assets held by trustees consist principally of funds deposited in connection
with landfill final capping, closure and post-closure obligations and other
financial assurance requirements. Proceeds from these financing arrangements are
directly deposited into trust funds, and the Company does not have the ability
to utilize the funds in regular operating activities. See Note 9 for further
information on restricted assets.




Fair
Value of Financial Instruments




The
Company’s financial instruments consist primarily of cash, trade receivables,
restricted assets, trade payables, debt instruments, interest rate swaps and
commodity swaps. As of December 31, 2007 and 2008, the carrying values of
cash, trade receivables, restricted assets, and trade payables are considered to
be representative of their respective fair values. The carrying values of the
Company’s debt instruments, excluding the 3.75% Convertible Senior Notes due
2026 (the “2026 Notes”) and the 6.22% Senior Notes due 2015 (the
“2015 Notes”), approximate their fair values as of December 31, 2007
and 2008, based on current borrowing rates for similar types of borrowing
arrangements. The Company’s 2026 Notes had a carrying value of $200,000 and
a fair value of approximately $222,974 and $217,200 at December 31, 2007
and 2008, respectively, based on the publicly quoted trading price of these
notes. The Company’s 2015 Notes had a carrying value of $175,000 and a fair
value of approximately $160,213 at December 31, 2008, based on quotes of
bonds with similar ratings in similar industries. For details on the fair value
of the Company’s interest rate and fuel commodity swaps, refer to
Note 9.




Derivative
Financial Instruments




The
Company recognizes all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative’s change in fair value is
immediately recognized in earnings. The Company classifies cash inflows and
outflows from derivatives within net income on the statement of cash
flows.




One
of the Company’s objectives for utilizing derivative instruments is to reduce
its exposure to fluctuations in cash flows due to changes in the variable
interest rates of certain borrowings issued under its credit facility and other
variable rate debt. The Company’s strategy to achieve that objective involves
entering into interest rate swaps that are specifically designated to certain
variable rate instruments and accounted for as cash flow
hedges.


57




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




At
December 31, 2008, the Company’s derivative instruments included nine
interest rate swap agreements as follows:


Date
      Entered
                                    
                                    Notional
                                      Amount
                                    
                                    Fixed
                                      Interest
                                      Rate
      Paid*
                                    
                                    Variable
                                      Interest
      Rate
                                      Received
                                    
                                    Effective
      Date
                                    
                                    Expiration
      DateSeptember
      2005
                                    
                                    $
                                    175,000
                                    
                                    4.33%
                                    
                                    1-month
      LIBOR
                                    
                                    February
      2007
                                    
                                    February
      2009September
      2005
                                    
                                    $
                                    75,000
                                    
                                    4.34%
                                    
                                    1-month
      LIBOR
                                    
                                    March
      2007
                                    
                                    March
      2009December
      2005
                                    
                                    $
                                    150,000
                                    
                                    4.76%
                                    
                                    1-month
      LIBOR
                                    
                                    June
      2006
                                    
                                    June
      2009November
      2007
                                    
                                    $
                                    50,000
                                    
                                    4.37%
                                    
                                    1-month
      LIBOR
                                    
                                    February
      2009
                                    
                                    February
      2011November
      2007
                                    
                                    $
                                    50,000
                                    
                                    4.37%
                                    
                                    1-month
      LIBOR
                                    
                                    February
      2009
                                    
                                    February
      2011November
      2007
                                    
                                    $
                                    75,000
                                    
                                    4.37%
                                    
                                    1-month
      LIBOR
                                    
                                    February
      2009
                                    
                                    February
      2011November
      2007
                                    
                                    $
                                    75,000
                                    
                                    4.40%
                                    
                                    1-month
      LIBOR
                                    
                                    March
      2009
                                    
                                    March
      2011November
      2007
                                    
                                    $
                                    50,000
                                    
                                    4.29%
                                    
                                    1-month
      LIBOR
                                    
                                    June
      2009
                                    
                                    June
      2011November
      2007
                                    
                                    $
                                    100,000
                                    
                                    4.35%
                                    
                                    1-month
      LIBOR
                                    
                                    June
      2009
                                    
                                    June
      2011







*
plus applicable margin.




Another
of the Company’s objectives for utilizing derivative instruments is to reduce
its exposure to fluctuations in cash flows due to changes in the price of diesel
fuel. The Company’s strategy to achieve that objective involves entering into
commodity swaps that are specifically designated to certain forecasted diesel
fuel purchases and accounted for as cash flow hedges (“fuel hedges”). See
Note 12 for further discussion on the Company’s hedge
accounting.




At
December 31, 2008, the Company’s derivative instruments included nine fuel
hedge agreements as follows:


Date
      Entered
                                    
                                    Notional
                                      Amount
                                      (in
      gallons per
                                      month)
                                    
                                    Diesel
                                      Rate
                                      Paid
                                      Fixed
                                    
                                    Diesel
      Rate Received
                                      Variable
                                    
                                    Effective
                                      Date
                                    
                                    Expiration
                                      DateOctober
      2008
                                    
                                    250,000
                                    
                                    $
                                    3.750
                                    
                                    DOE
      Diesel Fuel Index*
                                    
                                    January
      2009
                                    
                                    December
      2010October
      2008
                                    
                                    100,000
                                    
                                    
                                    3.745
                                    
                                    DOE
      Diesel Fuel Index*
                                    
                                    January
      2009
                                    
                                    December
      2010October
      2008
                                    
                                    250,000
                                    
                                    
                                    3.500
                                    
                                    DOE
      Diesel Fuel Index*
                                    
                                    January
      2009
                                    
                                    December
      2010December
      2008
                                    
                                    100,000
                                    
                                    
                                    3.000
                                    
                                    DOE
      Diesel Fuel Index*
                                    
                                    January
      2010
                                    
                                    December
      2010December
      2008
                                    
                                    150,000
                                    
                                    
                                    3.000
                                    
                                    DOE
      Diesel Fuel Index*
                                    
                                    January
      2010
                                    
                                    December
      2010December
      2008
                                    
                                    150,000
                                    
                                    
                                    2.820
                                    
                                    DOE
      Diesel Fuel Index*
                                    
                                    January
      2010
                                    
                                    December
      2010December
      2008
                                    
                                    150,000
                                    
                                    
                                    2.700
                                    
                                    DOE
      Diesel Fuel Index*
                                    
                                    January
      2010
                                    
                                    December
      2010December
      2008
                                    
                                    400,000
                                    
                                    
                                    2.950
                                    
                                    DOE
      Diesel Fuel Index*
                                    
                                    January
      2011
                                    
                                    December
      2011December
      2008
                                    
                                    400,000
                                    
                                    
                                    3.030
                                    
                                    DOE
      Diesel Fuel Index*
                                    
                                    January
      2012
                                    
                                    December
      2012







*
      If the national U.S. on-highway average price for a gallon of diesel fuel
      (“average price”), as published by the Department of Energy, exceeds the
      contract price per gallon, the Company receives the difference between the
      average price and the contract price (multiplied by the notional gallons)
      from the counterparty. If the national U.S. on-highway average price for a
      gallon of diesel fuel is less than the contract price per gallon, the
      Company pays the difference to the
counterparty.




Income
Taxes




The
Company uses the liability method to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and income tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to reverse. The Company assumes the
deductibility of certain costs in its income tax filings and estimates the
future recovery of deferred tax assets.




The
Company adopted FASB Interpretation 48, Accounting
for Uncertainty in Income Taxes – an Interpretation of FASB Statement No.
109 (“FIN 48”), at the beginning of fiscal year 2007. FIN 48
requires the Company to evaluate whether the tax position taken by the Company
will more likely than not be sustained upon examination by the appropriate
taxing authority. It also provides guidance on how the Company should measure
the amount of benefit that the Company is to recognize in its financial
statements. Under FIN 48, the Company also classifies a liability for
unrecognized tax benefits as current only to the extent the Company anticipates
making a payment within one year.


58




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




For
fiscal years before 2007, the Company accrued income tax reserves for
contingencies based upon management’s assessment of exposure associated with,
for instance, permanent differences, tax credits and interest expense. The tax
reserves were analyzed quarterly and adjustments were made as events occurred to
warrant adjustments to the reserve. For example, if the statutory period for
assessing tax on a given tax return or period lapsed, the reserve associated
with that period was reversed.




Stock-Based
Compensation




Effective
the beginning of the first quarter of 2006, the Company adopted the provisions
of SFAS No. 123 (revised 2004), Share-Based
Payment(“SFAS 123(R)”) for its share-based compensation plans. In
March 2005, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 107, Share-Based
Payment(“SAB 107”), relating to SFAS 123(R). The Company has
applied the provisions of SAB 107 in its adoption of
SFAS 123(R).




The
weighted average grant date fair value per share for options granted during 2006
was $7.72. The Company did not grant stock options during the years ended
December 31, 2007 or 2008.




The
Company’s calculations of the fair value of stock options granted during the
year ended December 31, 2006, was made using the Black-Scholes
option-pricing model. The fair value of the Company’s stock option grants was
estimated assuming no expected dividend yield and the following weighted average
assumptions for the year ended December 31, 2006:


Expected
      life
                4
      yearsRisk-free
      interest rate
                4.8%Expected
      volatility
                20%




Expected
life is calculated based on the weighted average historical life of stock
options. Risk-free interest rate is based on the U.S. treasury yield curve for
the period of the expected life of the stock option. Expected volatility is
calculated using the daily historical volatility over the last three
years.




The
fair value of restricted stock and restricted stock units for the years ended
December 31, 2006, 2007 and 2008, were determined based on the number of
shares granted and the quoted price of the Company’s common stock.




All
share-based compensation cost is measured at the grant date, based on the
estimated fair value of the award, and is recognized on a straight-line basis as
expense over the employee’s requisite service period. The Company calculates
potential windfalls and shortfalls under the treasury stock method by including
the impact of pro forma deferred tax assets in the calculation of diluted
earnings per common share. The Company also adopted FASB Staff Position
No. FAS 123(R)-3, Transition
Election Related to Accounting for the Tax Effects of Share-Based Payment
Awards (“FSP 123(R)-3”). Under FSP 123(R)-3, the Company
elected to use the short-cut method to calculate the historical pool of windfall
tax benefits. The Company elected to use the tax law ordering approach for
purposes of determining whether an excess of tax benefit has been
realized.




Stock-based
compensation expense recognized during the years ended December 31, 2006,
2007 and 2008, were approximately $3,451 ($2,200 net of taxes), $6,128 ($3,825
net of taxes) and $7,854 ($4,937 net of taxes), respectively, and consisted of
stock option, restricted stock unit and restricted stock expense. The Company
records stock-based compensation expense in “selling, general and
administrative” expenses in the Consolidated Statements of Income. The
incremental stock-based compensation expense recognized as a result of adopting
SFAS 123(R) was $583 ($421 net of taxes), $665 ($476 net of taxes) and $665
($480 net of taxes), or approximately a $0.01 per share decrease to basic
and diluted earnings per common share for the years ended December 31,
2006, 2007 and 2008, respectively, which represented the expense related to
stock options less the impact of recognizing a forfeiture rate assumption
related to restricted stock and restricted stock units. A contra-equity balance
of $2,234 in “Deferred stock compensation” on the Consolidated Balance Sheet was
reversed as a change in accounting policy upon the adoption of SFAS 123(R) to
“Additional paid-in capital” as of January 1, 2006. The total unrecognized
compensation cost at December 31, 2008, related to unvested stock option,
restricted stock unit and restricted stock awards was $19,257 and that future
expense will be recognized over the remaining vesting period of the stock
option, restricted stock unit and restricted stock awards which currently
extends to 2013. The weighted average remaining vesting period of those awards
is 1.4 years.


59




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




Per
Share Information




Basic
net income per share is computed using the weighted average number of common
shares outstanding. Diluted net income per share is computed using the weighted
average number of common and potential common shares outstanding. Potential
common shares are excluded from the computation if their effect is
anti-dilutive.




Advertising
Costs




Advertising
costs are expensed as incurred. Advertising expense for the years ended
December 31, 2006, 2007 and 2008, was $2,147, $2,252 and $2,596,
respectively, which is included in selling, general and administrative expense
in the Consolidated Statements of Income.




Insurance
Liabilities




The
Company is effectively self-insured for automobile liability, property, general
liability, workers’ compensation, employer’s liability and employee group health
claims. The Company’s insurance accruals are based on claims filed and estimates
of claims incurred but not reported and are developed by the Company’s
management with assistance from its third-party actuary and its third-party
claims administrator. The insurance accruals are influenced by the Company’s
past claims experience factors, which have a limited history, and by published
industry development factors. At December 31, 2007 and 2008, the Company’s
total accrual for self-insured liabilities was $34,662 and $33,841,
respectively, which is included in accrued liabilities in the Consolidated
Balance Sheets.




Segment
Information




The
Company identifies its operating segments based on management responsibility and
geographic location. The Company considers each of its three operating regions
that report stand-alone financial information and have segment managers that
report to the Company’s chief operating decision maker to be an operating
segment. The Company has assessed and determined that it has met all of the
aggregation criteria required under SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information (“SFAS
No. 131”), to aggregate its multiple operating segments into one reportable
segment. Therefore, all three operating regions have been aggregated together
and are reported as a single segment consisting of the collection, transfer,
recycling and disposal of non-hazardous solid waste primarily in the Western and
Southern United States.




Reclassifications




Certain
amounts reported in the Company’s prior year’s financial statements have been
reclassified to conform with the 2008 presentation.




New
Accounting Pronouncements




SFAS 141(R).
In December 2007, the FASB issued SFAS No. 141(R), Business
Combinations (“SFAS 141(R)”). SFAS 141(R) will have a material
impact on the Company as it establishes principles and requirements for how the
Company: (1) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (2) recognizes and measures the goodwill acquired
in the business combination or a gain from a bargain purchase; and
(3) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141(R) requires contingent consideration to be
recognized at its fair value on the acquisition date and, for certain
arrangements, changes in fair value to be recognized in earnings until settled.
SFAS 141(R) also requires acquisition-related transaction and restructuring
costs to be expensed rather than treated as part of the cost of the acquisition.
SFAS 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.




SFAS 157.
In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value in accordance with GAAP, and
expands disclosures about fair value measurements. SFAS 157 applies under
other existing accounting pronouncements that require or permit fair value
measurements, as the FASB previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, SFAS 157 does not require any new fair value measurements.
Effective January 1, 2008, the Company adopted SFAS 157 as it relates
to financial assets and liabilities. The new disclosures required by
SFAS 157 are included in Note 9.


60




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




FSP
157-2. In February 2008, the FASB issued FASB Staff Position
No. 157-2, Effective
Date of FASB Statement No. 157 (“FSP 157-2”), which delays the
effective date of SFAS 157 for nonfinancial assets and nonfinancial
liabilities. Therefore, the Company has delayed application of SFAS 157 to
its nonfinancial assets and nonfinancial liabilities, which include assets and
liabilities acquired in connection with a business combination, goodwill,
intangible assets and asset retirement obligations recognized in connection with
final capping, closure and post-closure landfill obligations, until
January 1, 2009. The Company is currently evaluating the impact of
SFAS 157 for nonfinancial assets and liabilities on the Company’s financial
position and results of operations.




SFAS 159.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities – Including an
Amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value. SFAS 159 permits all entities to choose, at specified election
dates, to measure eligible items at fair value (the “fair value option”). A
business entity shall report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each subsequent reporting
date. Upfront costs and fees related to items for which the fair value option is
elected are recognized in earnings as incurred and not deferred. SFAS 159
also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. SFAS 159 is effective as of the
beginning of an entity’s first fiscal year that begins after November 15,
2007. The Company did not adopt the fair value option permitted under this
statement.




SFAS 160.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements – an Amendment of ARB
No. 51 (“SFAS 160”), which establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements.
SFAS 160 also requires consolidated net income to be reported at amounts
that include the amounts attributable to both the parent and the noncontrolling
interest. It also requires disclosure, on the face of the consolidated statement
of income, of the amounts of consolidated net income attributable to the parent
and to the noncontrolling interest. SFAS 160 also provides guidance when a
subsidiary is deconsolidated and requires expanded disclosures in the
consolidated financial statements that clearly identify and distinguish between
the interests of the parent’s owners and the interests of the noncontrolling
owners of a subsidiary. SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
Therefore, beginning January 1, 2009, the Company will retroactively
reflect the line item, “Minority Interests,” as a separate line item in the
stockholders’ equity section of the Company’s balance sheet instead of the
current presentation as mezzanine equity. Additionally, the line item, “Minority
Interests,” in the statement of income will no longer be shown as an expense
item for all periods presented, resulting in an increase to consolidated net
income. The Company will retroactively present on the face of the statement of
income the amounts of consolidated net income attributable to the Company and to
the noncontrolling interests (the portion formally shown as “Minority Interests”
expense in the statements of income). The Company does not expect the adoption
of SFAS 160 to have a material impact on the Company’s prospective
financial position or results of operations.




SFAS 161.
In March 2008, the FASB issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities – an Amendment of FASB
Statement No. 133 (“SFAS 161”), which amends and expands the
disclosure requirements of FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities (“SFAS 133”), with
the intent to provide users of financial statements with an enhanced
understanding of: (1) how and why an entity uses derivative instruments;
(2) how derivative instruments and related hedged items are accounted for
under SFAS 133 and its related interpretations; and (3) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance and cash flows. SFAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments and disclosures about credit-risk-related contingent features in
derivative instruments. This statement applies to all entities and all
derivative instruments. SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008.


61




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




FSP
No. APB 14-1. In May 2008, the FASB issued FASB Staff Position No.
APB 14-1, Accounting
for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlement)(“FSP No. APB 14-1”). FSP No.
APB 14-1 applies to convertible debt instruments that, by their stated
terms, may be settled in cash (or other assets) upon conversion, including
partial cash settlement, unless the embedded conversion option is required to be
separately accounted for as a derivative under SFAS 133. FSP No.
APB 14-1 specifies that issuers of convertible debt instruments should
separately account for the liability and equity components in a manner that will
reflect the entity’s nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. FSP No. APB 14-1 is effective for
financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. FSP No. APB 14-1 will
be applied retrospectively to all periods presented. The cumulative effect of
the change in accounting principle on periods prior to those presented will be
recognized as of the beginning of the first period presented. An offsetting
adjustment will be made to the opening balance of retained earnings for that
period, presented separately.




The
adoption of FSP No. APB 14-1 will not affect the Company’s cash flows;
however, it will impact the Company’s results of operations by increasing
interest expense associated with the Company’s 3.75% Convertible Senior Notes
due 2026 (“2026 Notes”) by adding a non-cash component to amortize a debt
discount calculated based on the difference between the cash coupon of the
convertible debt instrument and the estimated non-convertible debt borrowing
rate. The 2026 Notes were issued in March 2006 and bear interest at a rate
of 3.75% per annum. At the date of issuance, the Company’s borrowing rate for
similar debt instruments with no conversion rights was estimated at 6.5% per
annum. The adoption of FSP No. APB 14-1 will require the Company to record
a debt discount, which will be amortized to interest expense through
April 1, 2011, representing the first date on which holders of the
2026 Notes may require the Company to repurchase all or a portion of their
notes. Upon the adoption of FSP No. APB 14-1, the annual decrease to net
income as a result of amortizing the non-cash debt discount, net of the expected
income tax benefit, will be as follows:


Year
      ended December 31, 2006
                    
                    $
                    1,800Year
      ended December 31, 2007
                    
                    $
                    2,500Year
      ended December 31, 2008
                    
                    $
                    2,600Year
      ended December 31, 2009
                    
                    $
                    2,800Year
      ended December 31, 2010
                    
                    $
                    3,000Year
      ended December 31, 2011
                    
                    $
                    800




Upon
conversion of a convertible debt instrument, the Company must allocate the fair
value of the consideration transferred and any transaction costs incurred
between the equity and liability components. This is done by first allocating to
the liability component an amount equal to the fair value of the liability
component immediately prior to its conversion, with the residual consideration
allocated to the equity component. Any gain or loss equal to the difference
between the consideration allocated to the liability component and the carrying
value of the liability component, including any unamortized debt discount or
issuance costs, is recorded in earnings.




FSP
No. FAS 142-3. In April 2008, the FASB issued FSP No. 142-3,
Determination
of the Useful Life of Intangible Assets(“FSP FAS 142-3”), which
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142, Goodwill
and Other Intangible Assets(“SFAS 142”). The intent of FSP
FAS 142-3 is to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period of expected cash
flows used to measure the fair value of the asset under SFAS 141(R) and
other U.S. generally accepted accounting principles. FSP FAS 142-3 requires
an entity to disclose information for a recognized intangible asset that enables
users of the financial statements to assess the extent to which the expected
future cash flows associated with the asset are affected by the entity’s intent
and/or ability to renew or extend the arrangement. FSP FAS 142-3 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. The
Company does not expect the adoption of FSP FAS 142-3 to have a material
impact on the Company’s financial position or results of
operations.


2.
                USE
      OF ESTIMATES AND
ASSUMPTIONS




In
preparing the Company’s consolidated financial statements, several estimates and
assumptions are made that affect the accounting for and recognition of assets,
liabilities, revenues and expenses. These estimates and assumptions must be made
because certain of the information that is used in the preparation of the
Company’s consolidated financial statements is dependent on future events,
cannot be calculated with a high degree of precision from data available or is
simply not capable of being readily calculated based on generally accepted
methodologies. In some cases, these estimates are particularly difficult to
determine and the Company must exercise significant judgment. The most
difficult, subjective and complex estimates and the assumptions that deal with
the greatest amount of uncertainty are related to the Company’s accounting for
landfills, self-insurance, income taxes, allocation of acquisition purchase
price and asset impairments, which are discussed in Note 1. An additional
area that involves estimation is when the Company estimates the amount of
potential exposure it may have with respect to litigation, claims and
assessments in accordance with SFAS No. 5, Accounting
for Contingencies. Actual results for all estimates could differ
materially from the estimates and assumptions that the Company uses in the
preparation of its consolidated financial statements.


62




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


3.
                ACQUISITIONS




The
Company’s growth strategy includes the acquisition of solid waste businesses
located in markets with significant growth opportunities. Acquisitions are
accounted for under the purchase method of accounting. The results of operations
of the acquired businesses have been included in the Company’s consolidated
financial statements from their respective acquisition dates.




During
2006, the Company acquired 14 non-hazardous solid waste collection,
transfer and recycling businesses. During each of 2007 and 2008, the Company
acquired 15 non-hazardous solid waste collection, transfer, disposal and
recycling businesses. In addition, during 2008, the Company acquired the
remaining 49% interest in Pierce County Recycling, Composting and Disposal, LLC
and Pierce County Landfill Management, Inc. (“PCRCD”). Prior to the acquisition,
the Company was consolidating PCRCD as a majority-owned subsidiary with a
related minority interest obligation and minority interest expense.




The
purchase prices have been allocated to the identified intangible assets and
tangible assets acquired and liabilities assumed based on their estimated fair
values at the dates of acquisition, with any residual amounts allocated to
goodwill. The purchase price allocations are considered preliminary until the
Company is no longer waiting for information that it has arranged to obtain and
that is known to be available or obtainable. Although the time required to
obtain the necessary information will vary with circumstances specific to an
individual acquisition, the “allocation period” for finalizing purchase price
allocations does not exceed one year from the consummation of a business
combination.




As
of December 31, 2008, the Company had eightacquisitions
for which purchase price allocations were preliminary, mainly as a result of
pending working capital valuations. The Company believes the potential changes
to its preliminary purchase price allocations will not have a material impact on
its financial condition, results of operations or cash flows.


63




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




A
summary of the purchase price allocations for acquisitions consummated in 2006
and 2007 and preliminary purchase price allocations for the acquisitions
consummated in 2008 are as follows:


2006
                        Acquisitions
                      
                      
                      2007
                        Acquisitions
                      
                      
                      2008
                        AcquisitionsAcquired
      Assets:Accounts
      receivable
                      
                      $
                      902
                      
                      
                      $
                      6,099
                      
                      
                      $
                      13,781Prepaid
      expenses and other current assets
                      
                      
                      332
                      
                      
                      
                      724
                      
                      
                      
                      1,527Property
      and equipment
                      
                      
                      12,580
                      
                      
                      
                      82,749
                      
                      
                      
                      98,448Goodwill
                      
                      
                      27,571
                      
                      
                      
                      60,653
                      
                      
                      
                      26,024Long-term
      franchise agreements and contracts
                      
                      
                      1,859
                      
                      
                      
                      3,667
                      
                      
                      
                      117,416Indefinite-lived
      intangibles
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      92,312Other
      intangibles
                      
                      
                      964
                      
                      
                      
                      3,592
                      
                      
                      
                      9,044Non-competition
      agreements
                      
                      
                      120
                      
                      
                      
                      4,941
                      
                      
                      
                      48Other
      assets
                      
                      
                      591
                      
                      
                      
                      —
                      
                      
                      
                      514Assumed
      Liabilities:Deferred
      revenue
                      
                      
                      (879
                      )
                      
                      
                      (4,043
                      )
                      
                      
                      (2,449
                      )Accounts
      payable
                      
                      
                      (214
                      )
                      
                      
                      (2,283
                      )
                      
                      
                      (6,692
                      )Accrued
      liabilities
                      
                      
                      (1,558
                      )
                      
                      
                      (4,812
                      )
                      
                      
                      (3,526
                      )Notes
      issued to sellers
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (1,788
                      )Debt
      and long-term liabilities assumed
                      
                      
                      (3,266
                      )
                      
                      
                      (35,442
                      )
                      
                      
                      (22,688
                      )Deferred
      income taxes
                      
                      
                      (549
                      )
                      
                      
                      (8,073
                      )
                      
                      
                      (651
                      )Closure
      liabilities
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (700
                      )Net
      assets acquired
                      
                      
                      38,453
                      
                      
                      
                      107,772
                      
                      
                      
                      320,620Acquisition-related
      liabilities
                      
                      
                      1,149
                      
                      
                      
                      1,780
                      
                      
                      
                      1,049Common
      stock warrants
                      
                      
                      (115
                      )
                      
                      
                      (123
                      )
                      
                      
                      (79
                      )Net
      assets exchanged for new operations
                      
                      
                      (893
                      )
                      
                      
                      —
                      
                      
                      
                      —Elimination
      of minority interest
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      33,560Payments
      for acquisitions, net of cash acquired
                      
                      $
                      38,594
                      
                      
                      $
                      109,429
                      
                      
                      $
                      355,150




Acquisition-related
liabilities are liabilities paid in the year shown above that were accrued for
in a previous year. Net assets exchanged for new operations are the assets given
up in exchange for the acquisition of assets of a new operation. Elimination of
minority interest consists of the minority interest liability in PCRCD that was
eliminated as a result of the Company’s acquisition of the remaining 49%
interest in PCRCD.  The acquisitions completed in the years ended
December 31, 2006, 2007 and 2008, were not material to the Company’s
results of operations, either individually or in the aggregate.  As a
result, pro forma financial information has not been provided.




Goodwill
acquired in 2007 totaling $58,886 and long-term franchise agreements, contracts,
and other intangibles acquired in 2007 totaling $11,269 are expected to be
deductible for tax purposes. Goodwill acquired in 2008 totaling $22,586 and
long-term franchise agreements, contracts, and other intangibles acquired in
2008 totaling $217,933 are expected to be deductible for tax
purposes.


64




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


4.
                INTANGIBLE
      ASSETS




Intangible
assets, exclusive of goodwill, consisted of the following at December 31,
2008:


Gross
      Carrying
                      Amount
                    
                    
                    Accumulated
                      Amortization
                    
                    
                    Net
      Carrying
                      AmountAmortizable
      intangible assets:Long-term
      franchise agreements and contracts
                    
                    $
                    179,674
                    
                    
                    $
                    (12,751
                    )
                    
                    $
                    166,923Non-competition
      agreements
                    
                    
                    9,751
                    
                    
                    
                    (5,157
                    )
                    
                    
                    4,594Other
                    
                    
                    26,107
                    
                    
                    
                    (7,340
                    )
                    
                    
                    18,767215,532
                    
                    
                    
                    (25,248
                    )
                    
                    
                    190,284Nonamortized
      intangible assets:Indefinite-lived
      intangible assets
                    
                    
                    116,160
                    
                    
                    
                    —
                    
                    
                    
                    116,160Intangible
      assets, exclusive of goodwill
                    
                    $
                    331,692
                    
                    
                    $
                    (25,248
                    )
                    
                    $
                    306,444




The
weighted-average amortization periods of long-term franchise agreements and
contracts, non-competition agreements and other intangibles acquired during the
year ended December 31, 2008, are 30.9 years, 6.9 years and
9.6 years, respectively.




Intangible
assets, exclusive of goodwill, consisted of the following at December 31,
2007:


Gross
      Carrying
                  Amount
                
                
                Accumulated
                  Amortization
                
                
                Net
      Carrying
                  AmountAmortizable
      intangible assets:Long-term
      franchise agreements and contracts
                
                $
                62,258
                
                
                $
                (9,470
                )
                
                $
                52,788Non-competition
      agreements
                
                
                9,703
                
                
                
                (4,404
                )
                
                
                5,299Other
                
                
                17,063
                
                
                
                (5,041
                )
                
                
                12,02289,024
                
                
                
                (18,915
                )
                
                
                70,109Nonamortized
      intangible assets:Indefinite-lived
      intangible assets
                
                
                23,848
                
                
                
                —
                
                
                
                23,848Intangible
      assets, exclusive of goodwill
                
                $
                112,872
                
                
                $
                (18,915
                )
                
                $
                93,957




The
weighted-average amortization periods of long-term franchise agreements and
contracts, non-competition agreements and other intangibles acquired during the
year ended December 31, 2007, are 22.4 years, 12.4 years and
8.4 years, respectively.




The
amounts assigned to indefinite-lived intangible assets consist of the value of
certain perpetual rights to provide solid waste collection and transportation
services in specified territories. These indefinite-lived intangible assets were
subject to amortization prior to the Company’s adoption of SFAS
No. 142.




Estimated
future amortization expense for the next five years of amortizable intangible
assets is as follows:


For
      the year ended December 31, 2009
                      
                      $
                      9,850For
      the year ended December 31, 2010
                      
                      $
                      9,710For
      the year ended December 31, 2011
                      
                      $
                      9,604For
      the year ended December 31, 2012
                      
                      $
                      9,468For
      the year ended December 31, 2013
                      
                      $
                      8,029




Total
amortization expense for intangible assets was $4,080, $4,341 and $6,334 for the
years ended December 31, 2006, 2007 and 2008,
respectively.


65




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


5.
                PROPERTY
      AND EQUIPMENT




Property
and equipment consists of the following:


Year
      Ended December 31,2007
                      
                      
                      2008Landfill
      site costs
                      
                      $
                      608,750
                      
                      
                      $
                      655,773Rolling
      stock
                      
                      
                      274,719
                      
                      
                      
                      343,692Land,
      buildings and improvements
                      
                      
                      115,461
                      
                      
                      
                      155,712Containers
                      
                      
                      131,412
                      
                      
                      
                      155,646Machinery
      and equipment
                      
                      
                      122,107
                      
                      
                      
                      138,094Construction
      in progress
                      
                      
                      4,122
                      
                      
                      
                      8,5941,256,571
                      
                      
                      
                      1,457,511Less
      accumulated depreciation and depletion
                      
                      
                      (391,241
                      )
                      
                      
                      (473,387
                      )$
                      865,330
                      
                      
                      $
                      984,124




The
Company’s landfill depletion expense for the years ended December 31, 2006,
2007 and 2008, was $18,854, $22,282 and $23,422, respectively.


6.
                OTHER
      ASSETS, NET




Other
assets, net, consist of the following:


Year
      Ended December 31,2007
                    
                    
                    2008Deferred
      financing costs
                    
                    $
                    7,972
                    
                    
                    $
                    7,128Investment
      in unconsolidated entity
                    
                    
                    5,300
                    
                    
                    
                    5,300Landfill
      closure receivable
                    
                    
                    3,397
                    
                    
                    
                    4,358Deposits
                    
                    
                    917
                    
                    
                    
                    916Other
                    
                    
                    3,871
                    
                    
                    
                    3,220$
                    21,457
                    
                    
                    $
                    20,922




7.
                  ACCRUED
      LIABILITIES




Accrued
liabilities consist of the following:


Year
      Ended December 31,2007
                  
                  
                  2008Insurance
      claims
                  
                  $
                  34,662
                  
                  
                  $
                  33,841Payroll
      and payroll-related
                  
                  
                  18,872
                  
                  
                  
                  20,198Interest
      payable
                  
                  
                  2,674
                  
                  
                  
                  6,934Acquisition-related
                  
                  
                  4,852
                  
                  
                  
                  4,227Unrealized
      interest rate and fuel commodity swap losses
                  
                  
                  43
                  
                  
                  
                  21,120Other
                  
                  
                  8,475
                  
                  
                  
                  8,900$
                  69,578
                  
                  
                  $
                  95,220


66




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


8.
                LONG-TERM
      DEBT




Long-term
debt consists of the following:


Year
      Ended December 31,2007
                  
                  
                  2008Revolver
      under Credit Facility
                  
                  $
                  479,000
                  
                  
                  $
                  400,0002026
      Convertible Senior Notes
                  
                  
                  200,000
                  
                  
                  
                  200,0002015
      Senior Notes
                  
                  
                  —
                  
                  
                  
                  175,000Tax-Exempt
      Bonds
                  
                  
                  44,510
                  
                  
                  
                  53,960Notes
      payable to sellers in connection with acquisitions, uncollateralized,
      bearing interest at 5.5% to 10.35%, principal and interest payments due
      periodically with due dates ranging from 2009 to 2036
                  
                  
                  3,994
                  
                  
                  
                  4,888Notes
      payable to third parties, collateralized by substantially all assets of
      certain subsidiaries of the Company, bearing interest at 9.0% to 10.9%,
      principal and interest payments due periodically with due dates ranging
      from 2009 to 2019
                  
                  
                  5,329
                  
                  
                  
                  1,608732,833
                  
                  
                  
                  835,456Less
      – current portion
                  
                  
                  (13,315
                  )
                  
                  
                  (4,698
                  )$
                  719,518
                  
                  
                  $
                  830,758




Credit
Facility




The
Company has a senior revolving credit facility with a syndicate of banks for
which Bank of America, N.A. acts as agent. The maximum borrowings available
under the Company’s credit facility were $800,000 and $845,000 as of
December 31, 2007 and 2008, respectively. When the Company increased the
maximum borrowings available under the Company’s credit facility to $845,000 in
June 2008, no changes were made to the terms, pricing, conditions or covenants
of the credit facility. There is no maximum amount of standby letters of credit
that can be issued; however, the issuance of standby letters of credit reduces
the amount of total borrowings available. As of December 31, 2007, $479,000
was outstanding under the credit facility, exclusive of outstanding standby
letters of credit of $68,260. As of December 31, 2008, $400,000 was
outstanding under the credit facility, exclusive of outstanding standby letters
of credit of $81,401. The credit facility matures in
September 2012.




The
borrowings under the credit facility bear interest, at the Company’s option, at
either the base rate plus the applicable base rate margin (approximately 7.25%
and 3.25% at December 31, 2007 and 2008, respectively) on base rate loans,
or the Eurodollar rate plus the applicable Eurodollar margin (approximately 5.8%
and 2.5% at December 31, 2007 and 2008, respectively) on Eurodollar loans.
The applicable margins under the credit facility vary depending on the Company’s
leverage ratio, as defined in the credit agreement. As of December 31, 2007
and 2008, these margins ranged from 0.625% to 1.125% for Eurodollar loans and
0.00% for base rate loans.




The
credit facility requires the Company to pay an annual commitment fee on the
unused portion of the facility. The commitment fee ranged from 0.15% to 0.20% as
of December 31, 2007 and 2008.




The
borrowings under the credit facility are not collateralized. The credit facility
contains representations and warranties and places certain business, financial
and operating restrictions on the Company relating to, among other things,
indebtedness, liens and other encumbrances, investments, mergers and
acquisitions, asset sales, sale and leaseback transactions, and dividends,
distributions and redemptions of capital stock. The credit agreement requires
that the Company maintain specified financial ratios. As of December 31,
2007 and 2008, the Company was in compliance with all applicable covenants in
the credit facility.




Floating
Rate Convertible Subordinated Notes due 2022




In
2002, the Company issued Floating Rate Convertible Subordinated Notes due 2022
(the “2022 Notes”) with an aggregate principal amount of $175,000 in an
offering pursuant to Rule 144A of the Securities Act of 1933, as amended.
The 2022 Notes were uncollateralized and ranked junior to all existing and
future senior indebtedness, as defined in the indenture governing the
2022 Notes. The 2022 Notes required (subject to certain exceptions) payment
of the principal value in cash and net share settle of the conversion value in
excess of the principal value of the notes upon conversion and contained
dividend protection provisions.


67




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




In
April 2006, the Company called for redemption the $175,000 aggregate principal
amount of its 2022 Notes, which redemption occurred on May 8 and
June 5, 2006. Holders of the 2022 Notes had the right to convert their
notes at any time prior to the end of the day that was two business days
preceding the applicable redemption date. The Company paid approximately
$175,000 in cash and issued 1,441,763 shares of its common stock in
connection with the conversion and redemption. The Company funded the conversion
and redemption with borrowings under its senior revolving credit facility.
Additionally, the Company recorded a non-cash, pre-tax charge of $4,185 ($2,637
net of taxes) in other income (expense) for the write-off of unamortized debt
issuance costs associated with the full $175,000 aggregate principal amount of
the notes called for redemption.




Convertible
Senior Notes due 2026




On
March 20, 2006, the Company completed its offering of $200,000 aggregate
principal amount of its 3.75% Convertible Senior Notes due 2026 in an offering
pursuant to Rule 144A of the Securities Act of 1933, as amended. The terms
and conditions of the 2026 Notes are set forth in the Indenture, dated as
of March 20, 2006, between the Company and U.S. Bank National Association,
as trustee. The 2026 Notes rank equally in right of payment to all of the
Company’s other existing and future senior uncollateralized and unsubordinated
indebtedness. The 2026 Notes rank senior in right of payment to all of the
Company’s existing and future subordinated indebtedness and are subordinated in
right of payment to the Company’s collateralized obligations to the extent of
the assets collateralizing such obligations. The 2026 Notes bear interest
at 3.75% per annum payable semi-annually in arrears on April 1 and
October 1 of each year, beginning on October 1, 2006, until the
maturity date of April 1, 2026. The Company’s obligations under the
2026 Notes are not guaranteed by any third party.




The
2026 Notes are convertible into cash and, if applicable, shares of common
stock based on an initial conversion rate of 29.4118 shares of common stock
per $1 principal amount of 2026 Notes (which is equal to an initial
conversion price of approximately $34.00 per share), subject to adjustment, and
only under certain circumstances. Upon a surrender of the 2026 notes for
conversion, the Company will deliver cash equal to the lesser of the aggregate
principal amount of notes to be converted and its total conversion obligation.
The Company will deliver shares of its common stock in respect of the remainder,
if any, of its conversion obligation. The holders of the 2026 Notes who
convert their notes in connection with a change in control (as defined in the
Indenture) may be entitled to a make-whole premium in the form of an increase in
the conversion rate.




Holders
may surrender notes for conversion into cash and, if applicable, shares of the
Company’s common stock at an initial conversion price of $34.00 per share
(equivalent to an initial conversion rate of 29.4118 shares per $1
principal amount of notes) at any time prior to the close of business on the
maturity date, if the closing sale price of the Company’s common stock for at
least 20 trading days in the period of 30 consecutive trading days
ending on the last trading day of the quarter preceding the quarter in which the
conversion occurs, is more than 130% of the conversion price per share of the
Company’s common stock on that 30th day.
Based on the Company’s share price through December 31, 2008, the 2026
Notes have not met the requirements for conversion by the holders.




Beginning
on April 1, 2010, the Company may redeem in cash all or part of the
2026 Notes at a price equal to 100% of the principal amount plus accrued
and unpaid interest, including additional interest, if any, and, if redeemed
prior to April 1, 2011, an interest make-whole payment. The holders of the
2026 Notes can require the Company to repurchase all or a part of the
2026 Notes in cash on each of April 1, 2011, 2016 and 2021, and in the
event of a change of control of the Company, at a purchase price of 100% of the
principal amount of the 2026 Notes plus any accrued and unpaid interest,
including additional interest, if any. The Company is amortizing the $5,534 debt
issuance costs over a five-year term through the first put date, or
April 1, 2011.




Senior
Notes due 2015




On
July 15, 2008, the Company entered into a Master Note Purchase Agreement
with certain accredited institutional investors pursuant to which the Company
issued and sold to the investors at a closing on October 1, 2008, $175,000
of senior uncollateralized notes due October 1, 2015 (the
“2015 Notes”) in a private placement. The 2015 Notes bear interest at
the fixed rate of 6.22% per annum with interest payable in arrears semi-annually
on April 1 and October 1 beginning on April 1, 2009, and with
principal payable at the maturity of the 2015 Notes on October 1,
2015.


68




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




The
2015 Notes are uncollateralized obligations and rank equally with
obligations under the Company’s senior uncollateralized revolving credit
facility. The 2015 Notes are subject to representations, warranties,
covenants and events of default customary for a private placement of senior
uncollateralized notes. Upon the occurrence of an event of default, payment of
the 2015 Notes may be accelerated by the holders of the 2015 Notes.
The 2015 Notes may also be prepaid at any time in whole or from time to
time in any part (not less than 5% of the then-outstanding principal amount) by
the Company at par plus a make-whole amount determined in respect of the
remaining scheduled interest payments on the 2015 Notes, using a discount
rate of the then current market standard for United States treasury bills plus
0.50%. In addition, the Company will be required to offer to prepay the
2015 Notes upon certain changes in control. The Company is amortizing the
$1,026 debt issuance costs over a seven-year term through the maturity date, or
October 1, 2015.




The
Company may issue additional series of senior uncollateralized notes pursuant to
the terms and conditions of the Master Note Purchase Agreement, provided that
the purchasers of the 2015 Notes shall not have any obligation to purchase
any additional notes issued pursuant to the Master Note Purchase Agreement and
the aggregate principal amount of the 2015 Notes and any additional notes
issued pursuant to the Master Note Purchase Agreement shall not exceed
$500,000.




Tax-Exempt
Bonds




The
Company’s tax-exempt bond financings are as follows:


Type of
                                                                                                                                          Interest
                                                                                                                                          Rate
                                                                                                                                        
                                                                                                                                        Interest
      Rate
                                                                                                                                          on Bond at
                                                                                                                                          December 31,
                                                                                                                                          2008
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Outstanding Balance
      at
                                                                                                                                          December 31,
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        Back
      by
                                                                                                                                          Letter
      of
                                                                                                                                          Credit
                                                                                                                                          (Amount)Maturity Date
      of
                                                                                                                                          BondName
      of Bond
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2007
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2008Wasco
      Bond 2012
                                                                                                                                        
                                                                                                                                        Fixed
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        7.00%
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        March 1,
      2012
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        2,810
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        2,325
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        —Wasco
      Bond 2021
                                                                                                                                        
                                                                                                                                        Fixed
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        7.25
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        March
      1, 2021
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        8,475
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        8,475
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        —Madera
      Bond
                                                                                                                                        
                                                                                                                                        Variable
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        0.97
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        May
      1, 2016
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,800
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,800
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1,829Cold
      Canyon Bond
                                                                                                                                        
                                                                                                                                        Variable
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        0.97
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        July
      2008
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        5,845
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        —
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        —Tehama
      Bond
                                                                                                                                        
                                                                                                                                        Variable
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        0.97
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        June 1,
      2014
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        640
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        580
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        598San
      Jose Bonds
                                                                                                                                        
                                                                                                                                        Variable
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        0.97
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        September 1,
      2016
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        9,440
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        7,020
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        7,288West
      Valley Bond
                                                                                                                                        
                                                                                                                                        Variable
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.25
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        August 1,
      2018
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        15,500
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        15,500
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        15,678LeMay
      Washington Bond
                                                                                                                                        
                                                                                                                                        Variable
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.03
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        April 1,
      2033
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        —
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        15,930
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        16,133LeMay
      Olympia Bond
                                                                                                                                        
                                                                                                                                        Variable
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        1.03
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        April 1,
      2019
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        —
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,330
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        2,379$
                                                                                                                                        44,510
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        53,960
                                                                                                                                        
                                                                                                                                        
                                                                                                                                        $
                                                                                                                                        43,905




The
variable-rate bonds are all remarketed weekly by a remarketing agent to
effectively maintain a variable yield. If the remarketing agent is unable to
remarket the bonds, then the remarketing agent can put the bonds to the Company.
The Company has obtained standby letters of credit, issued under its senior
revolving credit facility, to guarantee repayment of the bonds in this event.
The Company classified these borrowings as long-term at December 31, 2008,
because the borrowings are supported by standby letters of credit issued under
the Company’s senior revolving credit facility which is long-term.




As
of December 31, 2008, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:


2009
                  
                  $
                  4,6982010
                  
                  
                  1,9372011
                  
                  
                  202,0412012
                  
                  
                  402,1652013
                  
                  
                  1,463Thereafter
                  
                  
                  223,152$
                  835,456


69




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


9.
                FAIR
      VALUE OF FINANCIAL
INSTRUMENTS




As
discussed in Note 1, effective January 1, 2008, the Company adopted
SFAS 157 as it relates to financial assets and liabilities that are being
measured and reported at fair value on a recurring basis. Although the adoption
of SFAS 157 did not materially impact its financial condition, results of
operations, or cash flows, the Company is now required to provide additional
disclosures as part of its financial statements. In accordance with
FSP 157-2, the Company deferred adoption of SFAS 157 as it relates to
nonfinancial assets and liabilities measured at fair value on a nonrecurring
basis.




SFAS 157
defines fair value, establishes a framework for measuring fair value in
accordance with GAAP, and expands disclosure about fair value measurements. This
statement is intended to enable the reader of the financial statements to assess
the inputs used to develop those measurements by establishing a hierarchy for
ranking the quality and reliability of the information used to determine fair
values. The statement requires that assets and liabilities carried at fair value
be classified and disclosed in a three-tier fair value hierarchy. These tiers
include: Level 1, defined as quoted market prices in active markets for
identical assets or liabilities; Level 2, defined as inputs other than
Level 1 that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities, quoted prices in markets that are not
active, model-based valuation techniques for which all significant assumptions
are observable in the market, or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities; and Level 3, defined as unobservable inputs that are
not corroborated by market data.




The
Company’s financial assets and liabilities recorded at fair value on a recurring
basis include derivative instruments and certain investments included in cash
equivalent money market funds and restricted assets. The Company’s derivative
instruments are pay-fixed, receive-variable interest rate swaps and pay-fixed,
receive-variable diesel fuel commodity swaps. The Company’s interest rate swaps
are recorded at their estimated fair values based on quotes received from
financial institutions that trade these contracts. The Company verifies the
reasonableness of these quotes using similar quotes from another financial
institution as of each date for which financial statements are prepared. The
Company uses a discounted cash flow ("DCF") model to determine the estimated
fair values of the diesel fuel commodity swaps.  The assumptions used in
preparing the DCF model include: (i) estimates for the forward DOE index
curve and (ii) the discount rate based on risk-free interest rates over the term
of the agreements.  The DOE index curve used in the DCF model was obtained
from financial institutions that trade these contracts.  For the
Company’s interest rate swaps, the Company also considers the Company’s
creditworthiness in its determination of the fair value measurement of these
instruments in a net liability position. The Company’s cash equivalent money
market funds and restricted assets are valued at quoted market prices in active
markets for identical assets, which the Company receives from the financial
institutions that hold such investments on its behalf. The Company’s restricted
assets measured at fair value are invested primarily in U.S. government and
agency securities.




The
Company’s assets and liabilities measured at fair value on a recurring basis
subject to the disclosure requirements of SFAS 157 at December 31,
2008, were as follows:


Fair
      Value Measurement at
                                                                            Reporting
      Date UsingTotal
                                                                          
                                                                          
                                                                          Quoted
      Prices in
                                                                            Active
      Markets
                                                                            for
      Identical
                                                                            Assets
                                                                            (Level 1)
                                                                          
                                                                          
                                                                          Significant
                                                                            Other
                                                                            Observable
                                                                            Inputs
                                                                            (Level 2)
                                                                          
                                                                          
                                                                          Significant
                                                                            Unobservable
                                                                            Inputs
                                                                            (Level 3)Interest
      rate swap derivative instruments – liability position
                                                                          
                                                                          $
                                                                          (27,796
                                                                          )
                                                                          
                                                                          $
                                                                          —
                                                                          
                                                                          
                                                                          $
                                                                          (27,796
                                                                          )
                                                                          
                                                                          $
                                                                          —Fuel
      hedge derivative instruments – liability position
                                                                          
                                                                          $
                                                                          (10,813
                                                                          )
                                                                          
                                                                          $
                                                                          —
                                                                          
                                                                          
                                                                          $
                                                                          —
                                                                          
                                                                          
                                                                          $
                                                                          (10,813
                                                                          )Cash
      equivalent money market funds
                                                                          
                                                                          $
                                                                          256,060
                                                                          
                                                                          
                                                                          $
                                                                          256,060
                                                                          
                                                                          
                                                                          $
                                                                          —
                                                                          
                                                                          
                                                                          $
                                                                          —Restricted
      assets
                                                                          
                                                                          $
                                                                          21,429
                                                                          
                                                                          
                                                                          $
                                                                          21,429
                                                                          
                                                                          
                                                                          $
                                                                          —
                                                                          
                                                                          
                                                                          $
                                                                          —















Level
      3
              InputsBalance as of
      December 31, 2007
            
            $
            —Realized losses
      included in earnings
            
            
            —Unrealized losses
      included in Accumulated OtherComprehensive
      Loss
            
            
            (10,813
            )Purchases, sales,
      issuances and settlements
            
            
            —Transfers in and out
      of Level 3
            
            
            —Balance as of
      December 31, 2008
            
            $
            (10,813
            )




70




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


10.
                COMMITMENTS
      AND CONTINGENCIES




COMMITMENTS




Leases




The
Company leases its facilities and certain equipment under non-cancelable
operating leases for periods ranging from one to 20 years, with renewal
options for certain leases. The Company’s total rent expense under operating
leases during the years ended December 31, 2006, 2007 and 2008, was $8,137,
$8,790 and $9,008, respectively.




As
of December 31, 2008, future minimum lease payments, by calendar year, are
as follows:




2009
                  
                  $
                  8,3502010
                  
                  
                  8,0202011
                  
                  
                  7,1122012
                  
                  
                  6,8292013
                  
                  
                  5,803Thereafter
                  
                  
                  35,055$
                  71,169




Financial
Surety Bonds




The
Company uses financial surety bonds for a variety of corporate guarantees. The
two largest uses of financial surety bonds are for municipal contract
performance guarantees and landfill final capping, closure and post-closure
financial assurance required under certain environmental regulations.
Environmental regulations require demonstrated financial assurance to meet final
capping, closure and post-closure requirements for landfills. In addition to
surety bonds, these requirements may also be met through alternative financial
assurance instruments, including insurance, letters of credit and restricted
asset deposits.




At
December 31, 2007 and 2008, the Company had provided customers and various
regulatory authorities with surety bonds in the aggregate amount of
approximately $112,512 and $113,273, respectively, to secure its landfill final
capping, closure and post-closure requirements and $51,813 and $48,502,
respectively, to secure performance under collection contracts and landfill
operating agreements.




The
Company owns a 9.9% interest in a company that, among other activities, issues
financial surety bonds to secure final capping, landfill closure and
post-closure obligations for companies operating in the solid waste industry.
The Company accounts for this investment under the cost method of accounting.
There have been no identified events or changes in circumstances that may have a
significant adverse effect on the fair value of the investment. This investee
company and the parent company of the investee had written final capping,
landfill closure and post-closure financial surety bonds for the Company, of
which $86,806 and $85,802 were outstanding as of December 31, 2007 and
2008, respectively. The Company’s reimbursement obligations under these bonds
are secured by a pledge of its stock in the investee company.




Unconditional
Purchase Obligations




At
December 31, 2008, the Company’s unconditional purchase obligations consist
of multiple fixed-price fuel purchase contracts under which it has
10.5 million gallons remaining to be purchased for a total of $27,543, plus
taxes and transportation upon delivery. These fuel purchase contracts expire on
or before December 31, 2009.




Put
Option




The
minority interests holders of one of the Company’s majority-owned subsidiaries,
Pierce County Recycling, Composting and Disposal, LLC, or PCRCD, had an
exercisable put option to require the Company to complete the acquisition of
PCRCD by purchasing their minority ownership interests for fair market value.
The put option calculated the fair market value of PCRCD based on its current
operating income before depreciation and amortization, as defined in the put
option agreement. On August 1, 2008, Waste Connections of Washington, Inc.,
or WCWI, a wholly-owned subsidiary of the Company, entered into an Equity
Purchase Agreement with the minority interests holders of PCRCD, Land Recovery,
Inc. and Resource Investments, Inc., and their shareholders. Pursuant to the
Equity Purchase Agreement, WCWI agreed to purchase from the minority interests
holders all of their membership interests of PCRCD and all of their shares of
capital stock of Pierce County Landfill Management, Inc., PCRCD’s Manager, for a
purchase price of $103,665. The transaction closed on November 3, 2008.
PCRCD and Pierce County Landfill Management, Inc., which were previously
majority-owned subsidiaries of the Company, are now wholly-owned subsidiaries of
the Company. Upon the closing of the PCRCD transaction, the put option
terminated and is of no further force or effect. After the closing of the
transaction, Pierce County Landfill Management, Inc. was merged into
PCRCD.


71




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




CONTINGENCIES




Environmental
Risks




The
Company is subject to liability for any environmental damage that its solid
waste facilities may cause to neighboring landowners or residents, particularly
as a result of the contamination of soil, groundwater or surface water, and
especially drinking water, including damage resulting from conditions existing
prior to the acquisition of such facilities by the Company. The Company may also
be subject to liability for any off-site environmental contamination caused by
pollutants or hazardous substances whose transportation, treatment or disposal
was arranged by the Company or its predecessors. Any substantial liability for
environmental damage incurred by the Company could have a material adverse
effect on the Company’s financial condition, results of operations or cash
flows. As of December 31, 2008, the Company is not aware of any material
environmental liabilities.




Legal
Proceedings




The
Company’s subsidiary, High Desert Solid Waste Facility, Inc. (formerly known as
Rhino Solid Waste, Inc.), owns undeveloped property in Chaparral, New Mexico,
for which it sought a permit to operate a municipal solid waste landfill. After
a public hearing, the New Mexico Environment Department (the “Department”)
approved the permit for the facility on January 30, 2002. Colonias
Development Council (“CDC”), a nonprofit organization, opposed the permit at the
public hearing and appealed the Department’s decision to the courts of New
Mexico, primarily on the grounds that the Department failed to consider the
social impact of the landfill on the community of Chaparral, and failed to
consider regional planning issues. On July 18, 2005, in Colonias
Dev. Council v. Rhino Envtl. Servs., Inc. (In re Rhino Envtl. Servs.),
2005
NMSC 24, 117 P.3d 939, the New Mexico Supreme Court remanded the matter
back to the Department to conduct a limited public hearing on certain evidence
that CDC claims was wrongfully excluded from consideration by the hearing
officer, and to allow the Department to reconsider the evidence already
proffered concerning the impact of the landfill on the surrounding community’s
quality of life. The parties have agreed to postpone the hearing until November
2009 at the earliest to allow the Company time to explore a possible relocation
of the landfill. At December 31, 2008, the Company had $9,917 of capitalized
expenditures related to this landfill development project. If the Company is not
ultimately issued a permit to operate the landfill, the Company will be required
to expense in a future period the $9,917 of capitalized expenditures, less the
recoverable value of the undeveloped property and other amounts recovered, which
would likely have a material adverse effect on the Company’s results of
operations for that period.




The
Company opened a municipal solid waste landfill in Harper County, Kansas in
January 2006, following the issuance by the Kansas Department of Health and
Environment (“KDHE”) of a final permit to operate the landfill. The landfill has
operated continuously since that time. On October 3, 2005, landfill
opponents filed a suit (Board
of Comm’rs of Sumner County, Kansas, Tri-County Concerned Citizens and Dalton
Holland v. Roderick Bremby, Sec’y of the Kansas Dep’t of Health and Env’t, et
al.) in the District Court of Shawnee County, Kansas, seeking a judicial
review of KDHE’s decision to issue the permit, alleging that a site analysis
prepared for the Company and submitted to the KDHE as part of the process
leading to the issuance of the permit was deficient in several respects. The
action sought to stay the effectiveness of the permit and to nullify it. On
April 7, 2006, the District Court issued an order denying the plaintiffs’
request for judicial review on the grounds that they lacked standing to bring
the action. The plaintiffs appealed this decision to the Kansas Court of
Appeals, and on October 12, 2007, the Court of Appeals issued an opinion
reversing and remanding the District Court’s decision. The Company appealed the
decision to the Kansas Supreme Court, and on July 25, 2008, the Supreme
Court affirmed the decision of the Court of Appeals and remanded the case to the
District Court for further proceedings on the merits. Plaintiffs filed a second
amended petition on October 22, 2008, and the Company filed a motion to
strike various allegations contained within the second amended petition. The
motion to strike was heard before the District Court on January 26, 2009,
and the Court took the matter under submission. The outcome of the issues raised
in the motion will impact the scope of briefing on the ultimate issue before the
District Court. It is anticipated that the briefing will be completed during the
2009 calendar year. While the Company believes that it will prevail in this
case, the District Court could remand the matter back to KDHE for additional
review of its decision or could revoke the permit. An order of remand to KDHE
would not necessarily affect the Company’s continued operation of the landfill.
Only in the event that a final adverse determination with respect to the permit
is received would there likely be a material adverse effect on the Company’s
reported income in the future. The Company cannot estimate the amount of any
such material adverse effect.


72




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




On
October 25, 2006, a purported shareholder derivative complaint captioned
Travis
v. Mittelstaedt, et al.was filed in the United States District Court for
the Eastern District of California, naming certain of the Company’s directors
and officers as defendants, and naming the Company as a nominal defendant. On
January 30, 2007, a similar purported derivative action, captioned Pierce
and Banister v. Mittelstaedt, et al.,was filed in the same federal court
as theTraviscase. The Travis
and Pierce
and Banister cases have been consolidated. The consolidated complaint in
the action alleges violations of various federal and California securities laws,
breach of fiduciary duty, waste, and related claims in connection with the
timing of certain historical stock option grants. The consolidated complaint
names as defendants certain of the Company’s current and former directors and
officers, and names the Company as a nominal defendant. On June 22, 2007,
the Company and the individual defendants filed motions to dismiss the
consolidated action. On March 19, 2008, the Court granted the Company’s
motion to dismiss and provided the plaintiffs leave to file an amended
consolidated complaint, which the plaintiffs filed with the Court on
April 8, 2008.




On
October 30, 2006, the Company was served with another purported shareholder
derivative complaint, naming certain of the Company’s current and former
directors and officers as defendants, and naming the Company as a nominal
defendant. The suit, captionedNichols v. Mittelstaedt, et al. and filed in the Superior Court of
California, County of Sacramento, contains allegations substantially similar to
the consolidated federal action described above. On April 3, 2007, a fourth
purported derivative action, captioned Priest
v. Mittelstaedt, et al., was filed in the Superior Court of California,
County of Sacramento, and contains allegations substantially similar to the
consolidated federal action and the Nichols
suit. The Nichols
and Priest
suits have been consolidated and captioned In
re Waste Connections, Inc. Shareholder Derivative Litigation and stayed
pending the outcome of the consolidated federal action.




In
July 2008, the parties reached a preliminary agreement to settle all of these
derivative actions, and in August 2008 the consolidated federal action was
stayed as a result of the preliminary agreement. Under the terms of the
preliminary agreement, the Company agreed to reaffirm and/or implement certain
corporate governance measures and the Company’s insurance carrier agreed to pay
not more than $3,000 to plaintiffs’ counsel to cover plaintiffs’ counsel’s fees
and costs, which are subject to court approval. The defendants expressly deny
any wrongdoing and will receive a complete release of all claims. The
preliminary agreement is subject to standard conditions, including final court
approval. There can be no assurance that final court approval will be
obtained.




In
2006, the Company completed a review of its historical stock option granting
practices, including all option grants since its initial public offering in May
1998, and reported the results of the review to the Audit Committee of its Board
of Directors. The review identified a small number of immaterial exceptions to
non-cash compensation expense attributable to administrative and clerical
errors. These exceptions are not material to the Company’s current and
historical financial statements, and the Audit Committee concluded that no
further action was necessary. As with any litigation proceeding, the Company
cannot predict with certainty the eventual outcome of the pending federal and
state derivative litigation, nor can the Company estimate the amount of any
losses that might result.




On
January 15, 2009, a purported class action complaint captioned Heath
Belcher and Denessa Arguello v. Waste Connections, Inc., and Waste Connections
of California, Inc. was filed in the United States District Court for the
Eastern District of California, naming the Company and its subsidiary, Waste
Connections of California, Inc., as defendants. The complaint alleges violations
under the Fair Labor Standards Act related to overtime compensation, and alleges
violations under California labor laws related to overtime compensation, unpaid
wages, meal and rest breaks, and wage statements. The complaint also alleges
violations under the California Unfair Competition Law based on the foregoing
alleged violations. The complaint seeks class certification and various forms of
relief, including declaratory judgment, statutory penalties, unpaid back wages,
liquidated damages, restitution, interest, and attorneys’ fees and costs. The
Company intends to vigorously defend this matter. As with any litigation
proceeding, the Company cannot predict with certainty the eventual outcome of
this matter, nor can the Company estimate the amount of any losses that might
result.




In
the normal course of its business and as a result of the extensive governmental
regulation of the solid waste industry, the Company is subject to various other
judicial and administrative proceedings involving federal, state or local
agencies. In these proceedings, an agency may seek to impose fines on the
Company or to revoke or deny renewal of an operating permit held by the Company.
From time to time, the Company may also be subject to actions brought by
citizens’ groups or adjacent landowners or residents in connection with the
permitting and licensing of landfills and transfer stations, or alleging
environmental damage or violations of the permits and licenses pursuant to which
the Company operates.


73


WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




In
addition, the Company is a party to various claims and suits pending for alleged
damages to persons and property, alleged violations of certain laws and alleged
liabilities arising out of matters occurring during the normal operation of the
waste management business. Except as noted in the legal cases described above,
as of December 31, 2008, there is no current proceeding or litigation
involving the Company that the Company believes will have a material adverse
impact on its business, financial condition, results of operations or cash
flows.




Employees




At
December 31, 2008, the Company employed 5,379 full-time employees, of
which 573, or approximately 11% of its workforce, were employed under collective
bargaining agreements primarily with the Teamsters Union. These employees are
subject to labor agreements that are subject to renegotiation periodically. The
Company has nine collective bargaining agreements that are set to expire in
2009. The Company does not expect any significant disruption in its overall
business in 2009 as a result of labor negotiations, employee strikes or
organizational efforts.


11.
                STOCKHOLDERS’
      EQUITY




Stock
Split




On
February 12, 2007, the Company announced that its Board of Directors had
authorized a three-for-two stock split of its common stock, in the form of a 50%
stock dividend, payable to stockholders of record as of February 27, 2007.
Shares resulting from the split were issued on March 13, 2007. In
connection therewith, the Company transferred $228 from retained earnings to
common stock, representing the par value of additional shares issued. As a
result of the stock split, fractional shares equal to 3,040 whole shares
were repurchased for $132. All share and per share amounts for all periods
presented have been adjusted to reflect the stock split.




Share
Repurchase Program




The
Company’s Board of Directors has authorized a common stock repurchase program
for the repurchase of up to $500,000 of common stock through December 31,
2009. Under the program, stock repurchases may be made in the open market or in
privately negotiated transactions from time to time at management’s discretion.
The timing and amounts of any repurchases will depend on many factors, including
the Company’s capital structure, the market price of the common stock and
overall market conditions. As of December 31, 2007 and 2008, the Company
had repurchased 16,236,798 and 17,278,069 shares, respectively, of its
common stock at a cost of $397,185 and $428,711, respectively. As of
December 31, 2008, the remaining maximum dollar value of shares available
for purchase under the program was approximately $80,217. The Company’s policy
related to repurchases of its common stock is to charge any excess of cost over
par value entirely to additional paid-in capital.




Common
Stock




Of
the 70,157,761 shares of common stock authorized but unissued as of
December 31, 2008, the following shares were reserved for
issuance:


Stock
      option plans
                  
                  
                  6,717,0082026
      Convertible Senior Notes
                  
                  
                  5,882,354Consultant
      Incentive Plan
                  
                  
                  275,0722002
      Restricted stock plan
                  
                  
                  10,53112,884,965




On
September 24, 2008, the Company entered into an underwriting agreement with
J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Banc of America Securities LLC and Credit Suisse Securities (USA)
LLC, as representatives of the several underwriters involved, in connection with
the offer and sale by the Company of 11,000,000 shares of its common stock,
par value $0.01 per share, at a price of $32.50 per share. The Company granted
the underwriters an option to purchase up to 1,650,000 additional shares of its
common stock to cover over-allotments, which the underwriters exercised in full
on September 25, 2008. The offering closed on September 30, 2008, and
the Company received net proceeds of $393,930 after deducting underwriting
discounts and commissions of $16,445, and estimated transaction expenses payable
by the Company of approximately $750.


74




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




Restricted
Stock and Stock Options




During
2002, the Company’s Board of Directors adopted the 2002 Restricted Stock
Plan in which selected employees, other than officers and directors, may
participate. Restricted stock awards under the 2002 Restricted Stock Plan
may or may not require a cash payment from a participant to whom an award is
made. The awards become free of the stated restrictions over periods determined
at the date of the grant, subject to continuing employment, the achievement of
particular performance goals and/or the satisfaction of certain vesting
provisions applicable to each award of shares. The Board of Directors authorizes
the grant of any stock awards and determines the employees to whom shares are
awarded, number of shares to be awarded, award period and other terms and
conditions of the awards. Unvested shares of restricted stock may be forfeited
and revert to the Company if a plan participant resigns from the Company and its
subsidiaries, is terminated for cause or violates the terms of any
noncompetition or nonsolicitation agreements to which that plan participant is
bound (if such plan participant has been terminated without cause). A total of
213,750 shares of the Company’s common stock were reserved for issuance
under the 2002 Restricted Stock Plan. As of December 31, 2008,
10,531 shares of common stock were available for future grants of
restricted stock under the 2002 Restricted Stock Plan. The fair value of
restricted stock for the years ended December 31, 2006, 2007 and 2008, was
determined based on the number of shares granted and the quoted price of the
Company’s common stock.




The
following table summarizes activity for the 2002 Restricted Stock
Plan:


Year
      Ended December 31,2006
                                            
                                            
                                            2007
                                            
                                            
                                            2008Restricted
      shares granted
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —Weighted
      average grant-date fair value of shares granted
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —Total
      fair value of restricted shares granted
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —Restricted
      shares becoming free of restrictions
                                            
                                            
                                            46,346
                                            
                                            
                                            
                                            41,263
                                            
                                            
                                            
                                            4,872Weighted
      average restriction period (in years)
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —




In
1997, the Company’s Board of Directors adopted the 1997 Stock Option Plan
in which all officers, employees, directors and consultants may participate.
Options granted under the 1997 Stock Option Plan may either be incentive
stock options or nonqualified stock options, generally have a term of
10 years from the date of grant, and will vest over periods determined at
the date of grant. The exercise prices of the options are determined by the
Company’s Board of Directors and, in the case of incentive stock options, will
be at least 100% or 110% of the fair market value of the Company’s common stock
on the date of grant as provided for in the 1997 Stock Option Plan. The
1997 Stock Option Plan provides for the reservation of common stock for
issuance thereunder equal to 7,794,400 shares. As of December 31,
2008, no options for shares of common stock were available for future grants
under the 1997 Stock Option Plan.




In
2002, the Company’s Board of Directors authorized two additional equity-based
compensation plans: the 2002 Stock Option Plan and 2002 Senior
Management Equity Incentive Plan. A total of 5,496,364 shares of the
Company’s common stock were reserved for future issuance under the
2002 Stock Option Plan. Participation in the 2002 Stock Option Plan is
limited to consultants and employees, other than officers and directors. Options
granted under the 2002 Stock Option Plan are nonqualified stock options and
have a term of no longer than 10 years from the date they are granted.
Options generally become exercisable in installments pursuant to a vesting
schedule set forth in each option agreement. The Board of Directors authorizes
the granting of options and determines the employees and consultants to whom
options are to be granted, the number of shares subject to each option, the
exercise price, option term, vesting schedule and other terms and conditions of
the options. A total of 6,144,473 shares of the Company’s common stock were
reserved for future issuance under the 2002 Senior Management Equity
Incentive Plan. The Company’s stockholders approved the 2002 Senior
Management Equity Incentive Plan on May 16, 2002. Participation in the
2002 Senior Management Equity Incentive Plan is limited to officers and
directors of the Company and its subsidiaries. Options granted under the
2002 Senior Management Equity Incentive Plan may be either incentive stock
options or nonqualified stock options and have a term of no longer than
10 years from the date they are granted. Options generally become
exercisable in installments pursuant to a vesting schedule set forth in each
option agreement. The Board of Directors authorizes the granting of options and
determines the officers and directors to whom options are to be granted, the
number of shares subject to each option, the exercise price, option term,
vesting schedule and other terms and conditions of the options. In the case of
incentive stock options, the exercise price will be at least 100% or 110% of the
fair market value of the Company’s common stock on the date of grant as provided
for in the 2002 Senior Management Equity Incentive Plan. As of
December 31, 2008, options for 0 and 1,000,000 shares of common stock
were available for future grants under the 2002 Stock Option Plan and
2002 Senior Management Equity Incentive Plan,
respectively.


75




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




In
2004, the Company’s Board of Directors authorized the 2004 Equity Incentive
Plan. On May 25, 2006, the stockholders of the Company approved the Second
Amended and Restated 2004 Equity Incentive Plan, and on May 15, 2008, they
approved further amendments to the Second Amended and Restated 2004 Equity
Incentive Plan. A total of 3,775,000 shares of the Company’s common stock
were reserved for future issuance under the 2004 Equity Incentive Plan, all of
which may be used for grants of stock options, restricted stock, and/or
restricted stock units. Participation in the 2004 Equity Incentive Plan is
limited to consultants and employees, including officers and directors. Options
granted under the 2004 Equity Incentive Plan are nonqualified stock options
and have a term of no longer than five years from the date they are granted.
Restricted stock, restricted stock units, and options generally vest in
installments pursuant to a vesting schedule set forth in each option or
restricted stock or unit agreement. The Board of Directors authorizes the
granting of options, restricted stock and restricted stock units, and determines
the employees and consultants to whom options, restricted stock, and restricted
stock units are to be granted, the number of shares subject to each option,
restricted stock, or restricted stock unit, the exercise price, term, vesting
schedule and other terms and conditions of the options, restricted stock, or
restricted stock units. The exercise prices of the options shall not be less
than the fair market value of the Company’s common stock on the date of grant.
Restricted stock awards under the plan may or may not require a cash payment
from a participant to whom an award is made; restricted stock unit awards under
the plan do not require any cash payment from the participant to whom an award
is made. The fair value of restricted stock units granted during the years ended
December 31, 2006, 2007 and 2008, was determined based on the number of
stock units granted and the quoted price of the Company’s common stock. As of
December 31, 2008, 1,460,522 shares of common stock were available to
be issued pursuant to future awards granted under the 2004 Equity Incentive
Plan.




The
following table summarizes restricted stock units activity for the 2004 Equity
Incentive Plan:


Year
      Ended December 31,2006
                                              
                                              
                                              2007
                                              
                                              
                                              2008Restricted
      stock units granted
                                              
                                              
                                              492,000
                                              
                                              
                                              
                                              426,802
                                              
                                              
                                              
                                              379,949Weighted
      average grant-date fair value of restricted stock units
      granted
                                              
                                              $
                                              23.37
                                              
                                              
                                              $
                                              29.08
                                              
                                              
                                              $
                                              28.99Total
      fair value of restricted stock units granted
                                              
                                              $
                                              11,496
                                              
                                              
                                              $
                                              12,413
                                              
                                              
                                              $
                                              11,013Restricted
      stock units becoming free of restrictions
                                              
                                              
                                              10,283
                                              
                                              
                                              
                                              127,005
                                              
                                              
                                              
                                              217,991Weighted
      average restriction period (in years)
                                              
                                              
                                              4.6
                                              
                                              
                                              
                                              4.5
                                              
                                              
                                              
                                              4.4




As
of December 31, 2006, 2007 and 2008, a total of 6,148,214, 4,031,781 and
3,127,840 options to purchase common stock were exercisable under all stock
option plans, respectively.


76




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




A
summary of the Company’s stock option activity and related information for the
years ended December 31, 2006, 2007 and 2008, is presented
below:


Number
      of
                      Shares
      (Options)
                    
                    
                    Weighted
                      Average
                      Exercise
      PriceOutstanding
      as of December 31, 2005
                    
                    
                    8,224,401
                    
                    
                    $
                    17.08Granted
                    
                    
                    518,400
                    
                    
                    
                    23.21Forfeited
                    
                    
                    (31,725
                    )
                    
                    
                    23.31Exercised
                    
                    
                    (2,061,563
                    )
                    
                    
                    15.59Outstanding
      as of December 31, 2006
                    
                    
                    6,649,513
                    
                    
                    
                    17.99Granted
                    
                    
                    —
                    
                    
                    
                    —Forfeited
                    
                    
                    (8,186
                    )
                    
                    
                    22.73Exercised
                    
                    
                    (2,237,618
                    )
                    
                    
                    15.92Outstanding
      as of December 31, 2007
                    
                    
                    4,403,709
                    
                    
                    
                    19.04Granted
                    
                    
                    —
                    
                    
                    
                    —Forfeited
                    
                    
                    (31,314
                    )
                    
                    
                    22.53Exercised
                    
                    
                    (1,022,481
                    )
                    
                    
                    18.67Outstanding
      as of December 31, 2008
                    
                    
                    3,349,914
                    
                    
                    
                    19.12




The
following table summarizes information about stock options outstanding as of
December 31, 2008:


Options
      Outstanding
                                
                                
                                Options
      ExercisableExercise
      Price
                                
                                Shares
                                
                                
                                Weighted
                                  Average
                                  Exercise
                                  Price
                                
                                
                                Weighted
                                  Average
                                  Remaining
                                  Contractual
                                  Life
                                  (in
      years)
                                
                                
                                Shares
                                
                                
                                Weighted
                                  Average
                                  Exercise
                                  Price
                                
                                
                                Weighted
                                  Average
                                  Remaining
                                  Contractual
                                  Life
      (in years)$5.00
      to $11.00
                                
                                
                                187,598
                                
                                
                                $
                                10.60
                                
                                
                                
                                3.0
                                
                                
                                
                                187,598
                                
                                
                                $
                                10.60
                                
                                
                                
                                3.0$11.01
      to $16.00
                                
                                
                                400,766
                                
                                
                                
                                14.54
                                
                                
                                
                                4.0
                                
                                
                                
                                400,766
                                
                                
                                
                                14.54
                                
                                
                                
                                4.0$16.01
      to $20.00
                                
                                
                                950,563
                                
                                
                                
                                16.64
                                
                                
                                
                                5.1
                                
                                
                                
                                950,563
                                
                                
                                
                                16.64
                                
                                
                                
                                5.1$20.01
      to $30.00
                                
                                
                                1,810,987
                                
                                
                                
                                22.31
                                
                                
                                
                                5.2
                                
                                
                                
                                1,588,913
                                
                                
                                
                                22.19
                                
                                
                                
                                4.93,349,914
                                
                                
                                
                                19.12
                                
                                
                                
                                4.9
                                
                                
                                
                                3,127,840
                                
                                
                                
                                18.82
                                
                                
                                
                                4.7




The
aggregate intrinsic value of options outstanding and options exercisable at
December 31, 2008, was $41,722 and $39,864, respectively.


77




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




A
summary of option activity under the foregoing stock option plans as of
December 31, 2007, and changes during the year ended December 31,
2008, is presented below:


Unvested
                      Shares
                    
                    
                    Vested
      Shares
                    
                    
                    Total
      Shares
                    
                    
                    Weighted-
                      Average
                      Exercise
                      PriceOutstanding
      at December 31, 2007
                    
                    
                    371,928
                    
                    
                    
                    4,031,781
                    
                    
                    
                    4,403,709
                    
                    
                    $
                    19.04Granted
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Forfeited
                    
                    
                    (26,672
                    )
                    
                    
                    (4,642
                    )
                    
                    
                    (31,314
                    )
                    
                    
                    22.53Vested
                    
                    
                    (123,182
                    )
                    
                    
                    123,182
                    
                    
                    
                    —
                    
                    
                    
                    —Exercised
                    
                    
                    —
                    
                    
                    
                    (1,022,481
                    )
                    
                    
                    (1,022,481
                    )
                    
                    
                    18.67Outstanding
      at December 31, 2008
                    
                    
                    222,074
                    
                    
                    
                    3,127,840
                    
                    
                    
                    3,349,914
                    
                    
                    
                    19.12




The
total intrinsic value of stock options exercised during the years ended
December 31, 2006, 2007 and 2008, was $20,299, $34,951 and $15,711,
respectively. The total fair value of stock options vested during the years
ended December 31, 2006, 2007 and 2008, was $8, $643 and $643,
respectively.




A
summary of activity related to restricted stock and restricted stock units under
the 2002 Restricted Stock Plan and the 2004 Equity Incentive Plan as of
December 31, 2007, and changes during the year ended December 31,
2008, is presented below:


Unvested
      Shares
                    
                    
                    Weighted-Average
                      Grant
      Date Fair
                      Value
      Per ShareOutstanding
      at December 31, 2007
                    
                    
                    804,748
                    
                    
                    $
                    26.29Granted
                    
                    
                    379,949
                    
                    
                    
                    28.99Forfeited
                    
                    
                    (55,262
                    )
                    
                    
                    26.78Vested
                    
                    
                    (222,863
                    )
                    
                    
                    26.02Outstanding
      at December 31, 2008
                    
                    
                    906,572
                    
                    
                    
                    27.45




Stock
Purchase Warrants




In
2002, the Company’s Board of Directors authorized the 2002 Consultant Incentive
Plan, under which warrants to purchase the Company’s common stock may be issued
to certain consultants to the Company. Warrants awarded under the Consultant
Incentive Plan are subject to a vesting schedule set forth in each warrant
agreement. Historically, warrants issued have been fully vested and exercisable
at the date of grant. The Board of Directors authorizes the issuance of warrants
and determines the consultants to whom warrants are to be issued, the number of
shares subject to each warrant, the purchase price, exercise date and period,
warrant term and other terms and conditions of the warrants. The Board reserved
450,000 shares of the Company’s common stock for future issuance under the
Consultant Incentive Plan. As of December 31, 2008, 230,949 shares of
common stock were available for future grants of warrants under the 2002
Consultant Incentive Plan. The Company issued 15,395, 14,137 and
9,267 warrants under the Consultant Incentive Plan during the years ended
December 31, 2006, 2007 and 2008, respectively.


78




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




A
summary of warrant activity as of December 31, 2007, and changes during the
year ended December 31, 2008, is presented below:


Warrants
                  
                  
                  Weighted-Average
                    Exercise
      PriceOutstanding
      at December 31, 2007
                  
                  
                  52,981
                  
                  
                  $
                  24.07Granted
                  
                  
                  9,267
                  
                  
                  
                  31.28Forfeited
                  
                  
                  —
                  
                  
                  
                  —Exercised
                  
                  
                  (18,125
                  )
                  
                  
                  17.02Outstanding
      at December 31, 2008
                  
                  
                  44,123
                  
                  
                  
                  28.28




The
following table summarizes information about warrants outstanding as of
December 31, 2007 and 2008:


Fair
      Valueof

                                                                                              WarrantsIssuedWarrantsIssued
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        Outstanding
      at December 31,Grant
      Date
                                                                                        
                                                                                        
                                                                                        
                                                                                        Exercise
      Price
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        2007
                                                                                        
                                                                                        
                                                                                        2008February
      1998
                                                                                        
                                                                                        
                                                                                        450,000
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1.78
                                                                                        
                                                                                        
                                                                                        $
                                                                                        954
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        —Throughout
      2005
                                                                                        
                                                                                        
                                                                                        22,200
                                                                                        
                                                                                        
                                                                                        
                                                                                        19.75
      to 25.25
                                                                                        
                                                                                        
                                                                                        
                                                                                        136
                                                                                        
                                                                                        
                                                                                        
                                                                                        18,449
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,550Throughout
      2006
                                                                                        
                                                                                        
                                                                                        15,395
                                                                                        
                                                                                        
                                                                                        
                                                                                        22.73
      to 27.47
                                                                                        
                                                                                        
                                                                                        
                                                                                        115
                                                                                        
                                                                                        
                                                                                        
                                                                                        15,395
                                                                                        
                                                                                        
                                                                                        
                                                                                        15,171Throughout
      2007
                                                                                        
                                                                                        
                                                                                        14,137
                                                                                        
                                                                                        
                                                                                        
                                                                                        29.70
      to 34.02
                                                                                        
                                                                                        
                                                                                        
                                                                                        123
                                                                                        
                                                                                        
                                                                                        
                                                                                        14,137
                                                                                        
                                                                                        
                                                                                        
                                                                                        14,135Throughout
      2008
                                                                                        
                                                                                        
                                                                                        9,267
                                                                                        
                                                                                        
                                                                                        
                                                                                        28.46
      to 34.05
                                                                                        
                                                                                        
                                                                                        
                                                                                        79
                                                                                        
                                                                                        
                                                                                        
                                                                                        —
                                                                                        
                                                                                        
                                                                                        
                                                                                        9,26752,981
                                                                                        
                                                                                        
                                                                                        
                                                                                        44,123




The
warrants are exercisable when granted and expire between 2009and 2013.




Warrants
issued to consultants are valued using the Black-Scholes pricing model with
assumed stock price volatility and risk-free interest rates similar to those
used for stock options, and with a contractual life of ten years for warrants
granted before 2002 and five years for warrants granted in 2002 and forward.
Warrants issued to consultants are recorded as an element of the related cost of
acquisitions or landfill development projects, based on the services provided by
the consultant.


79




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


12.
              COMPREHENSIVE
      INCOME




Comprehensive income includes changes in fair value of commodity fuel swaps and
changes in the fair value of interest rate swaps that qualify for hedge
accounting. The components of other comprehensive income (loss) and related tax
effects for the years ended December 31, 2006, 2007 and 2008, are as
follows:


Year
      Ended December 31, 2006Gross
                        
                        
                        Tax
      effect
                        
                        
                        Net
      of taxAmounts
      reclassified into earnings
                        
                        $
                        (6,842
                        )
                        
                        $
                        2,599
                        
                        
                        $
                        (4,243
                        )Changes
      in fair value of interest rate swaps
                        
                        
                        3,955
                        
                        
                        
                        (1,602
                        )
                        
                        
                        2,353$
                        (2,887
                        )
                        
                        $
                        997
                        
                        
                        $
                        (1,890
                        )





Year
      Ended December 31, 2007Gross
                          
                          
                          Tax
      effect
                          
                          
                          Net
      of taxAmounts
      reclassified into earnings
                          
                          $
                          (3,785
                          )
                          
                          $
                          1,465
                          
                          
                          $
                          (2,320
                          )Changes
      in fair value of interest rate swaps
                          
                          
                          (8,196
                          )
                          
                          
                          3,159
                          
                          
                          
                          (5,037
                          )$
                          (11,981
                          )
                          
                          $
                          4,624
                          
                          
                          $
                          (7,357
                          )





Year
      Ended December 31, 2008Gross
                          
                          
                          Tax
      effect
                          
                          
                          Net
      of taxAmounts
      reclassified into earnings
                          
                          $
                          6,468
                          
                          
                          $
                          (2,458
                          )
                          
                          $
                          4,010Changes
      in fair value of interest rate swaps
                          
                          
                          (27,264
                          )
                          
                          
                          10,311
                          
                          
                          
                          (16,953
                          )Changes
      in fair value of fuel commodity swaps
                          
                          
                          (10,813
                          )
                          
                          
                          4,109
                          
                          
                          
                          (6,704
                          )$
                          (31,609
                          )
                          
                          $
                          11,962
                          
                          
                          $
                          (19,647
                          )




In
accordance with SFAS 133, the effective portions of the changes in fair
values of interest rate swaps and fuel commodity swaps have been recorded in
stockholders’ equity as a component of accumulated other comprehensive income.
Because all critical terms of the interest rate swaps match the underlying debt
being hedged, no ineffectiveness is recognized on these swaps and, therefore,
all unrealized changes in fair value are recorded in Accumulated Other
Comprehensive Loss. Amounts reclassified into earnings related to realized gains
and losses on interest rate swaps are recognized in Interest Expense in the
Consolidated Statements of Income when interest payments or receipts occur
related to the swap contracts. Because changes in the actual price of diesel
fuel and changes in the DOE index price do not offset exactly, the Company has
determined it will assess whether the fuel hedges are highly effective on a
prospective and retrospective basis using the cumulative dollar offset approach.
At inception of the fuel hedges and at December 31, 2008, all of the Company’s
fuel hedges were determined to be highly effective, therefore, the entire
unrealized fair value of these agreements at December 31, 2008, has been
recorded in Accumulated Other Comprehensive Loss. Beginning in January 2009,
when the first fuel commodity swaps become effective, the Company will measure
and record ineffectiveness on the fuel hedges based on the difference between
the DOE index price and the actual price of diesel fuel purchased. Further,
beginning in January 2009, amounts that will be reclassified into earnings
related to realized gains and losses on fuel commodity swaps will be recognized
in Cost of Operations in the Consolidated Statements of Income when the
underlying fuel is consumed. The estimated net amount of the existing unrealized
losses on interest rate swaps as of December 31, 2008 (based on the
interest rate yield curve at that date), included in accumulated other
comprehensive income expected to be reclassified into pre-tax earnings within
the next 12 months is $14,340. The estimated net amount of the existing
unrealized losses on fuel commodity swaps as of December 31, 2008 (based on
the DOE diesel fuel index at that date), included in accumulated other
comprehensive income expected to be reclassified into pre-tax earnings within
the next 12 months is $7,146. The timing of actual amounts reclassified
into earnings is dependent on future movements in interest rates and diesel fuel
prices.


80




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




A
rollforward of the amounts included in Accumulated Other Comprehensive Loss, net
of taxes, is as follows:


Fuel
                    Commodity
                    Swap
                  
                  
                  Interest
                    Rate
      Swap
                  
                  
                  Accumulated
                    Other
                    Comprehensive
                    LossBalance
      at December 31, 2007
                  
                  $
                  —
                  
                  
                  $
                  (4,290
                  )
                  
                  $
                  (4,290
                  )Amounts
      reclassified into earnings
                  
                  
                  —
                  
                  
                  
                  4,010
                  
                  
                  
                  4,010Changes
      in fair value
                  
                  
                  (6,704
                  )
                  
                  
                  (16,953
                  )
                  
                  
                  (23,657
                  )Balance
      at December 31, 2008
                  
                  $
                  (6,704
                  )
                  
                  $
                  (17,233
                  )
                  
                  $
                  (23,937
                  )




13.
                  INCOME
      TAXES




The
provision for income taxes for the years ended December 31, 2006, 2007 and
2008, consists of the following:


Years
      Ended December 31,2006
                  
                  
                  2007
                  
                  
                  2008Current:Federal
                  
                  $
                  18,759
                  
                  
                  $
                  40,526
                  
                  
                  $
                  22,492State
                  
                  
                  2,985
                  
                  
                  
                  6,951
                  
                  
                  
                  4,006Deferred:Federal
                  
                  
                  24,223
                  
                  
                  
                  11,076
                  
                  
                  
                  29,656State
                  
                  
                  2,362
                  
                  
                  
                  1,364
                  
                  
                  
                  2,246Provision
      for income taxes
                  
                  $
                  48,329
                  
                  
                  $
                  59,917
                  
                  
                  $
                  58,400




Significant
components of deferred income tax assets and liabilities as of December 31,
2007 and 2008 are as follows:


2007
                
                
                2008Deferred
      income tax assets:Accounts
      receivable reserves
                
                $
                1,698
                
                
                $
                1,461Accrued
      expenses
                
                
                9,837
                
                
                
                10,885Self-insurance
      reserves
                
                
                4,619
                
                
                
                4,391Net
      operating losses from acquired subsidiaries
                
                
                113
                
                
                
                —Equity-based
      compensation
                
                
                2,451
                
                
                
                3,220Interest
      rate and fuel commodity swaps
                
                
                2,709
                
                
                
                14,671State
      taxes
                
                
                2,369
                
                
                
                1,333Other
                
                
                308
                
                
                
                1,384Gross
      deferred income tax assets
                
                
                24,104
                
                
                
                37,345Less:
      Valuation allowance
                
                
                —
                
                
                
                —Net
      deferred income tax assets
                
                
                24,104
                
                
                
                37,345Deferred
      income tax liabilities:Goodwill
      and other intangibles
                
                
                (87,060
                )
                
                
                (106,799
                )Property
      and equipment
                
                
                (126,725
                )
                
                
                (138,547
                )Landfill
      closure/post-closure
                
                
                (12,523
                )
                
                
                (14,196
                )Prepaid
      expenses
                
                
                (6,372
                )
                
                
                (6,970
                )Total
      deferred income tax liabilities
                
                
                (232,680
                )
                
                
                (266,512
                )Net
      deferred income tax liability
                
                $
                (208,576
                )
                
                $
                (229,167
                )




As
of the year ended December 31, 2008, the Company had requested written
approval from the Internal Revenue Service (“IRS”) to exclude probable expansion
airspace from its calculation of landfill depreciation for tax purposes. During
2008, the Company continued to work with the IRS to pursue its approval. If the
IRS approves the request, the Company would accelerate the timing of its
landfill depreciation deductions, which would reduce the Company’s tax payments
in the year granted by approximately $11,000.


81




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




During
the years ended December 31, 2007 and 2008, the Company reduced its taxes
payable by $15,294 and $8,546, respectively, as a result of the exercise of
non-qualified stock options, the vesting of restricted stock and restricted
stock units, and the disqualifying disposition of incentive stock options. The
excess tax benefit associated with equity-based compensation of $14,137 and
$6,441 for the years ended December 31, 2007 and 2008, respectively, was
recorded in additional paid-in capital.




The
differences between the Company’s income tax provision as presented in the
accompanying statements of income and income tax provision computed at the
federal statutory rate consist of the items shown in the following table as a
percentage of pre-tax income:


Years
      Ended December 31,2006
                        
                        
                        2007
                        
                        
                        2008Income
      tax provision at the statutory rate
                        
                        
                        35.0
                        %
                        
                        
                        35.0
                        %
                        
                        
                        35.0
                        %State
      taxes, net of federal benefit
                        
                        
                        2.9
                        
                        
                        
                        3.9
                        
                        
                        
                        3.2Deferred
      income tax liability adjustments
                        
                        
                        1.2
                        
                        
                        
                        (1.3
                        )
                        
                        
                        (2.3
                        )Other
                        
                        
                        (0.7
                        )
                        
                        
                        0.1
                        
                        
                        
                        (0.3
                        )38.4
                        %
                        
                        
                        37.7
                        %
                        
                        
                        35.6
                        %




During
the year ended December 31, 2006, the increase to the net deferred income
tax liability due to changes in the geographical apportionment of the Company’s
state taxes, net of the adjustments resulting from the reconciliation of its
deferred income tax liability, resulted in an increase to tax expense of $1,517.
During the year ended December 31, 2007, the decrease to the net deferred
income tax liability due to the adjustments resulting from the reconciliation of
the Company’s deferred income tax liability, net of the impact from changes in
the geographical apportionment of its state taxes, resulted in a reduction to
tax expense of $2,047. During the year ended December 31, 2008, the
decrease to the net deferred income tax liability due primarily to changes in
the geographical apportionment of the Company’s state taxes resulted in a
reduction to tax expense of $3,730. Additionally, during the year ended
December 31, 2008, the Company recorded a reduction to tax expense of
$1,146, due primarily to the reversal of certain tax contingencies for which the
statute of limitations expired in 2008 and the reconciliation of the income tax
provision to the 2007 federal and state tax returns, which were filed during
2008.




At
December 31, 2008, the Company did not have any significant federal and
state net operating loss (“NOL”) carryforwards. During the years ended
December 31, 2007 and 2008, the Company utilized $481 and $293 of net
operating losses to reduce current tax expense by $186 and $113,
respectively.




The
Company and its subsidiaries are subject to U.S. federal income tax as well as
to income tax of multiple state jurisdictions. The Company has concluded all
U.S. federal income tax matters for years through 2004. All material state and
local income tax matters have been concluded for years through
2003.




Effective
January 1, 2007, the Company adopted FIN 48. As a result of the
implementation of FIN 48, the changes to the Company’s liability for
uncertain tax positions was accounted for as a $2,897 adjustment to increase the
2007 beginning balance of retained earnings on the Company’s balance sheet. At
December 31, 2007 and 2008, the Company had approximately $6,716 and
$1,764, respectively, of total gross unrecognized tax benefits. Of the total
gross unrecognized tax benefits at December 31, 2007 and 2008, $3,402 and
$1,388, respectively, (both net of the federal benefit on state amounts)
represent the amount of unrecognized tax benefits that, if recognized, would
favorably affect the effective income tax rate in any future periods. The
Company does not anticipate the total amount of unrecognized tax benefits will
significantly change by December 31, 2009.




The
Company’s continuing practice is to recognize interest and/or penalties related
to income tax matters in income tax expense. The Company had approximately $851
and $291 accrued for interest, net of tax, at December 31, 2007 and 2008,
respectively, and no accrual for penalties at December 31, 2007 and 2008.
The Company recognized, net of releases, approximately $398 for interest, net of
tax, and no accrual for penalties during the year ended December 31, 2007. The
Company released, net of recognition, approximately $560 for interest, net of
tax, and recognized no accrual for penalties during the year ended
December 31, 2008.


82




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




The
following is a rollforward of the Company’s unrecognized tax benefits from
January 1, 2007 to December 31, 2008:




2007
                  
                  
                  2008Unrecognized
      tax benefits at beginning of period
                  
                  $
                  6,702
                  
                  
                  $
                  6,716Gross
      increases – tax positions in prior periods
                  
                  
                  918
                  
                  
                  
                  —Gross
      decreases – tax positions in prior periods
                  
                  
                  —
                  
                  
                  
                  (37
                  )Lapse
      of statute of limitations
                  
                  
                  (904
                  )
                  
                  
                  (4,915
                  )Unrecognized
      tax benefits at end of period
                  
                  $
                  6,716
                  
                  
                  $
                  1,764







14.
              REVENUE
      BY SERVICE TYPE




The
table below shows for the periods indicated the Company’s total reported
revenues by service line and intercompany eliminations.




Years
      Ended December 31,2006
                  
                  
                  2007
                  
                  
                  2008Collection
                  
                  $
                  602,762
                  
                  
                  $
                  693,675
                  
                  
                  $
                  787,713Disposal
      and transfer
                  
                  
                  259,190
                  
                  
                  
                  298,954
                  
                  
                  
                  308,811Recycling
      and other
                  
                  
                  77,202
                  
                  
                  
                  95,212
                  
                  
                  
                  89,594Total
                  
                  $
                  939,154
                  
                  
                  $
                  1,087,841
                  
                  
                  $
                  1,186,118Intercompany
      elimination
                  
                  $
                  114,800
                  
                  
                  $
                  129,300
                  
                  
                  $
                  136,515




15.
              NET
      INCOME PER SHARE INFORMATION




The
following table sets forth the calculation of the numerator and denominator used
in the computation of basic and diluted net income per common share for the
years ended December 31, 2006, 2007 and 2008:




Years
      Ended December 31,2006
                    
                    
                    2007
                    
                    
                    2008Numerator:Net
      income for basic and diluted earnings per share
                    
                    $
                    77,423
                    
                    
                    $
                    99,081
                    
                    
                    $
                    105,556Denominator:Basic
      shares outstanding
                    
                    
                    68,136,126
                    
                    
                    
                    68,238,523
                    
                    
                    
                    70,024,874Dilutive
      effect of 2022 Convertible Subordinated Notes
                    
                    
                    393,026
                    
                    
                    
                    —
                    
                    
                    
                    —Dilutive
      effect of 2026 Convertible Subordinated Notes
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    41,270Dilutive
      effect of stock options and warrants
                    
                    
                    1,746,783
                    
                    
                    
                    1,592,418
                    
                    
                    
                    1,161,858Dilutive
      effect of restricted stock
                    
                    
                    132,738
                    
                    
                    
                    163,772
                    
                    
                    
                    191,710Diluted
      shares outstanding
                    
                    
                    70,408,673
                    
                    
                    
                    69,994,713
                    
                    
                    
                    71,419,712




The
Company’s 2022 Notes were convertible, under certain circumstances, into a
maximum of 8,137,002 shares of common stock until they were redeemed in May and
June 2006 (see Note 8). The 2022 Notes required (subject to certain exceptions)
payment of the principal value in cash and net share settle of the conversion
value in excess of the principal value of the notes upon conversion. In
accordance with EITF 04-8, The
Effect of Contingently Convertible Instruments on Diluted Earnings per
Share (“EITF 04-8”), the Company has included the dilutive effect of the
conversion value in excess of the principal value of the notes.




The
Company’s 2026 Notes are convertible, under certain circumstances, into a
maximum of 5,882,354 shares of common stock. The 2026 Notes require (subject to
certain exceptions) payment of the principal value in cash and net share settle
of the conversion value in excess of the principal value of the notes upon
conversion. The 2026 Notes were dilutive in the third quarter of 2008.
Therefore, in accordance with EITF 04-8, the Company has included within diluted
shares outstanding the dilutive effect of the conversion value in excess of the
principal value of the notes. In addition, the conversion feature of the 2026
Notes meets all the requirements of EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock, to be accounted for as an equity interest and not as a derivative.
Therefore, in the event the 2026 Notes become convertible, a holder electing to
convert will receive a cash payment for the principal amount of the debt and net
shares of the Company’s common stock equal to the value of the conversion
spread. The Company will apply the provisions of FSP No. APB 14-1 to compute any
gain or loss upon conversion, as disclosed in Note 1.


83




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




Additionally,
as of December 31, 2006, 2007 and 2008, the following stock options and warrants
were not included in the computation of diluted net income per share because to
do so would have been antidilutive:




December
      31, 2006
                                                                                                          
                                                                                                          
                                                                                                          December
      31, 2007
                                                                                                          
                                                                                                          
                                                                                                          December
      31, 2008Number
                                                                                                            of
      Shares
                                                                                                          
                                                                                                          
                                                                                                          Exercise
      PriceRange
                                                                                                          
                                                                                                          
                                                                                                          Number
      of
                                                                                                            Shares
                                                                                                          
                                                                                                          
                                                                                                          Exercise
      PriceRange
                                                                                                          
                                                                                                          
                                                                                                          Number
      of
                                                                                                            Shares
                                                                                                          
                                                                                                          
                                                                                                          Exercise
      Price
                                                                                                            RangeOutstanding
      options
                                                                                                          
                                                                                                          
                                                                                                          12,000
                                                                                                          
                                                                                                          
                                                                                                          $25.37
      to $26.59
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          —Outstanding
      warrants
                                                                                                          
                                                                                                          
                                                                                                          12,338
                                                                                                          
                                                                                                          
                                                                                                          $25.82
      to $27.47
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          8,777
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $31.09
      to $34.02
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,977
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          34.02
      to 34.0524,338
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          8,777
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,977




16.
                EMPLOYEE
      BENEFIT PLANS




WCI
has a voluntary savings and investment plan (the “WCI 401(k) Plan”). The WCI
401(k) Plan is available to all eligible, non-union employees of WCI. Under the
WCI 401(k) Plan, WCI’s contributions were 50% of the first 5% of the
participating employee’s base salary contributed in December 31, 2006, 2007 and
2008. The Murrey Companies, wholly-owned subsidiaries of the Company, have a
voluntary savings and investment plan (the “Murrey 401(k) Plan”). The Murrey
401(k) Plan is available to all eligible, non-union employees of the Murrey
Companies. Under the Murrey 401(k) Plan, the Murrey Companies’ contributions are
at the discretion of management. During the years ended December 31, 2006, 2007
and 2008, total employer expenses, including employer contributions, for the WCI
and Murrey 401(k) Plans were approximately $3,497, $4,046 and $4,254,
respectively.




The
Company also participates in various “multiemployer” pension plans administered
by employee and union trustees. The Company makes periodic contributions to
these plans to allow them to meet their pension benefit obligations to their
participants. During the years ended December 31, 2006, 2007 and 2008, total
employer expenses for the multiemployer pension plans were approximately $256,
$276, and $453, respectively.




Effective
for compensation paid on and after July 1, 2004, the Company established a
Deferred Compensation Plan for eligible employees, which was amended and
restated effective January 1, 2008 (the “Deferred Compensation Plan”). The
Deferred Compensation Plan is a non-qualified deferred compensation program
under which the eligible participants, including officers and certain employees
who meet a minimum salary threshold, may voluntarily elect to defer up to 80% of
their base salaries and up to 100% of their bonuses and commissions. Members of
the Company’s Board of Directors are eligible to participate in the Deferred
Compensation Plan with respect to their Director fees. Although the Company
periodically contributes the amount of its obligation under the plan to a trust
on the benefit of the participants, the amounts of any compensation deferred
under the Plan constitute an unsecured obligation of the Company to pay the
participants in the future and, as such, are subject to the claims of other
creditors in the event of insolvency proceedings. Participants may elect certain
future distribution dates on which all or a portion of their accounts will be
paid to them in cash, including in the case of a change in control of the
Company. In addition to the amount of their contributions, the Company will pay
participants a return based on the returns of various mutual funds or
measurement funds selected by the participants. The measurement funds are used
only to determine the amount of return the Company pays to participants and
participant funds are not actually invested in the measurement fund. The total
liability for deferred compensation at December 31, 2007 and 2008 was $2,578 and
$2,560, respectively.




17.
                SELECTED
      QUARTERLY FINANCIAL DATA
(UNAUDITED)




The
following table summarizes the unaudited consolidated quarterly results of
operations as reported for 2007:




First
      Quarter
                      
                      
                      Second
      Quarter
                      
                      
                      Third
      Quarter
                      
                      
                      Fourth
      QuarterRevenues
                      
                      $
                      218,951
                      
                      
                      $
                      241,084
                      
                      
                      $
                      250,775
                      
                      
                      $
                      247,730Operating
      income
                      
                      
                      46,422
                      
                      
                      
                      53,758
                      
                      
                      
                      57,104
                      
                      
                      
                      49,725Net
      income
                      
                      
                      22,380
                      
                      
                      
                      25,266
                      
                      
                      
                      28,682
                      
                      
                      
                      22,754Basic
      income per common share
                      
                      
                      0.33
                      
                      
                      
                      0.37
                      
                      
                      
                      0.42
                      
                      
                      
                      0.34Diluted
      income per common share
                      
                      
                      0.32
                      
                      
                      
                      0.36
                      
                      
                      
                      0.41
                      
                      
                      
                      0.33




84




WASTE
CONNECTIONS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)




The
following table summarizes the unaudited consolidated quarterly results of
operations as reported for 2008:




First
      Quarter
                    
                    
                    Second
      Quarter
                    
                    
                    Third
      Quarter
                    
                    
                    Fourth
      QuarterRevenues
                    
                    $
                    250,300
                    
                    
                    $
                    267,033
                    
                    
                    $
                    272,702
                    
                    
                    $
                    259,568Operating
      income
                    
                    
                    50,798
                    
                    
                    
                    55,590
                    
                    
                    
                    56,695
                    
                    
                    
                    49,273Net
      income
                    
                    
                    23,118
                    
                    
                    
                    26,234
                    
                    
                    
                    28,273
                    
                    
                    
                    27,931Basic
      income per common share
                    
                    
                    0.35
                    
                    
                    
                    0.39
                    
                    
                    
                    0.42
                    
                    
                    
                    0.35Diluted
      income per common share
                    
                    
                    0.34
                    
                    
                    
                    0.39
                    
                    
                    
                    0.41
                    
                    
                    
                    0.34




18.
                SUBSEQUENT
      EVENTS




On
February 6, 2009, the Company and some of its subsidiaries (“buyers”) entered
into an Asset Purchase Agreement with Republic Services, Inc. and some of its
subsidiaries and affiliates (“sellers”) pursuant to which the buyers agreed to
purchase from sellers assets principally used by the sellers in connection with
their solid waste collection and disposal business.  The assets being
acquired include six municipal solid waste landfills, six collection operations
and three transfer stations across seven markets: Southern California; Denver,
CO; Houston, TX; Lubbock, TX; Greenville/Spartanburg, SC; Charlotte, NC; and
Flint, MI.  The purchase price for the assets is approximately
$313,160, subject to pre- and post-closing pro-rations and other
adjustments.  We anticipate paying for the transaction with available
cash and equivalents, together with borrowings on our senior revolving credit
facility.  The sale of these assets to the buyers is subject to a
court order issued in connection with the December 2008 merger between Republic
Services and Allied Waste Industries, Inc.
 85





ITEM 9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE




None.




ITEM 9A.
              CONTROLS
      AND PROCEDURES




Disclosure
Controls and Procedures




We
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures, as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of December 31,
2008, at the reasonable assurance level such that information required to be
disclosed in our Exchange Act reports: (1) is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms; and (2) is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required
disclosure.




Management’s
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended. Internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles. This process includes policies and procedures
that: (1) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect our transactions and any dispositions of our
assets; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S.
generally accepted accounting principles; (3) provide reasonable assurance that
receipts and expenditures of ours are being made only in accordance with
authorizations of our management; and (4) provide reasonable assurance that
unauthorized acquisition, use or disposition of our assets that could have a
material affect on our financial statements would be prevented or timely
detected.




We
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our internal
control over financial reporting as of December 31, 2008. In conducting our
evaluation, we used the framework set forth in the report titled “Internal
Control – Integrated Framework” published by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on the results of our
evaluation, our management has concluded that our internal control over
financial reporting was effective as of December 31, 2008.




The
effectiveness of our internal control over financial reporting as of December
31, 2008, has been audited by PricewaterhouseCoopers LLP, our independent
registered public accounting firm, as stated in its report which appears in Item
8 of this Annual Report of Form 10-K.




Changes
in Internal Control Over Financial Reporting




Based
on an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
there has been no change to our internal control over financial reporting that
occurred during the three month period ended December 31, 2008, that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.




ITEM 9B.
            OTHER
      INFORMATION




On
February 6, 2009, the Company and some of its subsidiaries (“buyers”) entered
into an Asset Purchase Agreement with Republic Services, Inc. and some of its
subsidiaries and affiliates (“sellers”) pursuant to which the buyers agreed to
purchase from sellers assets principally used by the sellers in connection with
their solid waste collection and disposal business.  The assets being
acquired include six municipal solid waste landfills, six collection operations
and three transfer stations across seven markets: Southern California; Denver,
CO; Houston, TX; Lubbock, TX; Greenville/Spartanburg, SC; Charlotte, NC; and
Flint, MI.  The purchase price for the assets is approximately $313.2
million, subject to pre- and post-closing pro-rations and other
adjustments.  We anticipate paying for the transaction with available
cash and equivalents, together with borrowings on our senior revolving credit
facility.  The sale of these assets to the buyers is subject to a
court order issued in connection with the December 2008 merger between Republic
Services and Allied Waste Industries, Inc.
  The Asset
Purchase Agreement contains representations and warranties, covenants,
conditions and post-closing indemnities.  The closing of transaction
remains subject to closing conditions contained in the Asset Purchase Agreement,
including regulatory approval and receipt of certain governmental and third
party consents.  The Asset Purchase Agreement may be terminated by
mutual consent of the Company and Republic Services or by either the Company or
Republic Services under specified circumstances or if the transaction has not
closed by August 15, 2009.


86




PART III




ITEM 10.
              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




Except
as set forth above in Part I under “Executive Officers of the Registrant” and in
the paragraph below, the information required by Item 10 has been omitted from
this report, and is incorporated by reference to the sections “Election of
Directors,” “Corporate Governance and Board Matters” and “Section 16(a)
Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for
the 2009 Annual Meeting of Stockholders, which we will file with the SEC
pursuant to Regulation 14A within 120 days after the end of our 2008 fiscal
year.




We
have adopted a Code of Conduct and Ethics that applies to our officers,
including our principal executive officer, principal financial officer,
principal accounting officer and all other officers, directors and employees. We
have also adopted Corporate Governance Guidelines to promote the effective
functioning of our Board of Directors and its committees, to promote the
interests of stockholders and to ensure a common set of expectations concerning
how the Board, its committees and management should perform their respective
functions. Our Code of Conduct and Ethics and our Corporate Governance
Guidelines are available on our website at http://www.wasteconnections.com as are
the charters of our Board’s Audit, Nominating and Corporate Governance and
Compensation Committees. Information on or that can be accessed through our
website is not incorporated by reference to this report. We intend to satisfy
the disclosure requirement under Item 5.05 of Form 8-K regarding any amendments
to, or waiver from, a provision of our Code of Conduct by posting such
information on our website.




Stockholders
may also obtain copies of the Corporate Governance documents discussed above by
contacting our Secretary at the address or phone number listed on the cover page
of this Annual Report on Form 10-K.




ITEM 11.
              EXECUTIVE
      COMPENSATION




Information
required by Item 11 has been omitted from this report and is incorporated by
reference to the section “Executive Compensation” and “Corporate Governance and
Board Matters” in our definitive Proxy Statement for the 2009 Annual Meeting of
Stockholders.




ITEM 12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




Information
required by Item 12 has been omitted from this report and is incorporated by
reference to the sections “Principal Stockholders” and “Equity Compensation Plan
Information” in our definitive Proxy Statement for the 2009 Annual Meeting of
Stockholders.




ITEM 13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE




Information
required by Item 13 has been omitted from this report and is incorporated by
reference to the sections “Certain Relationships and Related Transactions” and
“Corporate Governance and Board Matters” in our definitive Proxy Statement for
the 2009 Annual Meeting of Stockholders.




ITEM 14.
              PRINCIPAL
      ACCOUNTING FEES AND SERVICES




Information
required by Item 14 has been omitted from this report and is incorporated by
reference to the section “Appointment of Independent Registered Public
Accounting Firm” in our definitive Proxy Statement for the 2009 Annual Meeting
of Stockholders.


87




PART IV




ITEM 15.
              EXHIBITS
      AND FINANCIAL STATEMENT
SCHEDULES





(a)
                    See
      Index to Consolidated Financial Statements on page 45. The following
      Financial Statement Schedule is filed herewith on page 91 and made a part
      of
this Report:




Schedule
II - Valuation and Qualifying Accounts




All
other schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instructions or are
inapplicable, and therefore have been omitted.




(b)  
      See Exhibit Index immediately following signature
  pages.


88




SIGNATURES




Pursuant
to the requirements of Sections 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.


Waste
      Connections, Inc.By:
              /s/ Ronald
      J. MittelstaedtRonald
      J. MittelstaedtDate:
      February 10,
      2009
              
              Chief
      Executive Officer and
Chairman




POWER OF
ATTORNEY




KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Ronald J. Mittelstaedt and Worthing F. Jackman, jointly
and severally, his true and lawful attorneys-in-fact, each with the power of
substitution, for him in any and all capacities to sign any amendments to this
Annual Report on Form 10-K, and to file the same with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitutes, may do or cause to be done by virtue
hereof.




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.


Signature
            
            
            Title
            
            
            Date/s/
            Ronald
      J. Mittelstaedt
            
            Chief
      Executive Officer and ChairmanRonald
      J. Mittelstaedt
            
            (principal
      executive officer)
            
            February 10,
      2009/s/
            Worthing
      F. Jackman
            
            Executive
      Vice President and Chief Financial OfficerWorthing
      F. Jackman
            
            (principal
      financial officer)
            
            February 10,
      2009/s/
            David
      G. Eddie
            
            Vice
      President – Corporate ControllerDavid
      G. Eddie
            
            (principal
      accounting officer)
            
            February 10,
      2009/s/
            Michael
      W. HarlanMichael
      W. Harlan
            
            Director
            
            February 10,
      2009/s/
            William
      J. RazzoukWilliam
      J. Razzouk
            
            Director
            
            February 10,
      2009/s/
            Robert
      H. DavisRobert
      H. Davis
            
            Director
            
            February 10,
      2009/s/
            Edward
      E. GuilletEdward
      E. Guillet
            
            Director
            
            February 10,
      2009


89




WASTE
CONNECTIONS, INC.




SCHEDULE II - VALUATION AND
QUALIFYING ACCOUNTS


Years
Ended December 31, 2006, 2007 and 2008


(in
thousands)


Additions
                                        
                                        
                                        DeductionsDescription
                                        
                                        Balance
      at

                                            Beginning
      of

                                              Year
                                        
                                        
                                        Charged
      to

                                            Costs
      and

                                              Expenses
                                        
                                        
                                        Charged
      to

                                            Other

                                              Accounts
                                        
                                        
                                        (Write-offs,
                                            Net
      of

                                              Collections)
                                        
                                        
                                        Balance
      at End

                                            of
      YearAllowance
      for Doubtful Accounts:Year
      Ended December 31, 2006
                                        
                                        $
                                        2,826
                                        
                                        
                                        $
                                        3,664
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        (3,001
                                        )
                                        
                                        $
                                        3,489Year
      Ended December 31, 2007
                                        
                                        
                                        3,489
                                        
                                        
                                        
                                        4,112
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (3,214
                                        )
                                        
                                        
                                        4,387Year
      Ended December 31, 2008
                                        
                                        
                                        4,387
                                        
                                        
                                        
                                        4,126
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (4,667
                                        )
                                        
                                        
                                        3,846


90




EXHIBIT
INDEX


Exhibit
                    Number
                  
                  Description
      of Exhibits2.1
                  
                  Stock
      Purchase Agreement, dated as of August 1, 2008, by and among Waste
      Connections, Inc., on the one hand, and Harold LeMay Enterprises,
      Incorporated and its shareholders, on the other hand (incorporated by
      reference to the exhibit filed with the Registrant’s Form 8-K filed on
      August 7, 2008)2.2
      *
                  
                  First
      Amendment to Stock Purchase Agreement, dated as of October 28, 2008, by
      and among Waste Connections, Inc., on the one hand, and Harold LeMay
      Enterprises, Incorporated and Norman LeMay in his capacity as the
      Shareholders’ Representative, on the other hand2.3
                  
                  Equity
      Purchase Agreement dated as of August 1, 2008 by and among Waste
      Connections of Washington, Inc., Land Recovery, Inc., Resource
      Investments, Inc. and the shareholders of Land Recovery, Inc. and Resource
      Investments, Inc. (incorporated by reference to the exhibit filed with the
      Registrant’s Form 8-K filed on August 7, 2008)2.4
      *
                  
                  First
      Amendment to Equity Purchase Agreement, dated as of October 28, 2008, by
      and among Waste Connections of Washington, Inc., on the one hand, and Land
      Recovery, Inc., Resource Investments, Inc. and Norman LeMay in his
      capacity as the Stakeholders’ Representative, on the other
      hand3.1
                  
                  Amended
      and Restated Certificate of Incorporation of the Registrant (incorporated
      by reference to the exhibit filed with the Registrant’s Form 10-Q
      filed on July 24, 2007)3.2
                  
                  Amended
      and Restated Bylaws of the Registrant, adopted July 20, 2004 (incorporated
      by reference to the exhibit filed with the Registrant’s Form 10-Q
      filed on July 22, 2004)3.3
                  
                  Second
      Amended and Restated Bylaws of the Registrant, effective May 15, 2009
      (incorporated by reference to the exhibit filed with the Registrant’s Form
      8-K filed on January 15, 2009)4.1
                  
                  Form
      of Common Stock Certificate (incorporated by reference to the exhibit
      filed with the Registrant’s Form S-1/A filed on May 6,
      1998)4.2
                  
                  Indenture
      between the Registrant, as Issuer, and U.S. Bank National Association, as
      Trustee, dated as of March 20, 2006 (incorporated by reference to the
      exhibit filed with the Registrant’s Form 8-K filed on March 23,
      2006)4.3
                  
                  Registration
      Rights Agreement between the Registrant, and Citigroup Global Markets Inc.
      and Banc of America Securities LLC, dated as of March 20, 2006
      (incorporated by reference to the exhibit filed with the Registrant’s
      Form 8-K filed on March 23, 2006)4.4
                  
                  Revolving
      Credit Agreement, dated as of September 27, 2007 (incorporated by
      reference to the exhibit filed with the Registrant’s Form 8-K filed
      on October 3, 2007)4.5
                  
                  Increase
      in Commitment, dated as of June 9, 2008 (incorporated by reference to the
      exhibit filed with the Registrant’s Form 8-K filed on June 10,
      2008)4.6
      *
                  
                  Amendment
      No. 1 to Revolving Credit Agreement, dated as of October 17,
      200810.1
      +
                  
                  Form
      of Warrant Agreement (incorporated by reference to the exhibit filed with
      the Registrant’s Form S-1 filed on March 16, 1998)10.2
      +
                  
                  Employment
      Agreement between the Registrant and James M. Little, dated as of
      September 13, 1999 (incorporated by reference to the exhibit filed
      with the Registrant’s Form 10-K filed on March 13,
      2000)10.3
      +
                  
                  Second
      Amended and Restated Employment Agreement between the Registrant and
      Darrell W. Chambliss, dated as of June 1, 2000 (incorporated by
      reference to the exhibit filed with the Registrant’s Form 10-Q filed
      on November 14,
2000)


91




Exhibit
                        Number
                      
                      Description
      of Exhibits10.4
      +
                      
                      Second
      Amended and Restated 1997 Stock Option Plan (incorporated by reference to
      the exhibit filed with the Registrant’s Form S-8 filed on
      July 24, 2000)10.5
      +
                      
                      Employment
      Agreement between the Registrant and Eric O. Hansen, dated as of
      January 1, 2001 (incorporated by reference to the exhibit filed with
      the Registrant’s Form 10-Q filed on May 3,
  2005)10.6
      +
                      
                      2002
      Senior Management Equity Incentive Plan (incorporated by reference to the
      exhibit filed with the Registrant’s Form 10-K filed on February 11,
      2008)10.7
      +
                      
                      2002
      Stock Option Plan (incorporated by reference to the exhibit filed with the
      Registrant’s Form 10-K filed on February 11, 2008)10.8
      +
                      
                      2002
      Restricted Stock Plan (incorporated by reference to the exhibit filed with
      the Registrant’s Form S-8 filed on June 19,
  2002)10.9
      +
                      
                      Employment
      Agreement between the Registrant and Worthing F. Jackman, dated as of
      April 11, 2003 (incorporated by reference to the exhibit filed with
      the Registrant’s Form 10-Q filed on August 13,
    2003)10.10
      +
                      
                      Nonqualified
      Deferred Compensation Plan, amended and restated as of January 1,
      2008 (incorporated by reference to the exhibit filed with the Registrant’s
      Form 10-K filed on February 11, 2008)10.11
      +
                      
                      Second
      Amended and Restated Employment Agreement between the Registrant and
      Steven F. Bouck, dated as of October 1, 2004 (incorporated by
      reference to the exhibit filed with the Registrant’s Form 10-Q filed
      on October 22, 2004)10.12
      +
                      
                      Amended
      and Restated Compensation Plan for Independent Directors, dated
      December 7, 2007 (incorporated by reference to the exhibit filed with
      the Registrant’s Form 10-K filed on February 11, 2008)10.13
      +
                      
                      Second
      Amended and Restated Employment Agreement between the Registrant and
      Ronald J. Mittelstaedt, dated as of March 1, 2004 (and as amended
      March 22, 2005) (incorporated by reference to the exhibit filed with the
      Registrant’s Form 10-Q filed on May 3, 2005)10.14
      +
                      
                      First
      Amended and Restated Employment Agreement between the Registrant and David
      M. Hall, dated as of October 1, 2005 (incorporated by reference to
      the exhibit filed with the Registrant’s Form 8-K filed on
      October 4, 2005)10.15
      +
                      
                      First
      Amended and Restated Employment Agreement between the Registrant and David
      G. Eddie, dated as of October 1, 2005 (incorporated by reference to
      the exhibit filed with the Registrant’s Form 8-K filed on
      October 4, 2005)10.16
      +
                      
                      Form
      of Indemnification Agreement between the Registrant and each of its
      directors and officers (incorporated by reference to the exhibit filed
      with the Registrant’s Form 10-Q filed on July 31,
      2006)10.17
      +
                      
                      Employment
      Agreement between the Registrant and Eric M. Merrill, dated as of
      June 1, 2007 (incorporated by reference to the exhibit filed with the
      Registrant’s Form 10-Q filed on July 24,
2007)10.18
      +
                      
                      Employment
      Agreement between the Registrant and Patrick J. Shea, dated as of
      February 1, 2008 (incorporated by reference to the exhibit filed with
      the Registrant’s Form 10-Q filed on April 23,
2008)10.19
      +
                      
                      Consultant
      Incentive Plan (incorporated by reference to the exhibit filed with the
      Registrant’s Form 10-Q filed on April 23, 2008)10.20*
      +
                      
                      Second
      Amended and Restated 2004 Equity Incentive Plan (as amended and
      restated)


92




Exhibit
                          Number
                        
                        Description
      of Exhibits10.21
      +
                        
                        Amended
      and Restated Senior Management Incentive Plan (incorporated by reference
      to the exhibit filed with the Registrant’s Form 10-Q filed on July
      30, 2008)10.22
      +
                        
                        Master
      Note Purchase Agreement, dated July 15, 2008 (incorporated by reference to
      the exhibit filed with the Registrant’s Form 8-K filed on
      July 18, 2008)10.23
      * +
                        
                        Form
      of Amendment to Employment Agreement between the Registrant and each of
      Ronald J. Mittelstaedt, Steven F. Bouck, Darrell W. Chambliss and Worthing
      F. Jackman10.24
      * +
                        
                        Form
      of Amendment to Employment Agreement between the Registrant and each of
      David G. Eddie, David M. Hall, Eric M. Merrill and Patrick J.
      Shea10.25
      * +
                        
                        Form
      of Amendment to Employment Agreement between the Registrant and James M.
      Little10.26
      * +
                        
                        Form
      of Amendment to Employment Agreement between the Registrant and Eric O.
      Hansen12.1
      *
                        
                        Statement
      regarding Computation of Ratios21.1
      *
                        
                        Subsidiaries
      of the Registrant23.1
      *
                        
                        Consent
      of Independent Registered Public Accounting Firm24.1
                        
                        Power
      of Attorney (see signature page of this Annual Report on
      Form 10-K)31.1
      *
                        
                        Certification
      of Chief Executive Officer31.2
      *
                        
                        Certification
      of Chief Financial Officer32.1
      *
                        
                        Certificate
      of Chief Executive Officer and Chief Financial
  Officer




*
              Filed
      herewith.+
              Management
      contract or compensatory plan, contract or
  arrangement.






93