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, 2007
 
 OR
 
 o 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
      þ
              No
      o
  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
      o
              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
      þ
              No
      o
 
 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.   ̈
 
 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
              o Accelerated
      filer
              o Non-accelerated
      filer
              o 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
      o
              No
      þ
 
 As of
June 29, 2007, 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 $2,032,021,162.
 
 Number of
shares of common stock outstanding as of January 25, 2008: 
67,064,357
  DOCUMENTS
INCORPORATED BY REFERENCE
 
 Portions
of the registrant's definitive Proxy Statement for the 2008 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
              151B.
              UNRESOLVED
      STAFF COMMENTS
              202.
              PROPERTIES
              203.
              LEGAL
      PROCEEDINGS
              204.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
              21PART II5.
              MARKET
      FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
              226.
              SELECTED
      FINANCIAL DATA
              247.
              MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
              267A.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              408.
              FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
              429.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
              809A.
              CONTROLS
      AND PROCEDURES
              809B.
              OTHER
      INFORMATION
              80PART III10.
              DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
              8111.
              EXECUTIVE
      COMPENSATION
              8112.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
              8113.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
              8114.
              PRINCIPAL
      ACCOUNTING FEES AND SERVICES
              81PART IV15.
              EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
              82SIGNATURES
              83SCHEDULE II
      – VALUATION AND QUALIFYING ACCOUNTS
              84EXHIBIT INDEX
              85
  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
1.5 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, 2007, we owned or
operated a network of 126solid waste collection
operations, 48transfer stations,
29recycling
operations and 35active landfills. 
In addition, we provided intermodal services for the rail haul movement of cargo
containers in the Pacific Northwest through a network of five 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 143operating locations
grouped into four regions.  We manage and evaluate our business in this
manner 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.
  Acquire 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 overcome by the acquisition of a
company with such exclusive rights or contractual arrangements or by a
competitive re-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 managers maintain relationships with local governmental officials
within their service areas, and sales representatives may be assigned to cover
specific municipalities.  These personnel focus on maintaining, renewing
and renegotiating existing franchise agreements and municipal contracts and
securing additional agreements and contracts while maintaining acceptable
financial returns.  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, we 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 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, but at a slower pace. 
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 and the reduced pace of consolidation, we
believe the Western markets contain the largest and most attractive number of
acquisition opportunities.
  SOLID
WASTE SERVICES
  Residential,
Commercial and Industrial Collection Services
  We serve
approximately 1.5 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 2008 will have a material adverse effect on our revenues or cash
flows.  No individual contract or customer accounted for more than 5% of
our total revenues for the year ended December 31, 2007.
  We
provide residential 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.
  We
provide commercial and industrial services, other than those we perform under
exclusive arrangements, under customer service agreements generally ranging from
one to three 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.
  3
  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,
2007:
  Owned
      and operated landfills
              
              
              25Operated
      landfills under limited-term operating agreements
              
              
              7Operated
      landfills under life-of-site agreements
              
              
              335
  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, that 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 2008 to
2017.
  Based on
remaining permitted capacity as of December 31, 2007, 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 49 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
52years 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):
  2006
              
              
              2007Permitted
              
              
              Probable
                Expansion
              
              
              Total
              
              
              Permitted
              
              
              Probable
                Expansion
              
              
              TotalBalance,
      beginning of year
              
              
              358,193
              
              
              
              66,525
              
              
              
              424,718
              
              
              
              384,454
              
              
              
              30,340
              
              
              
              414,794Acquired
      landfills
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              16,088
              
              
              
              7,028
              
              
              
              23,116Permits
      granted
              
              
              17,762
              
              
              
              (17,762
              )
              
              
              -
              
              
              
              6,826
              
              
              
              (6,826
              )
              
              
              -Airspace
      consumed
              
              
              (7,215
              )
              
              
              -
              
              
              
              (7,215
              )
              
              
              (8,238
              )
              
              
              -
              
              
              
              (8,238
              )Changes
      in engineering estimates
              
              
              15,714
              
              
              
              (18,423
              )
              
              
              (2,709
              )
              
              
              1,965
              
              
              
              (2,112
              )
              
              
              (147
              )Balance,
      end of year
              
              
              384,454
              
              
              
              30,340
              
              
              
              414,794
              
              
              
              401,095
              
              
              
              28,430
              
              
              
              429,525
 
 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, 2006 and December 31, 2007, are shown in the tables
below.  The estimated remaining operating lives include assumptions that
the operating permits are renewed.
  20060
      to 10
              
              
              11
      to 20
              
              
              21
      to 40
              
              
              41
      to 50
              
              
              
              51+
              
              
              TotalOwned
      and operated landfills
              
              
              1
              
              
              
              4
              
              
              
              6
              
              
              
              1
              
              
              
              12
              
              
              
              24Operated
      landfills under life-of-site agreements
              
              
              -
              
              
              
              -
              
              
              
              2
              
              
              
              -
              
              
              
              1
              
              
              
              31
              
              
              
              4
              
              
              
              8
              
              
              
              1
              
              
              
              13
              
              
              
              27
 
 20070
      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
              
              
              
              28
  5
 
 The
disposal tonnage that we received in 2006 and 2007 at all of our landfills is
shown in the tables below (tons in thousands):
  Three
      months ended
              
              Twelve
      months
                ended
                December 31,
                2006March 31,
                2006
              
              June 30,
                2006
              
              September 30,
                2006
              
              December 31,
                2006Number
                of
      Sites
              
              Total
                Tons
              
              Number
                of
      Sites
              
              Total
                Tons
              
              Number
      of Sites
              
              Total
                Tons
              
              Number
      of Sites
              
              Total
                TonsOwned
      landfills orlandfills
      operated underlife-of-site
      agreements
              27
              
              1,655
              
              27
              
              1,828
              
              27
              
              1,888
              
              27
              
              1,844
              
              7,215Operated
      landfills
              8
              
              269
              
              8
              
              266
              
              8
              
              258
              
              8
              
              240
              
              1,03335
              
              1,924
              
              35
              
              2,094
              
              35
              
              2,146
              
              35
              
              2,084
              
              8,248
 
 Three
      months ended
              
              Twelve
      months
                ended
                December 31,
                2007March 31,
                2007
              
              June 30,
                2007
              
              September 30,
                2007
              
              December 31,
                2007Number
                ofSites
              
              Total
                Tons
              
              Number
                of
      Sites
              
              Total
                Tons
              
              Number
                of
      Sites
              
              Total
                Tons
              
              Number
                of
      Sites
              
              Total
                TonsOwned
      landfills orlandfills
      operated underlife-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
 
 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
48 transfer stations at December 31, 2007.  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 29 recycling processing operations and sell other collected
recyclable materials to third parties for processing before resale. 
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.
  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.  As of December 31,
2007, we owned five intermodal operations in Washington and Oregon. 
Our fleet of doublestack 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 five intermodal operations.  We also provide our
customers container and chassis sales and leasing services.
  6
  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.
  SALES
AND MARKETING
  We employ
sales and marketing personnel as necessary to extend or renew existing
contracts, solicit new contracts or customers in markets where we are not the
exclusive provider of solid waste or intermodal services, expand our presence
into areas adjacent to or contiguous with our existing markets, and market
additional services to existing customers.  In many of our existing
markets, we provide waste collection, transfer and disposal services to
municipalities and governmental authorities under exclusive arrangements, and,
therefore, do not contract directly with individual customers.  In
addition, because we have grown primarily through acquisitions, we have
generally assumed existing franchise agreements, municipal contracts and
G Certificates from the acquired companies, rather than obtaining new
contracts through marketing efforts or bid processes.
  COMPETITION
  The solid
waste services industry is highly competitive and requires substantial labor and
capital resources.  In addition to us, the industry includes: three
national, publicly-held solid waste companies – Allied Waste Industries, Inc.,
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, some of which are 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, 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 the date of inception through
December 31, 2007, to our knowledge, we did not transport hazardous wastes
under circumstances that would subject us to hazardous waste regulations under
Subtitle C of RCRA.  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.  AB32 defines several steps – and sets corresponding
deadlines – the California Air Resources Board, or the Board, is required to
take to implement the program.
  ·
              By
      June 30, 2007, the Board was required to publish a list of discrete
      early action GHG emission reduction measures that could be implemented
      prior to the measures and limits to be adopted later under AB32. 
      Pursuant to this requirement, in June 2007, the Board approved the
      Landfill Methane Capture Strategy as one of the first three early action
      measures.  Board staff, in collaboration with California Integrated
      Waste Management Board staff, is developing a control measure to require
      enhanced control of methane emissions from municipal solid waste, or MSW,
      landfills.  The control measure would require gas collection and
      control systems on landfills where these systems are not currently
      required and would establish statewide performance standards to maximize
      methane capture efficiencies.  The Board is scheduled to consider
      this control measure for adoption in late 2008.·
              By
      January 1, 2008, the Board was required to adopt regulations
      requiring the monitoring and annual reporting of GHG emissions from GHG
      emission sources in California.  Pursuant to this requirement, the
      Board approved a Mandatory Reporting of Greenhouse Gas Emissions
      regulation on December 6, 2007.  The mandatory reporting
      requirements generally do not cover landfill operations, unless the
      landfill operator also operates non-landfill facilities – e.g., electric
      generation facilities or general combustion sources using landfill gas –
      encompassed by the requirements.·
              By
      January 1, 2008, the Board was required to articulate what the
      statewide GHG emissions level was in 1990 and approve a statewide GHG
      emissions limit that is equivalent to that level, to be achieved by
      2020.  Pursuant to this requirement, the Board approved the 2020
      emissions goal of 427 million metric tons of carbon dioxide
      equivalent on December 6, 2007.·
              In
      furtherance of achieving compliance with the state-wide 2020 limit, the
      Board, by January 1, 2011:o
              must
      adopt specific GHG emission limits, applicable to GHG emission sources, to
      become operative on January 1, 2012; ando
              may
      establish a system of market-based declining annual aggregate emission
      limits for sources or categories of sources that emit GHG, applicable from
      January 1, 2012, to December 31, 2020.·
              By
      an unspecified date, the Board must make recommendations to the Governor
      and the Legislature of California on how to continue reductions of GHG
      emissions beyond 2020.·
              By
      an unspecified date, the Board may adopt a schedule of fees to be paid by
      the sources of GHG emissions and used for purposes of carrying out
      AB32.
  9
  The Board
estimates that fugitive methane emissions from landfills account for 1-2% of
California’s GHG emission inventory.  The California Energy Commission, or
CEC, with the participation of the Board, is funding a study to improve the
overall estimation of GHG emissions from MSW landfills.  This study is not
expected to be completed until 2009.  Board staff has indicated that
landfill GHG reporting requirements will be developed in conjunction with the
landfill early action measure and in light of the results of this CEC
study.
  Because
landfill and collection operations emit GHG, our operations in California will
be subject to regulations issued under AB32.  These regulations could
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.
  These
effects could also spread to our non-California operations because other states
and the federal government may follow California’s lead.  For example, on
January 12, 2007, U.S. Senators Barack Obama (D-IL), Joe Lieberman (I-CT)
and John McCain (R-AZ) introduced legislation that would cut greenhouse gas
emissions to 34% of 2004 levels by 2050.  As another example of this trend
toward increased regulation of GHG emissions, in February 2007 the Governors of
Arizona, California, New Mexico, Oregon and Washington launched the Western
Climate Initiative, a collaboration to develop regional strategies to address
climate change.  The Governor of Utah joined the Initiative later in the
spring of 2007.  In August 2007, the Initiative set an overall regional
goal for reducing greenhouse gas emissions.
  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.
  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.
  10
  Many
municipalities also have 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, and in some
states such laws are enforced jointly by state or local and federal
authorities.
  Public
Utility Regulation
  In many
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 services in these areas, the WUTC also sets rates for regulated solid
waste collection.
  RISK
MANAGEMENT, INSURANCE AND FINANCIAL SURETY BONDS
  Risk
Management
  We
maintain environmental and other risk management programs 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.
  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 $175,000 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.
  11
  We carry
environmental protection insurance under a three-year (annual for the state of
California) policy, expiring in November 2008, 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 and transfer stations.  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.
  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, 2007, we employed 4,978 full-time employees, of which 381, or
approximately 8% of our workforce, are employed under collective bargaining
agreements, primarily with the Teamsters Union.  These employees are
subject to labor agreements that are renegotiated periodically.  We do not
have any collective bargaining agreements that are set to expire during
2008.  We do not expect any significant disruption in our overall business
in 2008 as a result of labor negotiations, employee strikes or organizational
efforts.
  12
  EXECUTIVE
OFFICERS OF THE REGISTRANT
  The
following table sets forth certain information concerning our executive officers
and key employee as of January 31, 2008:
  NAME
              AGE
              POSITIONSRonald
      J. Mittelstaedt (1)
              44
              Chief
      Executive Officer and ChairmanSteven
      F. Bouck
              50
              PresidentDarrell
      W. Chambliss
              43
              Executive
      Vice President and Chief Operating OfficerRobert
      D. Evans
              61
              Executive
      Vice President, General Counsel and SecretaryWorthing
      F. Jackman
              43
              Executive
      Vice President and Chief Financial OfficerDavid
      M. Hall
              50
              Senior
      Vice President – Sales and MarketingEric
      M. Merrill
              55
              Senior
      Vice President – People, Training and DevelopmentKenneth
      O. Rose
              59
              Senior
      Vice President – AdministrationDavid
      G. Eddie
              38
              Vice
      President – Corporate ControllerEric
      O. Hansen
              42
              Vice
      President – Chief Information OfficerJerri
      L. Hunt (2)
              56
              Vice
      President – Employee RelationsJames
      M. Little
              46
              Vice
      President – Engineering
 
 (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 19 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, he 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, he served as Executive Vice President – Operations.  Mr.
Chambliss has more than 18 years of experience in the solid waste industry.
Mr. Chambliss holds a B.S. degree in Business Administration from the University
of Arkansas.
  Robert D.
Evans has been Executive Vice President, General Counsel and Secretary of Waste
Connections since June 2002.  From 1978 to that date, Mr. Evans was a
partner in the San Francisco law firm of Shartsis Friese LLP.  Prior to
joining us, Mr. Evans had been Waste Connections’ primary outside counsel since
our formation.  Mr. Evans holds a B.A. degree in Economics and a
J.D. degree from the University of California at Berkeley.  Mr. Evans
has announced his intention to retire from Waste Connections in February
2008.
  Worthing
F. Jackman has been Executive Vice President – Chief Financial Officer of Waste
Connections since September 1, 2004.  Mr. Jackman served as Vice
President – Finance and Investor Relations from April 2003 through
August 2004.  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 through
September 2005, Mr. Hall served as Vice President – Business
Development.  Mr. Hall has more than 20 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.
  Eric M.
Merrill has been Senior Vice President – People, Training and Development of
Waste Connections since June 2007.   Mr. Merrill joined us in
1998 and since 2000 had served as Regional Vice President – Pacific Northwest
Region.  Mr. Merrill has over 19 years of experience in the solid
waste industry.  He holds a B.S. degree in Accounting from the University
of Oregon.
  13
  Kenneth
O. Rose has been Senior Vice President – Administration of Waste Connections
since May 2002.  He served as a consultant to Waste Connections in
March and April 2002.  From May 2000 to March 2002, he
provided consulting services to WorldOil.Com, Inc. and Gulf Publishing
Company.  As Vice President – Administration for Coach USA, Inc., from
October 1996 to April 2000, Mr. Rose was responsible for all corporate
administrative activities in the United States, Canada and Mexico.  Mr.
Rose has 13 years experience in the solid waste industry.  Prior to
joining the waste industry, Mr. Rose held various administrative positions in
the oil and offshore drilling industries from 1971 to 1989 with Standard Oil
Company-Indiana, Gulf Oil Corporation and Chevron Corporation.  Mr. Rose
holds a B.S. degree in Accounting from the University of
Wyoming.
  David G.
Eddie has been Vice President – Corporate Controller of Waste Connections since
March 2004.  From April 2003 to February 2004, 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 July 2004, 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.
  James M.
Little has been Vice President – Engineering of Waste Connections since
September 1999.  Mr. Little held various management positions with
Waste Management, Inc. (formerly USA Waste Services, Inc., which was acquired by
Waste Management, Inc. and Chambers Development Co. Inc., which was acquired by
USA Waste Services, 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.
  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 available on our website free of charge after we file them with 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.
  14
  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
  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.
  We also
compete with counties, municipalities and solid waste districts that maintain
their own waste collection and disposal operations.  These operators may
have financial advantages over us because of their access to user fees and
similar charges, tax revenues and tax-exempt financing.
  Increases in the price of
fuel may adversely affect our business and reduce our operating
margins.
  The
market price of fuel is volatile and has risen substantially in recent
years.  We purchase diesel fuel at market prices, and such prices can
fluctuate significantly.  A significant increase in our fuel cost could
adversely affect our business and reduce our operating margins and reported
earnings.
  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 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.
  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.
  15
  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 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.
  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 or lock-outs. 
Additionally, 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.
  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 12%.  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 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 of these arrangements are for a specified term
and will be subject to competitive bidding in the future.  For example, we
have approximately 338contracts, representing
approximately 7.6% of our annual revenues that are set for expiration or
automatic renewal through December 31, 2008.  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.
  16
  Government
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.  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.
  We may be subject in the
normal course of business to judicial and administrative proceedings that could
interrupt our operations, require expensive remediation, result in adverse
judgments or settlements and create negative
publicity.
  Governmental
agencies may 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, or require us to remediate potential environmental problems
relating to waste that we or our predecessors 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.
  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.
  Our growth and future
financial performance depend significantly 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.
  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 truck 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.
  17
  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.
  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 acquisitions, pending acquisitions
and landfill development projects.  We expense indirect acquisition 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, any
pending acquisition that is not consummated and any landfill development project
that we do not expect to complete.  Any such charges against earnings could
decrease our stock price.
  Each business that we
acquire or have acquired may have liabilities that we fail or are unable to
discover, including environmental liabilities.
  As a
successor owner, we may be legally responsible for 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.  Some environmental liabilities,
even if we do not expressly assume them, may be imposed on us under various
regulatory schemes and other applicable laws.  Our insurance program does
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.
  Liabilities for
environmental damage may adversely affect our business and
earnings.
  We are
liable for any environmental damage that our solid waste 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.  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.  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
could be materially adversely affected.
  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.  In
addition, many companies’ accounting policies are being subject 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.
  18
  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.  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 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.
  Extensive and evolving
environmental 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 statutes, regulations and ballot
initiatives, as well as judicial decisions interpreting these
requirements.  These requirements impose substantial costs 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 operations 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, 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.
  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 sale prices of
and demands for recyclable commodities, particularly paper products, are
frequently volatile and when they decline, our revenues and operating results
may decline.  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.
  19
  ITEM 1B.
              UNRESOLVED
      STAFF COMMENTS
  None.
  ITEM 2.
              PROPERTIES
  As of
December 31, 2007, we owned 126 collection operations, 36transfer stations,
23 municipal solid waste landfills, 2 construction and demolition
landfills, 29 recycling operations, and 5intermodal operations
and operated, but did not own, an additional 12transfer stations and
10municipal solid
waste landfills.  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 48,000 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, doublestack
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.
  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, or the
Department, approved the permit for the facility on January 30, 2002. 
Colonias Development Council, or the 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
reschedule the hearing for July 2008 to allow us time to explore a possible
relocation of the landfill.  At December 31, 2007, we had
$9.0 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
$9.0 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 reported income 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, or
the KDHE, of a final permit to operate the landfill.  On October 3,
2005, landfill opponents filed a suit (Board of Commissioners of Sumner
County, Kansas, Tri-County Concerned Citizens and Dalton Holland v. Roderick
Bremby, Secretary of the Kansas Department of Health and Environment, et
al.) in the District Court of Shawnee County, Kansas (Case
No. 05-C-1264), seeking a judicial review of the order, 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 lack 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 are
appealing the decision to the Kansas Supreme Court.  While we believe that
we will prevail in this case, a final adverse determination with respect to the
permit would likely have 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 PierceandBanister cases have been
consolidated.  The consolidated complaint in the action alleges violations
of various federal and California securities laws, breach of fiduciary duty,
corporate 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.  The motions
are pending.
  20
  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 stayed pending the outcome of the consolidated federal action.  We
have 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 this pending litigation, 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, 2007, there is no current proceeding or
litigation involving us that we believe will have a material adverse effect 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 2007.
  21
  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
              
              LOW2006First
      Quarter
              
              $
              26.67
              
              
              $
              22.49Second
      Quarter
              
              
              27.09
              
              
              
              23.50Third
      Quarter
              
              
              26.00
              
              
              
              23.03Fourth
      Quarter
              
              
              28.00
              
              
              
              25.012007First
      Quarter
              
              $
              31.72
              
              
              $
              27.18Second
      Quarter
              
              
              32.25
              
              
              
              29.50Third
      Quarter
              
              
              33.33
              
              
              
              29.05Fourth
      Quarter
              
              
              34.17
              
              
              
              29.102008First
      Quarter (through January 25, 2008)
              
              $
              31.44
              
              
              $
              28.05
 
 As of
January 25, 2008, there were 95record 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.
  On
May 3, 2004, we announced that our Board of Directors authorized a common
stock repurchase program for the repurchase of up to $200 million of our
common stock over a two-year period.  On July 25, 2005 and again on
October 23, 2006, we announced that our Board of Directors approved an
increase in, and extension of, the common stock repurchase program.  We are
now authorized to purchase up to $500 million of our common stock through
December 31, 2008.  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 our capital structure, the market price of our
common stock and overall market conditions.  As of December 31, 2007,
we have repurchased 16.2 million shares of our common stock at a cost of
$397.2 million, $388.3 million of which was under the program. 
The table below reflects repurchases we have made for the three months ended
December 31, 2007 (in thousands, except share and per share
amounts):
  MaximumTotal
      Number of
              
              
              Approximate
      DollarShares
      Purchased
              
              
              Value of Shares
      thatTotal
      Number
              
              
              Average
              
              
              as Part of
      Publicly
              
              
              May Yet
    Beof
Shares
              
              
              Price
    Paid
              
              
              Announced
              
              
              Purchased
      UnderPeriod
              
              Purchased
              
              
              Per Share(1)
              
              
              Program
              
              
              the
    Program10/1/07
      – 10/31/07
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              $
              158,03511/1/07
      – 11/30/07
              
              
              586,000
              
              
              
              32.38
              
              
              
              586,000
              
              
              
              139,06112/1/07
      – 12/31/07
              
              
              889,800
              
              
              
              30.70
              
              
              
              889,800
              
              
              
              111,7441,475,800
              
              
              
              31.37
              
              
              
              1,475,800
  (1)
              This
      amount represents the weighted average price paid per common share. 
      This price includes a per share commission paid for all
      repurchases.
  22
  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, 2002, 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®.
  The peer
group consists of the following companies:  Allied Waste Industries, Inc.,
Casella Waste Systems, Inc., Republic Services, Inc., Waste Industries USA, Inc.
and Waste Management, Inc.
  Comparison
of Cumulative Five Year Total Return
  
 
 Cumulative
      Total ReturnBase
                Period
                Dec02
              
              
              Dec03
              
              
              Dec04
              
              
              Dec05
              
              
              Dec06
              
              
              Dec07Waste
      Connections, Inc.
              
              $
              100
              
              
              $
              97.82
              
              
              $
              133.06
              
              
              $
              133.88
              
              
              $
              161.73
              
              
              $
              180.07S&P
      500 Index
              
              
              100
              
              
              
              128.68
              
              
              
              142.69
              
              
              
              149.70
              
              
              
              173.34
              
              
              
              182.86Peer
      Group
              
              
              100
              
              
              
              129.44
              
              
              
              134.93
              
              
              
              141.24
              
              
              
              174.56
              
              
              
              167.96
  THE STOCK
PRICE PERFORMANCE INCLUDED IN THIS GRAPH IS NOT NECESSARILY INDICATIVE OF FUTURE
STOCK PRICE PERFORMANCE.
  23
  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 are not intended to
replace the consolidated financial statements included in this
report.
  YEARS
      ENDED DECEMBER 31,2003
              
              
              2004
              
              
              2005(a)
              
              
              2006(a)
              
              
              2007(a)(in
      thousands, except share and per share data)STATEMENT
      OF OPERATIONS DATA:Revenues
              
              $
              541,797
              
              
              $
              624,544
              
              
              $
              721,899
              
              
              $
              824,354
              
              
              $
              958,541Operating
      expenses:Cost
      of operations
              
              
              299,901
              
              
              
              354,901
              
              
              
              416,883
              
              
              
              492,766
              
              
              
              566,089Selling,
      general and administrative
              
              
              51,244
              
              
              
              61,223
              
              
              
              72,395
              
              
              
              84,541
              
              
              
              99,565Depreciation
      and amortization
              
              
              45,071
              
              
              
              54,630
              
              
              
              64,788
              
              
              
              74,865
              
              
              
              85,628Loss
      (gain) on disposal of assets
              
              
              186
              
              
              
              2,120
              
              
              
              (216
              )
              
              
              796
              
              
              
              250Operating
      income
              
              
              145,395
              
              
              
              151,670
              
              
              
              168,049
              
              
              
              171,386
              
              
              
              207,009Interest
      expense, net
              
              
              (31,666
              )
              
              
              (21,724
              )
              
              
              (23,489
              )
              
              
              (28,970
              )
              
              
              (33,430
              )Other
      income (expense), net
              
              
              160
              
              
              
              (2,817
              )
              
              
              450
              
              
              
              (3,759
              )
              
              
              289Income
      before income tax provision and minority interests
              
              
              113,889
              
              
              
              127,129
              
              
              
              145,010
              
              
              
              138,657
              
              
              
              173,868Minority
      interests
              
              
              (10,549
              )
              
              
              (11,520
              )
              
              
              (12,422
              )
              
              
              (12,905
              )
              
              
              (14,870
              )Income
      from continuing operations before income taxes
              
              
              103,340
              
              
              
              115,609
              
              
              
              132,588
              
              
              
              125,752
              
              
              
              158,998Income
      tax provision
              
              
              (37,527
              )
              
              
              (42,251
              )
              
              
              (48,066
              )
              
              
              (48,329
              )
              
              
              (59,917
              )Income
      from continuing operations
              
              
              65,813
              
              
              
              73,358
              
              
              
              84,522
              
              
              
              77,423
              
              
              
              99,081Loss
      on discontinued operations, net of tax
              
              
              (499
              )
              
              
              (1,087
              )
              
              
              (579
              )
              
              
              -
              
              
              
              -Cumulative
      effect of change in accounting principle, net of tax expense of
      $166
              
              
              282
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income
              
              $
              65,596
              
              
              $
              72,271
              
              
              $
              83,943
              
              
              $
              77,423
              
              
              $
              99,081Basic
      earnings per common share:Income
      from continuing operations
              
              $
              1.03
              
              
              $
              1.05
              
              
              $
              1.21
              
              
              $
              1.14
              
              
              $
              1.45Discontinued
      operations
              
              
              (0.01
              )
              
              
              (0.02
              )
              
              
              (0.01
              )
              
              
              -
              
              
              
              -Cumulative
      effect of change in accounting principle
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income per common share
              
              $
              1.02
              
              
              $
              1.03
              
              
              $
              1.20
              
              
              $
              1.14
              
              
              $
              1.45Diluted
      earnings per common share:Income
      from continuing operations
              
              $
              0.97
              
              
              $
              1.02
              
              
              $
              1.17
              
              
              $
              1.10
              
              
              $
              1.42Discontinued
      operations
              
              
              (0.01
              )
              
              
              (0.02
              )
              
              
              (0.01
              )
              
              
              -
              
              
              
              -Cumulative
      effect of change in accounting principle
              
              
              0.01
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income per common share
              
              $
              0.97
              
              
              $
              1.00
              
              
              $
              1.16
              
              
              $
              1.10
              
              
              $
              1.42Shares
      used in calculating basic income per share(b)
              
              
              63,736,416
              
              
              
              69,872,162
              
              
              
              70,050,974
              
              
              
              68,136,126
              
              
              
              68,238,523Shares
      used in calculating diluted income per share(b)
              
              
              73,961,217
              
              
              
              74,205,326
              
              
              
              72,316,952
              
              
              
              70,408,673
              
              
              
              69,994,713
  24
 
 YEARS
      ENDED DECEMBER 31,2003
              
              
              2004
              
              
              2005(a)
              
              
              2006(a)
              
              
              2007(a)(in
      thousands, except share and per share data)BALANCE
      SHEET DATA:Cash
      and equivalents
              
              $
              5,276
              
              
              $
              3,610
              
              
              $
              7,514
              
              
              $
              34,949
              
              
              $
              10,298Working
      capital (deficit)
              
              
              (15,060
              )
              
              
              (12,824
              )
              
              
              (25,625
              )
              
              
              10,368
              
              
              
              (24,849
              )Property
      and equipment, net
              
              
              613,225
              
              
              
              640,730
              
              
              
              700,508
              
              
              
              736,428
              
              
              
              865,330Total
      assets
              
              
              1,395,952
              
              
              
              1,491,483
              
              
              
              1,676,307
              
              
              
              1,773,891
              
              
              
              1,981,958Long-term
      debt
              
              
              601,891
              
              
              
              489,343
              
              
              
              586,104
              
              
              
              637,308
              
              
              
              719,518Total
      stockholders’ equity
              
              
              537,494
              
              
              
              707,522
              
              
              
              718,200
              
              
              
              736,482
              
              
              
              775,145
   (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.
   25
  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 containers in the Pacific Northwest through a network of
five 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 2007 grew 16.3% as internal growth from operations owned at least
12 months and new contracts commenced in 2007 was 10.4% during the year,
and acquisitions contributed an additional 5.9% growth in revenue. 
Internal growth increased from 7.6% in 2006 due primarily to the commencement of
two long-term contracts in early 2007, broad-based pricing initiatives to offset
or recover significant cost increases over the past two years, primarily in fuel
and related items, and rising recycled commodity prices.  Our local area
management achieved pricing growth of 4.7% in 2007.  Volume growth was 4.0%
for the year, and we anticipate that volume growth will decrease in 2008
compared to 2007 due both to the anniversary of two new contracts that commenced
in early 2007 and a more difficult economic
environment.
  The cost
environment remained relatively stable during most of 2007, until the fourth
quarter when fuel and insurance costs increased, along with unanticipated costs
we incurred associated with a labor disruption in El Paso, Texas.  Margin
expansion during the first nine months of 2007 more than offset the margin
decline experienced during the fourth quarter due to these cost pressures,
resulting in our operating income margin for the full year increasing from 20.8%
in 2006, to 21.6% in 2007.  This 21.6% operating income margin exceeded the
21.2% outlook for 2007 that we publicly announced in February
2007.
  Free Cash
Flow
  Free cash
flow, a non-GAAP financial measure (refer to page 39 of this report for a
definition and reconciliation of free cash flow), increased to
$106.2 million in 2007, from $97.5 million in 2006.  Free cash
flow declined as a percentage of revenue to 11.1% in 2007, from 11.8% in 2006,
due to a $27.7 million increase in capital expenditures during 2007, a
majority of which was related to the commencement of a new long-term collection
contract in the first quarter of 2007.
  26
  Capital
Deployment
  We
believe our financial profile and operating performance provide us the
flexibility to fund our growth strategy and repurchase stock while remaining
within our targeted debt ratios.  During 2007, we deployed approximately
$343.9million of
capital as follows:  $124.2million for capital
expenditures; $109.4million for
acquisitions; and $110.3million for common stock
repurchases.  Despite these outlays, our leverage ratio, as defined in our
credit facility, improved to approximately 2.4x of total debt to earnings before
interest, taxes, depreciation and amortization, or EBITDA, at year-end 2007,
from approximately 2.5x at year-end 2006.  In June 2007, Standard and
Poor’s upgraded our credit rating to investment grade
(“BBB-”).
  We
maintain targeted leverage ratios between 2.5x and 2.75x EBITDA.  As a
result of the improvement in our capital structure, our Board of Directors in
May 2004 authorized a $200 million common stock repurchase program in an
effort to rebalance our capital structure.  Our Board of Directors
subsequently authorized a $100 million increase to the repurchase program
in July 2005 and an additional $200 million increase in October 2006. 
Depending on acquisition activity, we expect to repurchase approximately
$125 millionof additional stock
under the program in 2008, representing approximately 6% of outstanding shares
based on the number of shares outstanding and our stock price as of
January 31, 2008.
  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, 2007, 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 $0.5 million.
  Effective
January 2007, we adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes, 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 the adoption of 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.
  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.
  27
  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 2007, 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;
      and(5)
              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 case, 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.
  Impairment of intangible
assets.  We periodically evaluate acquired assets for potential
impairment indicators.  Our judgments regarding the existence of impairment
indicators are based on regulatory factors, market conditions, anticipated cash
flows and operational performance of our acquired assets.  Future events
could cause us to conclude that impairment indicators exist and that goodwill or
other intangibles associated with our acquired businesses are impaired. 
Any resulting impairment loss could reduce our net worth and have a material
adverse effect on our financial condition and results of operations.  As of
December 31, 2007, goodwill and intangible assets represented 45.7% of our
total assets.
  28
  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) 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.
  Consistent
with prior years, we use 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, 2007 in the Consolidated
Statements of Income within this report.
  Stock-based
compensation expense recognized during the years ended December 31, 2006
and 2007, totaled approximately $3.5 million ($2.2 million net of
taxes) and $6.1 million ($3.8 million net of taxes), respectively, and
consisted of stock option, restricted stock unit and restricted stock
expense.  This expense was included in “Selling, general and
administrative” expenses in our Consolidated Statements of Income within this
Annual Report on Form 10-K.  During the fourth quarter of 2005, we
accelerated the vesting of all unvested stock options.  As a result,
stock-based compensation in periods subsequent to the acceleration was
significantly reduced.  A contra-equity balance of $2.2 million in
“Deferred stock compensation” on our 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 excess tax
benefits associated with equity-based compensation were approximately
$7.7 million and $14.1 million during the years ended
December 31, 2006 and 2007, respectively.
  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.  No single contract or customer accounted
for more than 5% of our revenues for the years ended December 31, 2005,
2006 or 2007.
  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.
  29
  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
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 31,2005
              
              
              2006
              
              
              2007Collection
              
              $
              517,536
              
              
              
              62.9
              %
              
              $
              602,762
              
              
              
              64.2
              %
              
              $
              693,675
              
              
              
              63.8
              %Disposal
      and transfer
              
              
              227,715
              
              
              
              27.7
              
              
              
              259,190
              
              
              
              27.6
              
              
              
              298,954
              
              
              
              27.5Recycling
      and other
              
              
              77,594
              
              
              
              9.4
              
              
              
              77,202
              
              
              
              8.2
              
              
              
              95,212
              
              
              
              8.7Total
              
              $
              822,845
              
              
              
              100.0
              %
              
              $
              939,154
              
              
              
              100.0
              %
              
              $
              1,087,841
              
              
              
              100.0
              %Intercompany
      elimination
              
              $
              100,946
              
              
              
              
              
              
              $
              114,800
              
              
              
              
              
              
              $
              129,300
 
 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 2007 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.
  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, 2007, we capitalized
$0.2 million of interest related to landfill and facility development
projects.  At December 31, 2007, we had $0.1 million in
capitalized expenditures relating to pending acquisitions.
  30
  At
December 31, 2007, we had $9.0 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 reschedule the hearing
for July 2008 to allow 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.
  We
periodically evaluate our intangible assets for potential impairment
indicators.  If any impairment indicators are present, 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.  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. 
As of December 31, 2006 and 2007, there have been no adjustments to the
carrying amounts of intangibles resulting from these evaluations. 
Additionally, we test goodwill and indefinite-lived intangible assets for
impairment annually.  As a result of performing the tests for potential
impairment, we determined that no impairment existed as of December 31,
2006 and 2007, and therefore, there were no write-downs to goodwill or
indefinite-lived intangible assets.  At December 31, 2006 and 2007,
goodwill and other intangible assets represented 47.2% and 45.7% of total
assets, respectively.
  31
  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 31,2005
              
              
              As
      a % of 2005 Revenues
              
              
              2006
              
              
              As
      a % of 2006 Revenues
              
              
              2007
              
              
              As
      a % of 2007 RevenuesRevenues
              
              $
              721,899
              
              
              
              100.0
              %
              
              $
              824,354
              
              
              
              100.0
              %
              
              $
              958,541
              
              
              
              100.0
              %Cost
      of operations
              
              
              416,883
              
              
              
              57.7
              
              
              
              492,766
              
              
              
              59.8
              
              
              
              566,089
              
              
              
              59.1Selling,
      general and administrative
              
              
              72,395
              
              
              
              10.0
              
              
              
              84,541
              
              
              
              10.2
              
              
              
              99,565
              
              
              
              10.4Depreciation
      and amortization
              
              
              64,788
              
              
              
              9.0
              
              
              
              74,865
              
              
              
              9.1
              
              
              
              85,628
              
              
              
              8.9Loss
      (gain) on disposal of assets
              
              
              (216
              )
              
              
              -
              
              
              
              796
              
              
              
              0.1
              
              
              
              250
              
              
              
              -Operating
      income
              
              
              168,049
              
              
              
              23.3
              
              
              
              171,386
              
              
              
              20.8
              
              
              
              207,009
              
              
              
              21.6Interest
      expense, net
              
              
              (23,489
              )
              
              
              (3.3
              )
              
              
              (28,970
              )
              
              
              (3.5
              )
              
              
              (33,430
              )
              
              
              (3.5
              )Other
      income (expense), net
              
              
              450
              
              
              
              -
              
              
              
              (3,759
              )
              
              
              (0.4
              )
              
              
              289
              
              
              
              -Minority
      interests
              
              
              (12,422
              )
              
              
              (1.7
              )
              
              
              (12,905
              )
              
              
              (1.6
              )
              
              
              (14,870
              )
              
              
              (1.6
              )Income
      tax provision
              
              
              (48,066
              )
              
              
              (6.7
              )
              
              
              (48,329
              )
              
              
              (5.9
              )
              
              
              (59,917
              )
              
              
              (6.2
              )Loss
      on discontinued operations, net of tax
              
              
              (579
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income
              
              $
              83,943
              
              
              
              11.6
              %
              
              $
              77,423
              
              
              
              9.4
              %
              
              $
              99,081
              
              
              
              10.3
              %
 
 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.
  32
  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.
  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 in depreciation and amortization
expense as a percentage of revenues for the year ended December 31, 2007
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 $4.4 million, or 15.4%, to
$33.4 million for the year ended December 31, 2007, from
$29.0 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 interest
income on increased cash balances, and 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.
  33
  Years
Ended December 31, 2006 and 2005
  Revenues.  Total
revenues increased $102.5 million, or 14.2%, to $824.4 million for the
year ended December 31, 2006, from $721.9 million for the year ended
December 31, 2005.  Acquisitions closed during, or subsequent to, the
year ended December 31, 2005, increased revenues by approximately
$47.7 million.  During the year ended December 31, 2006,
increased prices charged to our customers and increased volume in our existing
business resulted in net revenue increases of approximately $37.2 million
and $20.0 million, respectively.  Decreases in intermodal services due
to lower cargo volume and lower recyclable commodity prices and volume during
the year ended December 31, 2006, decreased revenues by
$2.4 million.
  Cost of
Operations.  Total cost of operations increased $75.9 million,
or 18.2%, to $492.8 million for the year ended December 31, 2006, from
$416.9 million for the year ended December 31, 2005.  The
increase was attributable to operating costs associated with acquisitions closed
during, or subsequent to, the year ended December 31, 2005, higher fuel
costs resulting from market price changes in fuel and the expiration of our
fixed-price fuel supply contract in 2005, increased insurance expenses due to
increases in both total claims and average settlement rates per claim, increased
franchise and landfill taxes, increased labor expenses, increased operating
expenses resulting from three new landfills opened during December 2005 and
January 2006, and increased third-party transportation costs and equipment
maintenance costs associated with higher collection and disposal
volumes.
  Increases
in total claims and our estimated average per claim cost for worker’s
compensation and automobile liability claims resulted in approximately
$2.1 million of increased insurance expense during the year ended
December 31, 2006, compared to the year ended December 31, 2005. 
Additionally, during the year ended December 31, 2006, we recorded
additional development costs for existing insurance claims of approximately
$4.4 million.  These additional development costs were based on
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, both of which are updated on a quarterly basis, and
reviewed by us.
  In 2005,
we benefited from a fixed-price fuel supply contract that we entered into in
late 2003 that fixed diesel prices on approximately 13 million gallons
purchased during the year.  This amount represented about 75% of our fuel
consumption in 2005.  We estimate that this contract saved us approximately
$14.3 million on a pre-tax basis compared to market prices paid during the
year ended December 31, 2005.
  Cost of
operations as a percentage of revenues increased 2.1 percentage points to
59.8% for the year ended December 31, 2006, from 57.7% for the year ended
December 31, 2005.  The increase as a percentage of revenues was
primarily attributable to increased fuel costs, increased insurance costs,
increased franchise and landfill taxes, third-party transportation costs,
equipment maintenance costs, and acquisitions closed during, or subsequent to,
the year ended December 31, 2005, having operating margins below our
company average, partially offset by a decrease in disposal expenses resulting
from increased internalization of collected waste volumes.
  SG&A. 
SG&A expenses increased $12.1 million, or 16.8%, to $84.5 million
for the year ended December 31, 2006, from $72.4 million for the year
ended December 31, 2005.  The increase in SG&A expenses during the
year ended December 31, 2006 was primarily the result of additional
personnel from acquisitions closed during, or subsequent to, the year ended
December 31, 2005, increased payroll expense due to increased headcount to
support our base operations and increased salaries and increased legal and other
professional fees.
  SG&A
expenses as a percentage of revenues increased 0.2 percentage points to
10.2% for the year ended December 31, 2006, from 10.0% for the year ended
December 31, 2005.  The increase as a percentage of revenue was
primarily attributable to increased equity compensation expense, cash
compensation increases and higher legal and professional
fees.
  Depreciation and
Amortization.  Depreciation and amortization expense increased
$10.1 million, or 15.6%, to $74.9 million for the year ended
December 31, 2006, from $64.8 million for the year ended
December 31, 2005.  The increase was primarily attributable to
depreciation and amortization associated with acquisitions closed during, or
subsequent to, the year ended December 31, 2005, increased depletion
expenses resulting from increases in disposal volumes at our landfills, and
increased depreciation expense resulting from new facilities, fleet and
equipment acquired subsequent to December 31, 2005, to support our base
operations.
  Depreciation
and amortization expense as a percentage of revenues increased
0.1 percentage points to 9.1% for the year ended December 31, 2006,
from 9.0% for the year ended December 31, 2005, due primarily to
amortization expense associated with intangible assets acquired with
acquisitions closed during, or subsequent to, the year ended December 31,
2005.
  34
  Operating
Income.  Operating income increased $3.4 million, or 2.0%, to
$171.4 million for the year ended December 31, 2006, from
$168.0 million for the year ended December 31, 2005.  The
increase was primarily attributable to increased revenues, offset by increased
operating costs, increased insurance expenses resulting from increased costs per
claim and higher projected losses on open claims, increased SG&A expenses to
support the revenue growth and increased depreciation and amortization
expenses.
  Operating
income as a percentage of revenues decreased 2.5 percentage points to 20.8%
for the year ended December 31, 2006, from 23.3% for the year ended
December 31, 2005.  The decrease was due to the previously described
percentage of revenue increases in cost of operations, including increased fuel
costs and insurance expense, increased SG&A expense and increased
depreciation and amortization expenses.
  Interest
Expense.  Interest expense increased $5.5 million, or 23.3%, to
$29.0 million for the year ended December 31, 2006, from
$23.5 million for the year ended December 31, 2005.  The increase
was attributable to higher average debt balances and increased interest rates on
floating rate debt not fixed under our swap agreements, partially offset by
interest income on increased cash balances and a $1.0 million reduction of
interest expense on our 2022 Notes as a result of the timing of the
conversion of certain of the 2022 Notes into common stock by the note
holders after we called the notes for redemption.  The 2022 Notes
converted into common stock prior to redemption by us were not entitled to
receive interest accrued after May 1, 2006.  We paid approximately
$175 million in cash and issued 961,175 shares of our common stock in
connection with the conversion and redemption of the 2022
Notes.
  Other Income
(Expense).  Other income (expense) changed to an expense total of
$3.8 million for the year ended December 31, 2006, from an income
total of $0.5 million for the year ended December 31, 2005. 
Other expense in the year ended December 31, 2006, primarily consists 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 $0.5 million, or 3.9%,
to $12.9 million for the year ended December 31, 2006, from
$12.4 million for the year ended December 31, 2005.  The increase
in minority interests was due to increased earnings by our majority-owned
subsidiaries.
  Income Tax
Provision.  Income taxes increased $0.2 million, or 0.5%, to
$48.3 million for the year ended December 31, 2006, from
$48.1 million for the year ended December 31, 2005.  Our
effective tax rates were 36.2% and 38.4% for the years ended December 31,
2005 and 2006, respectively.  The increase in our effective tax rate for
the year ended December 31, 2006, was primarily due to three factors: 
(i) an increase in our estimated effective current tax rate to 38.0% and
our estimated deferred tax rate to 38.4% as a result of the geographical
apportionment of our state taxes; (ii) the recognition of an initial
deferred tax liability from the impact of implementing a newly enacted Texas
margin tax; and (iii) the recognition for tax purposes of a cumulative
interest recapture associated with a change in our tax accounting method related
to the timing of recognizing landfill closure and post-closure expenses. 
The increase was partially offset by a reduction in tax expense resulting from a
detailed reconciliation and adjustment of deferred tax liabilities associated
with property and equipment and intangible assets as well as the reserves
related to the tax positions for which the statute of limitations expired in
2006.
  The tax
rate increases, partially offset by the reduction in deferred tax liabilities
resulting from the reconciliation and adjustment of deferred tax liabilities
associated with property and equipment and intangible assets, resulted in a
$1.5 million adjustment to our deferred tax account balances and a
corresponding increase to income tax expense.  Recording an initial
deferred tax liability due to the Texas margin tax resulted in a
$0.3 million adjustment to our deferred tax account balances and a
corresponding increase to income tax expense.  The recognition for tax
purposes of a cumulative interest recapture associated with a change in our tax
accounting method associated with the timing of recognizing landfill closure and
post-closure expenses resulted in a permanent $0.8 million increase to
income tax expense.  The reserves related to the tax positions for which
the statute of limitations expired in 2006 resulted in a $1.7 million
decrease to income tax expense.
  Loss on Discontinued
Operations.  In the second quarter of 2005, we disposed of a hauling
operation in Utah and exited a landfill operating contract with a finite term in
California.  The amount recorded as loss on discontinued operations for the
year ended December 31, 2005 of $0.6 million consists of the net
earnings for these operations.
  Net Income.  Net
income decreased $6.5 million, or 7.8%, to $77.4 million for the year
ended December 31, 2006, from $83.9 million for the year ended
December 31, 2005.  The decrease was primarily attributable to
increased interest expense, increased minority interests expense and the write
off of $4.2 million of unamortized debt issuance costs associated with our
2022 Notes, partially offset by increased operating
income.
  35
  Liquidity
and Capital Resources
  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.  We plan to meet our capital needs through various financing
sources, including internally generated funds and debt
financings.
  As of
December 31, 2007, we had a working capital deficit of $24.8 million,
including cash and equivalents of $10.3 million.  Our working capital
decreased $35.2 million from a positive balance of $10.4 million at
December 31, 2006.  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.  The decrease in our working capital position from
December 31, 2006, to December 31, 2007, resulted primarily from a
decrease in our cash balances and an increase in current liabilities, partially
offset by an increase in accounts receivable.  For additional information
regarding the changes in our cash balances, see the Consolidated Statements of
Cash Flows in Item 8 of this Annual Report on Form 10-K.
  For the
year ended December 31, 2007, net cash provided by operating activities was
$219.1 million, including $12.2 million provided by working capital
for the period.  The primary components of the reconciliation of net income
to net cash provided by operating activities for the year ended
December 31, 2007, consist of non-cash expenses, including
$85.6 million of depreciation and amortization, $14.9 million of
minority interests expense, $2.2 million of debt issuance cost
amortization, a $12.4 million increase in net deferred tax liabilities, and
$6.1 million of stock compensation expense, less $14.1 million of
excess tax benefit associated with equity-based compensation reclassified to
cash flows from financing activities.
  For the
year ended December 31, 2006, net cash provided by operating activities was
$204.2 million, which included $9.7 million provided by working
capital for the period.  The primary components of the reconciliation of
net income to net cash provided by operating activities for the year ended
December 31, 2006, consist of non-cash expenses, including
$74.9 million of depreciation and amortization, $12.9 million of
minority interests expense, $6.2 million of debt issuance cost
amortization, a $26.6 million increase in net deferred tax liabilities, and
$3.5 million of stock compensation expense, less $7.7 million of
excess tax benefit associated with equity-based compensation reclassified to
cash flows from financing activities due to the adoption of
SFAS 123(R).
  For the
year ended December 31, 2007, net cash used in investing activities was
$235.6 million.  Of this amount, $109.4 million was used to fund
the cash portion of acquisitions and to pay a portion of acquisition costs that
were included as a component of accrued liabilities at December 31,
2006.  Cash used for capital expenditures was $124.2 million, which
was primarily for investments in fixed assets, consisting of trucks, containers,
other equipment and landfill development.  The increase in capital
expenditures of $27.7 million for the year ended December 31, 2007, as
compared to the year ended December 31, 2006, is due primarily to capital
expenditures associated with a new long-term contract in California as well as
capital required to support the continued growth of our existing business. 
Other cash outflows from investing activities include $2.7 million paid to
increase the balance in restricted assets.  Other cash inflows from
investing activities include $1.0 million received from the disposal of
assets.
  For the
year ended December 31, 2006, net cash used in investing activities was
$134.6 million.  Of this, $38.6 million was used to fund the cash
portion of acquisitions and to pay a portion of acquisition costs that were
included as a component of accrued liabilities at December 31, 2005. 
Cash used for capital expenditures was $96.5 million, which was primarily
for investments in fixed assets, consisting of trucks, containers, other
equipment and landfill development.  Other cash outflows from investing
activities include $1.4 million paid to increase the balance in restricted
assets.  Other cash inflows from investing activities include
$2.2 million received from the disposal of assets.
  For the
year ended December 31, 2007, net cash used in financing activities was
$8.1 million, which included $35.6 million of proceeds from stock
option and warrant exercises, an $8.8 million change in book overdraft,
$14.1 million of excess tax benefit associated with equity-based
compensation, and $57.4 million of net borrowings under our various debt
arrangements, less $12.6 million of cash distributions to minority interest
holders, and $110.3 million of repurchases of our common
stock.
  For the
year ended December 31, 2006, net cash used in financing activities was
$42.2 million, which included $44.9 million of net borrowings under
our various debt arrangements for the funding of capital expenditures and
acquisitions, $32.1 million of proceeds from stock option and warrant
exercises, and $7.7 million of excess tax benefit associated with
equity-based compensation, less $11.3 million of cash distributions to
minority interests holders, an $8.9 million change in book overdraft,
$6.6 million of debt issuance costs, and $100.2 million of repurchases
of our common stock.
  36
  We made
$124.2 million in capital expenditures during the year ended
December 31, 2007.  We expect to make capital expenditures of
approximately $110.0 million in 2008 in connection with our existing
business.  We intend to fund our planned 2008 capital expenditures
principally through existing cash, internally generated funds, and borrowings
under our existing credit facility.  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 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.
  We have
an $800 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, 2005, $367.0 million was outstanding under our
previous credit facility, exclusive of outstanding standby letters of credit of
$55.7 million.  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.  The $33.0 million increase
in outstanding borrowings under the credit facility in 2006 was primarily due to
the combined total of payments for acquisitions, payments for the repurchase of
common stock and increased cash balances being in excess of free cash flow plus
proceeds from stock option and warrant exercises.  As of December 31,
2007, $479.0 million was outstanding under the credit facility, exclusive
of outstanding standby letters of credit of $68.3 million.  The
$79.0 million increase in outstanding borrowings under the credit facility
in 2007 was primarily due to the combined total of payments for acquisitions,
payment of debt assumed in acquisitions and payments for the repurchase of
common stock being in excess of the decrease in our cash balances, plus free
cash flow and proceeds from stock option and warrant exercises.
  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.  We are able to
increase the maximum borrowings under the credit facility to $1.0 billion,
provided that no event of default, as defined in the credit agreement, has
occurred, although no existing lender has any obligation to increase its
commitment.  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:  (a) the federal funds rate plus one
half of one percent (0.5%); and (b) 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 customary 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,
2006 and 2007, we were in compliance with all applicable covenants in our
previous credit facility and the credit facility.  We use the credit
facility for acquisitions, capital expenditures, working capital, standby
letters of credit and general corporate purposes.
  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.
  37
  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.
  In
April 2002, we sold $175 million of Floating Rate Convertible
Subordinated Notes due 2022.  In May and June 2006, we redeemed or
converted all of the 2022 Notes.  We paid approximately
$175 million in cash and issued 1,441,763 shares of our common stock
in connection with the conversion and redemption.  We funded the conversion
and redemption with borrowings under our credit facility.  As a result of
the redemption, we recorded a non-cash, pre-tax charge of $4.2 million
($2.6 million net of taxes) in other income (expense) for the write-off of
unamortized debt issuance costs associated with the redemption of the 2022
Notes.
  As of
December 31, 2007, 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
              
              $
              732,833
              
              
              $
              13,315
              
              
              $
              7,569
              
              
              $
              682,825
              
              
              $
              29,124
 
 Long-term
debt payments include:
 
 (1)       $479.0 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 7.25% at December 31, 2007) on
base rate loans, or the Eurodollar rate plus the applicable Eurodollar margin
(approximately 5.8% at December 31, 2007) on Eurodollar loans.  As of
December 31, 2007, our credit facility allowed us to borrow up to
$800 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)       $11.3 million
in principal payments related to our 2001 Wasco bonds.  Our 2001 Wasco
bonds consist of $2.8 million of bonds that bear interest at a rate of 7.0%
and mature on March 1, 2012, and $8.5 million of bonds that bear
interest at a rate of 7.25% and mature on March 1, 2021.
 (4)       $33.2 million
in principal payments related to our California tax-exempt bonds.  Our
California tax-exempt bonds bear interest at variable rates (3.4% at
December 31, 2007) and have maturity dates ranging from 2008 to
2018.
 (5)       $4.0 million
in principal payments related to our notes payable to sellers.  Our notes
payable to sellers bear interest at rates between 5.5% and 7.5% at
December 31, 2007 and have maturity dates ranging from 2009 to
2036.
 (6)       $5.3 million
in principal payments related to our notes payable to third parties.  Our
notes payable to third parties bear interest at rates between 6.0% and 11.0% at
December 31, 2007, and have maturity dates ranging from 2008 to
2010.
 
 The total
liability for uncertain tax positions under FIN 48 at December 31,
2007, is approximately $7 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)
              
              $
              67,450
              
              
              $
              6,904
              
              
              $
              14,256
              
              
              $
              12,356
              
              
              $
              33,934
 
 (1)       We
are party to operating lease agreements as discussed in Note 10to the
consolidated financial statements.  These lease agreements are established
in the ordinary course of our business and are designed to provide us with
access to facilities at competitive, market-driven prices.  These
arrangements have not materially affected our financial position, results of
operations or liquidity during the year ended December 31, 2007, nor are
they expected to have a material impact on our future financial position,
results of operations or liquidity.
  38
 
 We have
obtained standby letters of credit as discussed in Note 9 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, 2007, nor are they expected to
have a material impact on our future financial position, results of operations
or liquidity.
  The
minority interests holders of a majority-owned subsidiary of ours have a
currently exercisable put option to require us to complete the acquisition of
this majority-owned subsidiary by purchasing their minority ownership interests
for fair market value.  The put option calculates the fair market value of
the subsidiary based on its current operating income before depreciation and
amortization, as defined in the put option agreement.  The put option does
not have a stated termination date.  At December 31, 2007, the
minority interests holders’ pro rata share of the subsidiary’s fair market value
is estimated to be worth between $93 million and $100 million. 
Because the put is calculated at fair market value, no amounts have been accrued
relative to the put option.  In the event the minority interests holders
elect to exercise the put option, we intend to fund the transaction using
borrowings from our credit facility.
  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.
  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, 2006 and 2007, is calculated as follows (in
thousands):
  Years
      Ended December 31,2006
              
              
              2007Net
      cash provided by operating activities
              
              $
              204,234
              
              
              $
              219,069Change
      in book overdraft
              
              
              (8,869
              )
              
              
              8,835Plus:
      Proceeds from disposal of assets
              
              
              2,198
              
              
              
              1,016Plus:
      Excess tax benefit associated with equity-based
    compensation
              
              
              7,728
              
              
              
              14,137Less:
      Capital expenditures for property and equipment
              
              
              (96,519
              )
              
              
              (124,234
              )Less:
      Distributions to minority interest holders
              
              
              (11,270
              )
              
              
              (12,642
              )Free
      cash flow
              
              $
              97,502
              
              
              $
              106,181
 
 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 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, such as recent increases in the price of fuel,
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 12%.  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.
  39
  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.  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.
  At
December 31, 2007, our derivative instruments consisted of 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.
 
 All the
interest rate swap agreements are considered highly effective as 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, 2006 and 2007, of $24.1 million and
$114.8 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, 2006 and 2007, would decrease our
annual pre-tax income by approximately $0.2 million and $1.1 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.
  Although
fuel and energy costs account for a relatively small portion of our total
revenues, the market price of diesel fuel is unpredictable and can fluctuate
significantly.  We purchase all of our fuel at market prices.  A
significant increase in the price of fuel could adversely affect our business
and reduce our operating margins.  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 $2.2 million.
  40
  We market
a variety of recyclable materials, including cardboard, office paper, plastic
containers, glass bottles and ferrous and aluminum metals.  We own and
operate 29 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 prices that were in effect at December 31, 2006
and 2007 would have had a $2.5 million and $3.9 million impact on
revenues for the years ended December 31, 2006 and 2007,
respectively.
  41
 
  ITEM 8.                      FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
  INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 WASTE
CONNECTIONS, INC.
 
 
 
 
 PageReport
      of Independent Registered Public Accounting Firm
              43Consolidated
      Balance Sheets as of December 31, 2006 and 2007
              44Consolidated
      Statements of Income for the years ended December 31, 2005, 2006 and
      2007
              45Consolidated
      Statements of Stockholders’ Equity and Comprehensive Income for the years
      ended December 31, 2005, 2006 and 2007
              46Consolidated
      Statements of Cash Flows for the years ended December 31, 2005, 2006
      and 2007
              47Notes
      to Consolidated Financial Statements
              49Financial
      Statement Schedule
              84
  42
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
 
 
 To the
Board of Directors and Stockholders of
 Waste
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, 2007 and December 31,
2006, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2007 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, 2007, 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 1 and Note 13, respectively, to the consolidated financial
statements, the Company changed the manner in which it accounts for share-based
compensation in 2006 and 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 LLP
 Sacramento,
CA
 February 11,
2008
  43
 
 WASTE CONNECTIONS, INC.CONSOLIDATED
      BALANCE SHEETS(IN
      THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
 
 December
      31,2006
              
              
              2007ASSETSCurrent
      assets:Cash
      and equivalents
              
              $
              34,949
              
              
              $
              10,298Accounts
      receivable, net of allowance for doubtful accounts of $3,489 and $4,387 at
      December 31, 2006 and 2007, respectively
              
              
              100,269
              
              
              
              123,882Deferred
      income taxes
              
              
              9,373
              
              
              
              14,732Prepaid
      expenses and other current assets
              
              
              15,642
              
              
              
              21,953Total
      current assets
              
              
              160,233
              
              
              
              170,865Property
      and equipment, net
              
              
              736,428
              
              
              
              865,330Goodwill
              
              
              750,397
              
              
              
              811,049Intangible
      assets, net
              
              
              86,098
              
              
              
              93,957Restricted
      assets
              
              
              15,917
              
              
              
              19,300Other
      assets, net
              
              
              24,818
              
              
              
              21,457$
              1,773,891
              
              
              $
              1,981,958LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              53,010
              
              
              $
              59,912Book
      overdraft
              
              
              -
              
              
              
              8,835Accrued
      liabilities
              
              
              57,810
              
              
              
              69,578Deferred
      revenue
              
              
              32,161
              
              
              
              44,074Current
      portion of long-term debt and notes payable
              
              
              6,884
              
              
              
              13,315Total
      current liabilities
              
              
              149,865
              
              
              
              195,714Long-term
      debt and notes payable
              
              
              637,308
              
              
              
              719,518Other
      long-term liabilities
              
              
              16,712
              
              
              
              38,053Deferred
      income taxes
              
              
              205,532
              
              
              
              223,308Total
      liabilities
              
              
              1,009,417
              
              
              
              1,176,593Commitments
      and contingencies (Note 10)Minority
      interests
              
              
              27,992
              
              
              
              30,220Stockholders’
      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;68,266,041
      and 67,052,135shares issued and
      outstanding at December 31, 2006 and 2007,
    respectively
              
              
              455
              
              
              
              670Additional
      paid-in capital
              
              
              310,229
              
              
              
              254,284Retained
      earnings
              
              
              422,731
              
              
              
              524,481Accumulated
      other comprehensive income (loss)
              
              
              3,067
              
              
              
              (4,290
              )Total
      stockholders’ equity
              
              
              736,482
              
              
              
              775,145$
              1,773,891
              
              
              $
              1,981,958
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  44
 
 WASTE CONNECTIONS, INC.CONSOLIDATED
      STATEMENTS OF INCOME(IN
      THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
 
 Years
      Ended December 31,2005
              
              
              2006
              
              
              2007Revenues
              
              $
              721,899
              
              
              $
              824,354
              
              
              $
              958,541Operating
      expenses:Cost
      of operations
              
              
              416,883
              
              
              
              492,766
              
              
              
              566,089Selling,
      general and administrative
              
              
              72,395
              
              
              
              84,541
              
              
              
              99,565Depreciation
      and amortization
              
              
              64,788
              
              
              
              74,865
              
              
              
              85,628Loss
      (gain) on disposal of assets
              
              
              (216
              )
              
              
              796
              
              
              
              250Operating
      income
              
              
              168,049
              
              
              
              171,386
              
              
              
              207,009Interest
      expense, net
              
              
              (23,489
              )
              
              
              (28,970
              )
              
              
              (33,430
              )Other
      income (expense), net
              
              
              450
              
              
              
              (3,759
              )
              
              
              289Income
      before income tax provision and minority interests
              
              
              145,010
              
              
              
              138,657
              
              
              
              173,868Minority
      interests
              
              
              (12,422
              )
              
              
              (12,905
              )
              
              
              (14,870
              )Income
      from continuing operations before income taxes
              
              
              132,588
              
              
              
              125,752
              
              
              
              158,998Income
      tax provision
              
              
              (48,066
              )
              
              
              (48,329
              )
              
              
              (59,917
              )Income
      from continuing operations
              
              
              84,522
              
              
              
              77,423
              
              
              
              99,081Loss
      on discontinued operations, net of tax (Note 3)
              
              
              (579
              )
              
              
              -
              
              
              
              -Net
      income
              
              $
              83,943
              
              
              $
              77,423
              
              
              $
              99,081Basic
      earnings per common share:Income
      from continuing operations
              
              $
              1.21
              
              
              $
              1.14
              
              
              $
              1.45Discontinued
      operations
              
              
              (0.01
              )
              
              
              -
              
              
              
              -Net
      income per common share
              
              $
              1.20
              
              
              $
              1.14
              
              
              $
              1.45Diluted
      earnings per common share:Income
      from continuing operations
              
              $
              1.17
              
              
              $
              1.10
              
              
              $
              1.42Discontinued
      operations
              
              
              (0.01
              )
              
              
              -
              
              
              
              -Net
      income per common share
              
              $
              1.16
              
              
              $
              1.10
              
              
              $
              1.42Shares
      used in calculating basic income per share
              
              
              70,050,974
              
              
              
              68,136,126
              
              
              
              68,238,523Shares
      used in calculating diluted income per share
              
              
              72,316,952
              
              
              
              70,408,673
              
              
              
              69,994,713
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  45
 
 WASTE CONNECTIONS, INC.CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
  INCOMEYEARS
      ENDED DECEMBER 31, 2005, 2006 AND 2007(IN
      THOUSANDS, EXCEPT SHARE AMOUNTS)
 
  STOCKHOLDERS’
      EQUITYACCUMULATEDOTHERCOMPRE-ADDITIONAL
              
              HENSIVE
              
              DEFERREDCOMPREHENSIVE
              
              COMMON
      STOCK
              
              PAID-IN
              
              INCOME
              
              STOCK
              
              TREASURY
      STOCK
              
              RETAINEDINCOME
              
              SHARES
              
              AMOUNT
              
              CAPITAL
              
              (LOSS)
              
              COMPENSATION
              
              SHARES
              
              AMOUNT
              
              EARNINGS
              
              TOTALBalances
      at December 31, 2004
              
              
              
              71,408,684
              
              $
              476
              
              $
              444,404
              
              $
              2,875
              
              $
              (1,598
              )
              -
              
              $
              -
              
              $
              261,365
              
              $
              707,522Issuance
      of common stock warrantsto
      consultants
              
              
              -
              
              
              -
              
              
              136
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              136Vesting
      of restricted stock
              
              
              
              44,884
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              -Cancellation
      of restricted stock
              
              
              
              -
              
              
              -
              
              
              (591
              )
              
              -
              
              
              102
              
              -
              
              
              -
              
              
              -
              
              
              (489
              )Issuance
      of unvested restricted stock
              
              
              
              -
              
              
              -
              
              
              1,908
              
              
              -
              
              
              (1,908
              )
              -
              
              
              -
              
              
              -
              
              
              -Amortization
      of deferred stock compensation
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,193
              
              -
              
              
              -
              
              
              -
              
              
              1,193Exercise
      of stock options and warrants
              
              
              
              2,171,365
              
              
              14
              
              
              36,040
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              36,054Repurchase
      of common stock
              
              
              
              (4,737,908
              )
              
              (31
              )
              
              (110,171
              )
              
              -
              
              
              -
              
              159,900
              
              
              (3,672
              )
              
              -
              
              
              (113,874
              )Accelerated
      vesting of stock options
              
              
              
              -
              
              
              -
              
              
              1,617
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              1,617Stock
      compensation recognizedas
      change in option terms
              
              
              -
              
              
              -
              
              
              16
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              16Stock
      options granted below fair market value
              
              
              
              -
              
              
              -
              
              
              23
              
              
              -
              
              
              (23
              )
              -
              
              
              -
              
              
              -
              
              
              -Amounts
      reclassified into earnings, net of taxes
              
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,196
              )
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              (1,196
              )Changes
      in fair value of interest rate swaps
              
              
              
              -
              
              
              -
              
              
              -
              
              
              3,278
              
              
              -
              
              -
              
              
              -
              
              
              
              
              
              3,278Net
      income
              
              $
              83,943
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              83,943
              
              
              83,943Other
      comprehensive income
              
              
              3,290
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              -Income
      tax effect of other comprehensive income
              
              
              (1,208
              )
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              -Comprehensive
      income
              
              $
              86,025
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              -Balances
      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 associatedwith
      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 RateConvertible
      Subordinated Notes
              
              
              
              
              1,441,762
              
              
              10
              
              
              (10
              )
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
      of common stock warrants to consultants
              
              
              
              
              -
              
              
              -
              
              
              115
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              115Cumulative
      change from adoptionof
      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 interestrate
      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 associatedwith
      equity-based compensation
              
              -
              
              
              -
              
              
              14,137
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              14,137Repurchase
      of common stock
              
              
              
              
              (3,574,130
              )
              
              (36
              )
              
              (110,293
              )
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              (110,329
              )Issuance
      of common stockwarrants
      to consultants
              
              
              
              
              -
              
              
              -
              
              
              123
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              123Cumulative
      change fromadoption
      of accounting policy – FIN 48
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              2,897
              
              
              2,897Amounts
      reclassified into earnings, net of taxes
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,320
              )
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              (2,320
              )Changes
      in fair value of interestrate
      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
              
              $
              775,145
  
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 46
 WASTE CONNECTIONS, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS(IN
      THOUSANDS)
  Years
      Ended December 31,2005
              
              
              2006
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
              
              $
              83,943
              
              
              $
              77,423
              
              
              $
              99,081Adjustments
      to reconcile net income to net cash provided by operating
      activities:Loss
      (gain) on disposal of assets
              
              
              (413
              )
              
              
              796
              
              
              
              250Depreciation
              
              
              61,968
              
              
              
              70,785
              
              
              
              81,287Amortization
      of intangibles
              
              
              3,070
              
              
              
              4,080
              
              
              
              4,341Deferred
      income taxes, net of acquisitions
              
              
              (792
              )
              
              
              26,585
              
              
              
              12,440Minority
      interests
              
              
              12,422
              
              
              
              12,905
              
              
              
              14,870Amortization
      of debt issuance costs
              
              
              2,001
              
              
              
              6,238
              
              
              
              2,182Stock-based
      compensation
              
              
              2,826
              
              
              
              3,451
              
              
              
              6,128Interest
      income on restricted assets
              
              
              (390
              )
              
              
              (618
              )
              
              
              (684
              )Closure
      and post-closure accretion
              
              
              681
              
              
              
              623
              
              
              
              1,155Tax
      benefit associated with equity-based compensation
              
              
              7,338
              
              
              
              -
              
              
              
              -Excess
      tax benefit associated with equity-based compensation
              
              
              -
              
              
              
              (7,728
              )
              
              
              (14,137
              )Changes
      in operating assets and liabilities, net of effects from
      acquisitions:Accounts
      receivable, net
              
              
              (9,933
              )
              
              
              (4,928
              )
              
              
              (17,514
              )Prepaid
      expenses and other current assets
              
              
              5,291
              
              
              
              (1,083
              )
              
              
              (8,077
              )Accounts
      payable
              
              
              18,060
              
              
              
              (4,306
              )
              
              
              2,888Deferred
      revenue
              
              
              4,818
              
              
              
              324
              
              
              
              7,870Accrued
      liabilities
              
              
              7,898
              
              
              
              19,245
              
              
              
              27,162Other
      long-term liabilities
              
              
              1,024
              
              
              
              442
              
              
              
              (173
              )Net
      cash provided by operating activities
              
              
              199,812
              
              
              
              204,234
              
              
              
              219,069CASH
      FLOWS FROM INVESTING ACTIVITIES:Payments
      for acquisitions, net of cash acquired
              
              
              (80,849
              )
              
              
              (38,594
              )
              
              
              (109,429
              )Capital
      expenditures for property and equipment
              
              
              (97,482
              )
              
              
              (96,519
              )
              
              
              (124,234
              )Proceeds
      from disposal of assets
              
              
              5,254
              
              
              
              2,198
              
              
              
              1,016Decrease
      (increase) in restricted assets, net of interest income
              
              
              661
              
              
              
              (1,411
              )
              
              
              (2,698
              )Increase
      in other assets
              
              
              (856
              )
              
              
              (224
              )
              
              
              (264
              )Net
      cash used in investing activities
              
              
              (173,272
              )
              
              
              (134,550
              )
              
              
              (235,609
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from long-term debt
              
              
              232,631
              
              
              
              666,035
              
              
              
              626,000Principal
      payments on notes payable and long-term debt
              
              
              (159,688
              )
              
              
              (621,161
              )
              
              
              (568,607
              )Change
      in book overdraft
              
              
              208
              
              
              
              (8,869
              )
              
              
              8,835Proceeds
      from option and warrant exercises
              
              
              28,716
              
              
              
              32,146
              
              
              
              35,620Excess
      tax benefit associated with equity-based compensation
              
              
              -
              
              
              
              7,728
              
              
              
              14,137Distributions
      to minority interest holders
              
              
              (10,486
              )
              
              
              (11,270
              )
              
              
              (12,642
              )Payments
      for repurchase of common stock
              
              
              (113,874
              )
              
              
              (100,245
              )
              
              
              (110,329
              )Debt
      issuance costs
              
              
              (143
              )
              
              
              (6,613
              )
              
              
              (1,125
              )Net
      cash used in financing activities
              
              
              (22,636
              )
              
              
              (42,249
              )
              
              
              (8,111
              )Net
      increase (decrease) in cash and equivalents
              
              
              3,904
              
              
              
              27,435
              
              
              
              (24,651
              )Cash
      and equivalents at beginning of year
              
              
              3,610
              
              
              
              7,514
              
              
              
              34,949Cash
      and equivalents at end of year
              
              $
              7,514
              
              
              $
              34,949
              
              
              $
              10,298
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  47
 
 WASTE
      CONNECTIONS, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS(IN
      THOUSANDS)
 
 SUPPLEMENTARY
      DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH
      TRANSACTIONS:
 
 Years
      Ended December 31,2005
              
              
              2006
              
              
              2007Cash
      paid for income taxes
              
              $
              32,369
              
              
              $
              15,006
              
              
              $
              35,260Cash
      paid for interest
              
              $
              22,314
              
              
              $
              28,534
              
              
              $
              33,418Conversion
      of 2022 Convertible Subordinated Notes to equity
              
              $
              -
              
              
              $
              10
              
              
              $
              -Fair
      value of warrants issued to third party consultants in exchange for
      services performed in connection with landfill development
              
              $
              54
              
              
              $
              -
              
              
              $
              -In
      connection with its acquisitions, the Company assumed liabilities as
      follows:Fair
      value of assets acquired
              
              $
              112,802
              
              
              $
              44,919
              
              
              $
              162,425Cash
      paid and warrants issued for current year acquisitions
              
              
              (78,971
              )
              
              
              (37,560
              )
              
              
              (107,772
              )Net
      assets used as consideration for acquisitions
              
              
              -
              
              
              
              (893
              )
              
              
              -Liabilities
      assumed and notes payable issued to sellers of businesses
      acquired
              
              $
              33,831
              
              
              $
              6,466
              
              
              $
              54,653
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 48
  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, 2006 and
2007, 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 accounts receivable.  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.
  49
  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 2006 and 2007) and discounting
the inflated total to its present value using a discount rate (7.5% during 2006
and 2007).  At December 31, 2006 and 2007, accruals for landfill final
capping, closure and post-closure costs (including costs assumed through
acquisitions) were $11,638 and $17,853, respectively.
  50
  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 5to 205years, with an average
remaining life of approximately 52years.  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, 2005 to December 31,
2007:
  Final
      capping, closure and post-closure liability at December 31,
      2005
              
              $
              15,906Adjustments
      to final capping, closure and post-closure liabilities
              
              
              (5,932
              )Liabilities
      incurred
              
              
              1,041Accretion
      expense
              
              
              623Final
      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
              
              $
              17,853
 
 The
Company recorded adjustments to its final capping, closure and post-closure
liabilities for the year ended December 31, 2006, due to revisions in cost
estimates and a change in the interim and final capping requirements for a
landfill, which permits the Company to use less expensive materials to cap the
landfill.  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 performs its annual review of its cost
and capacity estimates in the first quarter of each year.
  At
December 31, 2007, $17,098 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:
 
 51
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  (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;
      and(5)
              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 Intangible Assets
  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 using a two-step process described below.  Other
intangible assets are amortized over their estimated useful
lives.
  The first
step in the Company’s annual impairment tests is a screen for potential
impairment, while the second step measures the amount of the impairment, if
any.  At least annually in the fourth quarter of the year, the Company
performs impairment tests of goodwill and indefinite-lived intangible assets
based on the carrying values.  As a result of performing the tests for
potential impairment, the Company determined that no impairment existed as of
December 31, 2006 or 2007 and therefore, there were no write-downs to any
of its goodwill or indefinite-lived intangible assets.
  52
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  The
Company acquired indefinite-lived intangible assets, long-term franchise
agreements, contracts and non-competition agreements 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,
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).  Indefinite-lived intangible assets are not
amortized.
  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.
  Asset
Impairments
  Long-lived
assets consist primarily of property, plant and equipment, goodwill and other
intangible assets.  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 decrease in the market price of an asset or asset
      group;-
              A
      significant adverse change in the extent or manner in which an asset or
      asset group is being used or in its physical
    condition;-
              A
      significant adverse change in legal factors or in the business climate
      that could affect the value of an asset or asset group, including an
      adverse action or assessment by a regulator;-
              An
      accumulation of costs significantly in excess of the amount originally
      expected for the acquisition or construction of a long-lived
      asset;-
              Current
      period operating or cash flow losses combined with a history of operating
      or cash flow losses or a projection or forecast that demonstrates
      continuing losses associated with the use of a long-lived asset or asset
      group; or-
              A
      current expectation that, more likely than not, a long-lived asset or
      asset group will be sold or otherwise disposed of significantly before the
      end of its previously estimated useful
  life.
  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 and goodwill, as described
below.
  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.
  53
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  Goodwill - The
Company assesses whether goodwill is impaired on an annual basis in the fourth
quarter of the year.  This assessment is performed on each of the Company’s
four operating regions.  If the Company determined the existence of
goodwill impairment, the Company would measure that impairment based on the
amount by which the book value of goodwill exceeds its implied fair value. 
The implied 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.  Additional
impairment assessments may be performed on an interim basis if the Company
encounters events or changes in circumstances, such as those listed above, that
would indicate that, more likely than not, the book value of goodwill has been
impaired.
  Fair
Value of Financial Instruments
  The
Company’s financial instruments consist primarily of cash, trade receivables,
restricted assets, trade payables, debt instruments and interest rate
swaps.  As of December 31, 2006 and 2007, 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”), approximate their fair values as of December 31,
2006 and 2007, 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 $215,250 and $222,974 at
December 31, 2006 and 2007, respectively, based on the publicly quoted
trading price of these notes.  The Company’s interest rate swaps are
recorded at their estimated fair values based on estimated cash flows calculated
using interest rate yield curves as of December 31, 2006 and
2007.
  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 (Note 12)
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.
  The
Company’s objective 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.
  At
December 31, 2007, the Company’s derivative instruments consisted of 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.
  54
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 All the
interest rate swap agreements are considered highly effective as cash flow
hedges for a portion of the Company’s variable rate debt, and the Company
applies 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.
  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 (“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.
  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.  The
Company previously accounted for these plans under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees(“APB 25”) and related interpretations and disclosure
requirements established by SFAS 123, Accounting for Stock-Based
Compensation.  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).
  Under
APB 25, no expense was recorded in the income statement for the Company’s
stock options granted at fair market value.  The pro forma effects on
income for stock options were instead disclosed in a footnote to the financial
statements.  Expense was recorded in the income statement for restricted
stock, restricted stock units, and stock options granted below fair market value
on the date of grant.
  The
weighted average grant date fair values per share for options granted during
2005 and 2006 are as follows:
  2005
              
              
              2006Exercise
      prices equal to market price of stock
              
              $
              6.74
              
              
              $
              7.72Exercise
      prices less than market price of stock
              
              $
              17.67
              
              
              $
              -
 
  During
the year ended December 31, 2005, the Company issued 1,500 options at an
exercise price less than the market price of the Company’s common stock. 
The Company did not grant stock options during the year ended December 31,
2007.
  For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options’ vesting period.  The net income as
reported for the year ended December 31, 2005 reflects the one-time charge
of $1,617 ($1,021 net of tax) incurred by the Company related to the accelerated
vesting of shares previously awarded to employees.  The Company estimates
that the acceleration eliminated $15,254 ($9,610 net of tax) in non-cash
compensation expense that would have been recognized under the provisions of
SFAS No. 123(R), over the three year period of 2006 to 2008 as the stock
options vested.  For additional information related to this modification of
outstanding awards, refer to Note 11.
  55
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  The
following table summarizes the Company’s pro forma net income and pro forma
basic and diluted net income per share for the year ended December 31,
2005:
  Year
      Ended
                December
      31, 2005Net
      income, as reported
              
              $
              83,943Add: 
      stock-based employee compensation expense included in reported net income,
      net of related tax effects
              
              
              1,779Deduct: 
      total stock-based employee compensation expense determined under the fair
      value method for all awards, net of related tax effects
              
              
              (16,495
              )Pro
      forma net income
              
              $
              69,227Earnings
      per share:Basic
      – as reported
              
              $
              1.20Basic
      – pro forma
              
              $
              0.99Diluted
      – as reported
              
              $
              1.16Diluted
      – pro forma
              
              $
              0.96
 
 The
Company’s calculations of the fair value of stock options granted during the
years ended December 31, 2005 and 2006 were 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 years ended December 31, 2005 and
2006:
  Years
      Ended December 31,2005
              
              2006Expected
      life
              
              3.4
      years
              
              4
      yearsRisk-free
      interest rate
              
              
              4.0
              %
              
              
              4.8
              %Expected
      volatility
              
              
              20
              %
              
              
              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 for the years ended
December 31, 2005 and 2006.  Expected volatility is calculated using
the daily historical volatility over the last one year for the year ended
December 31, 2005, and over the last three years for the year ended
December 31, 2006.
  The fair
value of restricted stock and restricted stock units for the years ended
December 31, 2005, 2006 and 2007 were determined based on the number of
shares granted and the quoted price of the Company’s common
stock.
  The
Company 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 on a
straight-line basis as expense over the employee’s requisite service
period.  Prior periods are not restated.  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, 2005,
2006 and 2007, were approximately $2,826 ($1,803 net of taxes), $3,451
($2,200 net of taxes) and $6,128 ($3,825 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), and $665
($476 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
and 2007, 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, 2007, related to unvested
stock option, restricted stock unit and restricted stock awards was $17,082 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 2012.  The weighted average remaining vesting period of those
awards is 1.54years.
  56
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  The
excess tax benefit associated with equity-based compensation was approximately
$7,728 and $14,137 during the years ended December 31, 2006 and 2007,
respectively.  Prior to the adoption of SFAS 123(R), the Company
presented all tax benefits of deductions resulting from the exercise of stock
options as an operating cash flow, in accordance with Emerging Issues Task Force
(“EITF”) Issue No. 00-15, Classification in the Statement of
Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a
Nonqualified Employee Stock Option.  SFAS 123(R) requires the
Company to reflect the tax savings resulting from tax deductions in excess of
expense reflected in its financial statements as a financing cash
flow.
  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, 2005, 2006 and 2007 was $2,057, $2,147 and $2,252,
respectively, which is included in selling, general and administrative expense
in the Consolidated Statements of Income.
  Insurance
Liabilities
  The
Company is primarily 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, 2006 and
2007, the Company’s total accrual for self-insured liabilities was $28,686 and
$34,662, 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 four 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 four 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 2007 presentation.
  57
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  New
Accounting Pronouncements
  FSP
EITF 00-19-2.  In December 2006, the FASB issued FASB
Staff Position EITF 00-19-2, Accounting for Registration Payment
Arrangements (“FSP EITF 00-19-2”) which provides guidance on the
accounting for registration payment arrangements.  FSP EITF 00-19-2
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in accordance with
FASB Statement No. 5, Accounting for
Contingencies.  A registration payment arrangement is defined in FSP
EITF 00-19-2 as an arrangement with both of the following
characteristics:  (1) the arrangement specifies that the issuer will
endeavor (a) to file a registration statement for the resale of specified
financial instruments and/or for the resale of equity shares that are issuable
upon exercise or conversion of specified financial instruments and for that
registration statement to be declared effective by the Securities and Exchange
Commission within a specified grace period, and/or (b) to maintain the
effectiveness of the registration statement for a specified period of time (or
in perpetuity); and (2) the arrangement requires the issuer to transfer
consideration to the counterparty if the registration statement for the resale
of the financial instrument or instruments subject to the arrangement is not
declared effective or if effectiveness of the registration statement is not
maintained.  FSP EITF 00-19-2 is effective for registration payment
arrangements and the financial instruments subject to those arrangements that
are entered into or modified subsequent to December 21, 2006.  For
registration payment arrangements and financial instruments subject to those
arrangements that were entered into prior to the issuance of FSP
EITF 00-19-2, this guidance shall be effective for financial statements
issued for fiscal years beginning after December 15, 2006, and interim
periods within those fiscal years.  The adoption of FSP EITF 00-19-2
on January 1, 2007 did not have an impact on the Company’s financial
position or results of operations.
  SFAS 141(R). 
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations
(“SFAS 141(R)”), which establishes principles and requirements for how the
acquirer:  (a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (b) recognizes and measures the goodwill acquired
in the business combination or a gain from a bargain purchase; and
(c) 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.  The Company is currently evaluating the impact
this statement will have on its financial position and results of
operations.
  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 U.S. generally accepted accounting principles, 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.  However, the application of this statement may change the
current practice for fair value measurements.  SFAS 157 is effective
for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. 
However, in November 2007, the FASB authorized its staff to draft a proposed FSP
that would partially defer the effective date of SFAS 157 for one year for
nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring
basis.  Examples of items that would be subject to the deferral if it is
approved include the following:
  ·
              Nonfinancial
      assets and nonfinancial liabilities that are measured at fair value in a
      business combination or other new basis event, except those that are
      remeasured at fair value in subsequent periods;·
              Reporting
      units measured at fair value in Step 1 of the goodwill impairment test
      under FASB Statement 142, Goodwill and Other Intangible
      Assets(“SFAS 142”), and nonfinancial assets and nonfinancial
      liabilities measured at fair value in Step 2 of that
      test;·
              Indefinite-lived
      intangible assets measured at fair value for impairment assessment under
      SFAS 142;·
              Long-lived
      asset groups measured at fair value under Step 2 of FASB Statement
      144, Accounting for the
      Impairment or Disposal of Long-Lived Assets;
    and·
              Asset
      retirement obligations measured at fair value upon initial recognition
      under FASB Statement 143, Accounting for Asset
      Retirement Obligations, or upon a remeasurement
      event.
  58
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 The
proposed FSP will not defer recognition and disclosure requirements for
financial assets and financial liabilities or for nonfinancial assets and
nonfinancial liabilities that are remeasured at least annually.  The
Company is currently evaluating the impact this statement will have on its
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 is
currently evaluating whether to adopt the fair value option permitted under this
statement, including assessing the impact that the fair value option would have
on the Company's financial position and results of operations if
adopted.
  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.  The Company is currently evaluating the impact
this statement will have on its financial position and 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.
  3.
              DISCONTINUED
      OPERATIONS
  In the
second quarter of 2005, the Company disposed of a hauling operation in Utah and
exited a landfill operating contract with a finite term in
California.   The results for the year ended December 31, 2005,
have been restated to present the results for these operations as discontinued
operations.
  59
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  The table
below reflects the discontinued operations as of December 31, 2005 as
follows:
  Year
      Ended
                December
      31,2005Revenues
              
              $
              1,367Operating
      expenses:Cost
      of operations
              
              
              2,041Selling,
      general and administrative
              
              
              195Depreciation
      and amortization
              
              
              250Gain
      on disposal of assets and operations
              
              
              (197
              )Operating
      loss
              
              
              (922
              )Other
      income, net
              
              
              -Loss
      from operations of discontinued operations
              
              
              (922
              )Income
      tax benefit
              
              
              343Loss
      on discontinued operations
              
              $
              (579
              )
 
  4.
              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
2005, the Company acquired Mountain Jack Environmental Services, Inc. and
17 non-hazardous solid waste businesses that were accounted for as
purchases.  Aggregate consideration for the acquisitions consisted of
$78,889 in cash (net of cash acquired), $254 in notes payable to sellers, common
stock warrants valued at $82 and the assumption of debt and long-term
liabilities totaling $25,481.  During the year ended December 31,
2005, the Company paid $1,960 of acquisition-related liabilities accrued at
December 31, 2004.
  During
2006, the Company acquired 14 non-hazardous solid waste collection,
transfer and recycling businesses.  Aggregate consideration for the
acquisitions consisted of $37,445 in cash (net of cash acquired), $893 of net
assets exchanged for new operations, common stock warrants valued at $115, and
the assumption of debt totaling $3,266.  During the year ended
December 31, 2006, the Company paid or adjusted $1,149 of
acquisition-related liabilities accrued at December 31,
2005.
  During
2007, the Company acquired 15 non-hazardous solid waste collection,
transfer, disposal and recycling businesses.  Aggregate consideration for
the acquisitions consisted of $107,649 in cash (net of cash acquired), common
stock warrants valued at $123, and the assumption of debt totaling
$31,249. During the year ended December 31, 2007, the Company paid or
adjusted $1,780 of acquisition-related liabilities accrued at December 31,
2006.
  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, 2007, the Company had fouracquisitions 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.
  60
  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 2005 and 2006
and preliminary purchase price allocations for the acquisitions consummated in
2007 are as follows:
  2005
      Acquisitions
              
              
              2006
      Acquisitions
              
              
              2007
      AcquisitionsAcquired
      Assets:Accounts
      receivable
              
              $
              3,641
              
              
              $
              902
              
              
              $
              6,099Prepaid
      expenses and other current assets
              
              
              439
              
              
              
              332
              
              
              
              724Property
      and equipment
              
              
              23,910
              
              
              
              12,580
              
              
              
              82,749Goodwill
              
              
              62,628
              
              
              
              27,571
              
              
              
              60,653Long-term
      franchise agreements and contracts
              
              
              5,170
              
              
              
              1,859
              
              
              
              3,667Indefinite-lived
      intangibles
              
              
              6,646
              
              
              
              -
              
              
              
              -Other
      intangibles
              
              
              9,575
              
              
              
              964
              
              
              
              3,592Non-competition
      agreements
              
              
              793
              
              
              
              120
              
              
              
              4,941Other
      assets
              
              
              -
              
              
              
              591
              
              
              
              -Assumed
      Liabilities:Deferred
      revenue
              
              
              (1,984
              )
              
              
              (879
              )
              
              
              (4,043
              )Accounts
      payable
              
              
              (2,455
              )
              
              
              (214
              )
              
              
              (2,283
              )Accrued
      liabilities
              
              
              (2,432
              )
              
              
              (1,558
              )
              
              
              (4,812
              )Notes
      issued to sellers
              
              
              (254
              )
              
              
              -
              
              
              
              -Debt
      and long-term liabilities assumed
              
              
              (25,481
              )
              
              
              (3,266
              )
              
              
              (35,442
              )Deferred
      income taxes
              
              
              (1,225
              )
              
              
              (549
              )
              
              
              (8,073
              )Total
      consideration, net
              
              $
              78,971
              
              
              $
              38,453
              
              
              $
              107,772
 
 The
acquisitions completed in the years ended December 31, 2005, 2006 and 2007,
were not material to the Company’s results of
operations.
  Goodwill
acquired in 2006 totaling $24,820 and long-term franchise agreements, contracts,
and other intangibles acquired in 2006 totaling $1,460 are expected to be
deductible for tax purposes.  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.
  5.
              INTANGIBLE
      ASSETS
  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.
  61
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  Intangible
assets, exclusive of goodwill, consisted of the following at December 31,
2006:
  Gross
      Carrying Amount
              
              
              Accumulated
      Amortization
              
              
              Net
      Carrying
                AmountAmortizable
      intangible assets:Long-term
      franchise agreements and contracts
              
              $
              58,592
              
              
              $
              (7,354
              )
              
              $
              51,238Non-competition
      agreements
              
              
              4,761
              
              
              
              (3,838
              )
              
              
              923Other
              
              
              13,470
              
              
              
              (3,381
              )
              
              
              10,08976,823
              
              
              
              (14,573
              )
              
              
              62,250Nonamortized
      intangible assets:Indefinite-lived
      intangible assets
              
              
              23,848
              
              
              
              -
              
              
              
              23,848Intangible
      assets, exclusive of goodwill
              
              $
              100,671
              
              
              $
              (14,573
              )
              
              $
              86,098
 
 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, 2006 are 10 years, 7 years and
9 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, 2008
              
              $
              5,001For
      the year ended December 31, 2009
              
              $
              4,754For
      the year ended December 31, 2010
              
              $
              4,679For
      the year ended December 31, 2011
              
              $
              4,510For
      the year ended December 31, 2012
              
              $
              4,374
 
 Total
amortization expense for intangible assets was $3,070, $4,080 and $4,341 for the
years ended December 31, 2005, 2006 and 2007,
respectively.
  6.
              PROPERTY
      AND EQUIPMENT
  Property
and equipment consists of the following:
  Year
      Ended December 31,2006
              
              
              2007Landfill
      site costs
              
              $
              516,490
              
              
              $
              608,750Rolling
      stock
              
              
              216,941
              
              
              
              274,719Land,
      buildings and improvements
              
              
              91,625
              
              
              
              115,461Containers
              
              
              112,491
              
              
              
              131,412Machinery
      and equipment
              
              
              105,955
              
              
              
              122,107Construction
      in progress
              
              
              10,114
              
              
              
              4,1221,053,616
              
              
              
              1,256,571Less
      accumulated depreciation and depletion
              
              
              (317,188
              )
              
              
              (391,241
              )$
              736,428
              
              
              $
              865,330
 
 The
Company’s landfill depletion expense for the years ended December 31, 2005,
2006 and 2007 was $16,844, $18,854 and $22,282, respectively.
  62
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
   7.
              OTHER
      ASSETS, NET
  Other
assets, net, consist of the following:
 
 Year
      Ended December 31,2006
              
              
              2007Deferred
      financing costs
              
              $
              9,028
              
              
              $
              7,972Investment
      in unconsolidated entity
              
              
              5,300
              
              
              
              5,300Landfill
      closure receivable
              
              
              3,473
              
              
              
              3,397Deposits
              
              
              869
              
              
              
              917Unrealized
      interest-rate swap gains
              
              
              2,493
              
              
              
              -Other
              
              
              3,655
              
              
              
              3,871$
              24,818
              
              
              $
              21,457
 
 8.
              ACCRUED
      LIABILITIES
  Accrued
liabilities consist of the following:
  Year
      Ended December 31,2006
              
              
              2007Insurance
      claims
              
              $
              28,686
              
              
              $
              34,662Payroll
      and payroll-related
              
              
              14,389
              
              
              
              18,872Interest
      payable
              
              
              2,797
              
              
              
              2,674Acquisition-related
              
              
              2,522
              
              
              
              4,852Income
      taxes payable
              
              
              2,933
              
              
              
              -Other
              
              
              6,483
              
              
              
              8,518$
              57,810
              
              
              $
              69,578
 
 9.
              LONG-TERM
      DEBT
  Long-term
debt consists of the following:
  Year
      Ended December 31,2006
              
              
              2007Revolver
      under Credit Facility
              
              $
              400,000
              
              
              $
              479,0002026
      Convertible Senior Notes
              
              
              200,000
              
              
              
              200,0002001
      Wasco Bonds
              
              
              11,740
              
              
              
              11,285California
      Tax-Exempt Bonds
              
              
              20,090
              
              
              
              33,225Notes
      payable to sellers in connection with acquisitions,
      uncollateralized,
                bearing
      interest at 5.5% to 7.5%, principal and interest payments
                dueperiodically
      with due dates ranging from 2009 to 2036
              
              
              4,867
              
              
              
              3,994Notes
      payable to third parties, collateralized by substantially all assets
      of
                certain
      subsidiaries of the Company, bearing interest at 6.0% to
      11.0%,
                principal
      and interest payments due periodically with due dates ranging from 2008 to
      2010
              
              
              7,495
              
              
              
              5,329644,192
              
              
              
              732,833Less
      – current portion
              
              
              (6,884
              )
              
              
              (13,315
              )$
              637,308
              
              
              $
              719,518
  63
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 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 previous credit facility and current credit
facility, were $750,000 and $800,000 as of December 31, 2006 and 2007,
respectively.  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, 2006,
$400,000 was outstanding under the previous credit facility, exclusive of
outstanding standby letters of credit of $59,144.  As of December 31,
2007, $479,000 was outstanding under the credit facility, exclusive of
outstanding standby letters of credit of $68,260.  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 8.25%
and 7.25% at December 31, 2006 and 2007, respectively) on base rate loans,
or the Eurodollar rate plus the applicable Eurodollar margin (approximately 6.2%
and 5.8% at December 31, 2006 and 2007, 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, 2006, these margins ranged from 0.75% to 1.375% for Eurodollar
loans and 0.00% for base rate loans.  As of December 31, 2007, 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
0.25% as of December 31, 2006, and from 0.15% to 0.20% as of
December 31, 2007.
  The
Company is able to increase the maximum borrowings under the credit facility to
$1,000,000, provided that no event of default, as defined, has occurred,
although no existing lender has any obligation to increase its
commitment.
  The
borrowings under the credit facility are not collateralized.  The credit
facility contains customary 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, 2006 and 2007, 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 bore interest at the 3-month LIBOR
rate plus 50 basis points, payable quarterly (4.8%, as of December 31,
2005).  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.
  In April
2006, the Company called for redemption the $175,000 aggregate principal amount
of its 2022 Notes, the redemption to occur 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.
  64
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
   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.
  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.
  Wasco
Bond
  In
December 1999, the Company completed a $13,600 tax-exempt bond financing
for its Wasco subsidiary (the “Wasco Bond”).  These funds were used for the
acquisition, construction, furnishing, equipping and improving of a landfill
located in Wasco County, Oregon.  In March 2001, the Company
refinanced the Wasco Bond by completing $13,600 of tax-exempt revenue bond
financing through the issuance of three bonds (the “2001 Wasco
Bonds”).  At December 31, 2007, the 2001 Wasco Bonds consisted of
$2,810 of 7.0% term bonds due March 1, 2012, and $8,475 of 7.25% term bonds
due March 1, 2021.  On an annual basis, the Company is required to
remit principal payments.  The principal payment requirements in 2006 and
2007 were $425 and $455, respectively.  The total future principal payment
requirements are as follows:  $485 in 2008, $525 in 2009, $560 in 2010,
$600 in 2011, $640 in 2012, and $8,475 thereafter.
  California
Tax-Exempt Bonds
  In
June 1998, the Company completed a $1,800 tax-exempt bond financing for its
Madera subsidiary (the “Madera Bond”).  These funds were used for specified
capital expenditures and improvements, including installation of a landfill gas
recovery system.  The bond matures on May 1, 2016 and bears interest
at variable rates based on market conditions for California tax-exempt bonds
(approximately 3.9% and 3.4% at December 31, 2006 and 2007,
respectively).  The Madera Bond is backed by a letter of credit issued by
Bank of America under the senior revolving credit facility for
$1,829.
  In
July 1998, Cold Canyon Landfill, Inc., a wholly-owned subsidiary of the
Company acquired in 2002, received a total of $5,845 from the completion of a
tax-exempt bond financing (the “Cold Canyon Bond”) through the California
Pollution Control Financing Authority.  These funds were used for specified
capital expenditures and improvements.  The outstanding balance of the Cold
Canyon Bond was $5,845 at December 31, 2006 and 2007, with scheduled
principal maturity of $5,845 in July 2008.  The Cold Canyon Bond bears
interest at variable rates based on market conditions for California tax-exempt
bonds (approximately 3.9% and 3.4% at December 31, 2006 and 2007,
respectively) and is backed by a letter of credit issued by Bank of America
under the senior revolving credit facility for $5,931.
  In
June 1999, GreenWaste of Tehama, a wholly-owned subsidiary of the Company
acquired in 2003, received a total of $3,435 from the completion of a tax-exempt
bond financing (the “Tehama Bond”) through the California Pollution Control
Financing Authority.  These funds were used to finance improvements to and
expansion of certain solid waste disposal facilities.  The outstanding
balance of the Tehama Bond was $700 and $640 at December 31, 2006 and 2007,
respectively.  The Tehama Bond matures on June 1, 2014 and bears
interest at variable rates based on market conditions for California tax-exempt
bonds (approximately 3.9% and 3.4% at December 31, 2006 and 2007,
respectively), and is backed by a letter of credit issued by Bank of America
under the senior revolving credit facility for $659.  On an annual basis,
the Company is required to remit principal payments.  The principal payment
requirements in 2006 and 2007 were $475 and $60, respectively.  The total
future principal payment requirements are as follows:  $60 in 2008, $65 in
2009, $70 in 2010, $75 in 2011, $80 in 2012, and $290
thereafter.
  65
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  In
August 1997 and October 2001, GreenTeam of San Jose, a wholly-owned
subsidiary of the Company acquired in 2003, received a total of $18,040 from the
completion of a tax-exempt bond financing (the “San Jose Bonds”) through
California Pollution Control Financing Authority.  These funds were used
for specified capital expenditures and improvements.  The outstanding
balance of the San Jose Bonds was $11,745 and $9,440 at December 31, 2006
and 2007, respectively.  The San Jose Bonds mature on August 1, 2012
and September 1, 2016 and bear interest at variable rates based on market
conditions for California tax-exempt bonds (approximately 3.9% and 3.4% at
December 31, 2006 and 2007, respectively) and are backed by a letter of
credit issued by Bank of America under the senior revolving credit facility for
$9,708.  On an annual basis, the Company is required to remit principal
payments.  The principal payment requirements in 2006 and 2007 were $2,180
and $2,305, respectively.  The total future principal payment requirements
are as follows:  $2,420 in 2008, $2,545 in 2009, $850 in 2010, $885 in
2011, $925 in 2012, and $1,815 thereafter.
  In July
2007, the Company received a total of $15,500 (before expenses) from the
completion of a tax-exempt bond financing (the “West Valley Bonds”) through the
California Pollution Control Financing Authority.  These funds were used to
finance the acquisition of trucks and other solid waste vehicles and equipment
to service the West Valley Solid Waste Management Authority contract in Santa
Clara County, California.  The outstanding balance of the West Valley Bonds
was $15,500 at December 31, 2007.  The West Valley Bonds mature on
August 1, 2018, and bear interest at variable rates based on market
conditions for California tax-exempt bonds (approximately 3.4% at
December 31, 2007) and are backed by a letter of credit issued by Bank of
America under the senior revolving credit facility for
$15,678.
  The
California tax-exempt bonds are 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, 2007 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, 2007, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
  2008
              
              $
              13,3152009
              
              
              5,7982010
              
              
              1,7712011
              
              
              201,8602012
              
              
              480,965Thereafter
              
              
              29,124$
              732,833
 
 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, 2005, 2006 and 2007
was $7,422, $8,137 and $8,790, respectively.
  66
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
   As of
December 31, 2007, future minimum lease payments under these leases, by
calendar year, are as follows:
  2008
              
              $
              6,9042009
              
              
              7,1372010
              
              
              7,1192011
              
              
              6,3322012
              
              
              6,024Thereafter
              
              
              33,934$
              67,450
 
 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, 2006 and 2007, the Company had provided customers and various
regulatory authorities with surety bonds in the aggregate amount of
approximately $96,862 and $112,512, respectively, to secure its landfill final
capping, closure and post-closure requirements and $56,876 and $51,813,
respectively, to secure performance under collection contracts and landfill
operating agreements.
  In 2003,
the Company paid $5,300 to acquire 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 $79,405 and $86,806 were outstanding as
of December 31, 2006 and 2007, respectively.  The Company’s
reimbursement obligations under these bonds are secured by a pledge of its stock
in the investee company.
  Put
Option
  The
minority interests holders of a majority-owned subsidiary of the Company have a
currently exercisable put option to require the Company to complete the
acquisition of this majority-owned subsidiary by purchasing their minority
ownership interests for fair market value.  The put option calculates the
fair market value of the subsidiary based on its current operating income before
depreciation and amortization, as defined in the put option agreement.  The
put option does not have a stated termination date.  At December 31,
2007, the minority interests holders’ pro rata share of the subsidiary’s fair
market value is estimated to be worth between approximately $93,365 and
$100,450.  Because the put is calculated at fair market value, no amounts
have been accrued relative to the put option.
  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, 2007, the Company is not aware of any
significant environmental liabilities.
  67
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  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
reschedule the hearing for July 2008 to allow the Company time to explore a
possible relocation of the landfill.  At December 31, 2007, the
Company had $8,960 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 $8,960 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 reported income 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.  On
October 3, 2005, landfill opponents filed a suit (Board of Commissioners of Sumner
County, Kansas, Tri-County Concerned Citizens and Dalton Holland v. Roderick
Bremby, Secretary of the Kansas Department of Health and Environment, et
al.) in the District Court of Shawnee County, Kansas (Case
No. 05-C-1264), seeking a judicial review of the order, 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
lack 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 is appealing the decision to the Kansas Supreme
Court.  While the Company believes that it will prevail in this case, a
final adverse determination with respect to the permit would likely have 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.
  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 PierceandBanister cases have been
consolidated.  The consolidated complaint in the action alleges violations
of various federal and California securities laws, breach of fiduciary duty,
corporate 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.  The motions are pending.
  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 stayed
pending the outcome of the consolidated federal action.  The Company has
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 this pending
litigation, nor can the Company estimate the amount of any losses that might
result.
  68
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  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.
  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, 2007, there is no current proceeding or
litigation involving the Company that the Company believes will have a material
adverse effect on its business, financial condition, results of operations or
cash flows.
  Employees
  At
December 31, 2007, the Company employed 4,978 full-time employees, of
which 381, or approximately 8% of its workforce, are 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 does not have any collective bargaining
agreements that are set to expire in 2008.
  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,
2008.  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, 2006
and 2007, the Company had repurchased 12,665,708 and 16,236,798 shares,
respectively, of its common stock at a cost of $286,987 and $397,185,
respectively.  As of December 31, 2007, the remaining maximum dollar
value of shares available for purchase under the program was approximately
$111,744.  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
82,947,865 shares of common stock authorized but unissued as of
December 31, 2007, the following shares were reserved for
issuance:
  Stock
      option plans
              
              
              7,783,4932026
      Convertible Senior Notes
              
              
              5,882,354Consultant
      Incentive Plan
              
              
              288,197Stock
      purchase warrants
              
              
              5,0002002
      Restricted stock plan
              
              
              15,40313,974,447
  69
  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, 2007, 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, 2005,
2006 and 2007, 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 31,2005
              
              
              2006
              
              
              2007Restricted
      shares granted
              
              
              16,125
              
              
              
              -
              
              
              
              -Weighted
      average grant-date fair value of shares granted
              
              $
              22.01
              
              
              $
              -
              
              
              $
              -Total
      fair value of restricted shares granted
              
              $
              355
              
              
              $
              -
              
              
              $
              -Restricted
      shares becoming free of restrictions
              
              
              38,975
              
              
              
              46,346
              
              
              
              41,263Weighted
      average restriction period (in years)
              
              
              3.0
              
              
              
              -
              
              
              
              -
 
  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 7,875,000 shares.  As of
December 31, 2007, options for 80,600 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 5,625,000 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
6,750,000 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, 2007, options for 128,636 and 1,588,652 shares of
common stock were available for future grants under the 2002 Stock Option
Plan and 2002 Senior Management Equity Incentive Plan,
respectively.
  70
  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.  A total of
2,775,000 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, 2005, 2006 and 2007, was determined based on the number
of stock units granted and the quoted price of the Company’s common stock. 
As of December 31, 2007, 782,020 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 31,2005
              
              
              2006
              
              
              2007Restricted
      stock units granted
              
              
              65,250
              
              
              
              492,000
              
              
              
              426,802Weighted
      average grant-date fair value of restricted stock units
      granted
              
              $
              23.80
              
              
              $
              23.37
              
              
              $
              29.08Total
      fair value of restricted stock units granted
              
              $
              1,553
              
              
              $
              11,496
              
              
              $
              12,413Restricted
      stock units becoming free of restrictions
              
              
              5,910
              
              
              
              10,283
              
              
              
              127,005Weighted
      average restriction period (in years)
              
              
              5.7
              
              
              
              4.6
              
              
              
              4.5
 
  On
October 27, 2005, the Company’s Board of Directors accelerated the vesting
of outstanding options previously awarded to employees.  As a result of the
accelerated vesting of stock options in advance of the effective date of
SFAS 123R, Share Based
Payment, the Company incurred a non-cash charge of approximately $1,617
($1,021 net of taxes), which was based upon the in-the-money value at the time
of acceleration associated only with an estimated number of options that might
have been forfeited unexercisable pursuant to their original terms, absent
acceleration.
  As of
December 31, 2005, 2006 and 2007, a total of 8,224,401, 6,148,214 and
4,031,781 options to purchase common stock were exercisable under all stock
option plans, respectively.
  71
  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, 2005, 2006 and 2007 is presented
below:
  Number
      of
                Shares
      (Options)
              
              
              Weighted
                Average
                Exercise
      PriceOutstanding
      as of December 31, 2004
              
              
              8,188,944
              
              
              $
              14.67Granted
              
              
              2,505,188
              
              
              
              22.07Forfeited
              
              
              (381,750
              )
              
              
              16.39Exercised
              
              
              (2,087,981
              )
              
              
              13.75Outstanding
      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
              
              
              
              19.04
 
  The
following table summarizes information about stock options outstanding as of
December 31, 2007:
  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
              
              
              
              205,473
              
              
              $
              10.60
              
              
              4.0
              
              
              
              205,473
              
              
              $
              10.60
              
              
              4.0$11.01
      to $16.00
              
              
              
              554,241
              
              
              
              14.27
              
              
              4.9
              
              
              
              554,241
              
              
              
              14.27
              
              
              4.9$16.01
      to $20.00
              
              
              
              1,322,710
              
              
              
              16.63
              
              
              6.1
              
              
              
              1,322,710
              
              
              
              16.63
              
              
              6.1$20.01
      to $30.00
              
              
              
              2,321,285
              
              
              
              22.29
              
              
              6.1
              
              
              
              1,949,357
              
              
              
              22.12
              
              
              5.74,403,709
              
              
              
              19.04
              
              
              5.8
              
              
              
              4,031,781
              
              
              
              18.65
              
              
              5.6
 
 The
aggregate intrinsic value of options outstanding and options exercisable at
December 31, 2007 was $52,245 and $49,382, respectively.
  72
  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, 2006, and changes during the year ended December 31,
2007, is presented below:
  Unvested
                Shares
              
              
              Vested
      Shares
              
              
              Total
      Shares
              
              
              Weighted-
                Average
                Exercise
                PriceOutstanding
      at December 31, 2006
              
              
              501,300
              
              
              
              6,148,213
              
              
              
              6,649,513
              
              
              $
              17.99Granted
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Forfeited
              
              
              (3,975
              )
              
              
              (4,211
              )
              
              
              (8,186
              )
              
              
              22.73Vested
              
              
              (125,397
              )
              
              
              125,397
              
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              (2,237,618
              )
              
              
              (2,237,618
              )
              
              
              15.92Outstanding
      at December 31, 2007
              
              
              371,928
              
              
              
              4,031,781
              
              
              
              4,403,709
              
              
              
              19.04
 
 The total
intrinsic value of stock options exercised during the years ended
December 31, 2005, 2006 and 2007, was $20,116, $20,299 and $34,951,
respectively.  The total fair value of stock options vested during the
years ended December 31, 2005, 2006 and 2007, was $35,300, $8 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, 2006, and changes during the year ended December 31,
2007, is presented below:
  Unvested
      Shares
              
              
              Weighted-Average
      Grant Date Fair
                Value
      Per ShareOutstanding
      at December 31, 2006
              
              
              568,940
              
              
              $
              23.48Granted
              
              
              426,802
              
              
              
              29.08Forfeited
              
              
              (22,726
              )
              
              
              25.52Vested
              
              
              (168,268
              )
              
              
              23.98Outstanding
      at December 31, 2007
              
              
              804,748
              
              
              
              26.29
 
  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, 2007, 240,216 shares of common stock were available for
future grants of warrants under the 2002 Consultant Incentive Plan.  The
Company issued 22,200, 15,395 and 14,137 warrants under the Consultant
Incentive Plan during the years ended December 31, 2005, 2006 and 2007,
respectively.
  73
  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, 2006, and changes during the year
ended December 31, 2007 is presented below:
  Warrants
              
              Weighted-Average
                Exercise
      PriceOutstanding
      at December 31, 2006
              
              55,518
              
              $
              19.08Granted
              
              14,137
              
              
              30.82Forfeited
              
              -
              
              
              -Exercised
              
              (16,674)
              
              
              13.17Outstanding
      at December 31, 2007
              
              52,981
              
              
              24.07
 
  The
following table summarizes information about warrants outstanding as of
December 31, 2006 and 2007:
  Fair
    ValueofWarrants
                
                
                
                
                
                Warrants
                
                
                Outstanding
      at December 31,Grant
      Date
                
                
                Issued
                
                
                Exercise
      Price
                
                
                Issued
                
                
                2006
                
                
                2007February
      1998
                
                
                450,000
                
                
                $
                1.78
                
                
                $
                954
                
                
                
                10,048
                
                
                
                5,000Throughout
      2002
                
                
                145,373
                
                
                11.57
      to 16.45
                
                
                
                577
                
                
                
                1,125
                
                
                
                -Throughout
      2003
                
                
                92,250
                
                
                12.98
      to 16.37
                
                
                
                173
                
                
                
                1,125
                
                
                
                -Throughout
      2004
                
                
                64,575
                
                
                15.50
      to 18.25
                
                
                
                223
                
                
                
                5,625
                
                
                
                -Throughout
      2005
                
                
                22,200
                
                
                19.75
      to 25.25
                
                
                
                136
                
                
                
                22,200
                
                
                
                18,449Throughout
      2006
                
                
                15,395
                
                
                22.73
      to 27.47
                
                
                
                115
                
                
                
                15,395
                
                
                
                15,395Throughout
      2007
                
                
                14,137
                
                
                29.70
      to 34.02
                
                
                
                123
                
                
                
                -
                
                
                
                14,13755,518
                
                
                
                52,981
 
 The
warrants are exercisable when granted and expire between 2008and
2012.
  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.
  74
  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 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, 2005, 2006 and
2007 are as follows:
  Year
      Ended December 31, 2005Gross
              
              Tax
      effect
              
              Net
      of taxAmounts
      reclassified into earnings
              
              $
              (1,904
              )
              
              $
              708
              
              
              $
              (1,196
              )Changes
      in fair value of interest rate swaps
              
              
              5,194
              
              
              
              (1,916
              )
              
              
              3,278$
              3,290
              
              
              $
              (1,208
              )
              
              $
              2,082Year
      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
              )
 
 The
estimated net amount of the existing unrealized gains as of December 31,
2007 (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 $43.  The timing of actual
amounts reclassified into earnings is dependent on future movements in interest
rates.
  13.
              INCOME
      TAXES
  The
provision for income taxes before discontinued operations for the years ended
December 31, 2005, 2006 and 2007 consists of the
following:
  Years
      Ended December 31,2005
              
              
              2006
              
              
              2007Current:Federal
              
              $
              45,676
              
              
              $
              18,759
              
              
              $
              40,526State
              
              
              3,182
              
              
              
              2,985
              
              
              
              6,951Deferred:Federal
              
              
              (761
              )
              
              
              24,223
              
              
              
              11,076State
              
              
              (31
              )
              
              
              2,362
              
              
              
              1,364Provision
      before discontinued operations
              
              $
              48,066
              
              
              $
              48,329
              
              
              $
              59,917
  75
 WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
  Significant
components of deferred income tax assets and liabilities are as follows as of
December 31, 2006 and 2007:
  2006
              
              
              2007Deferred
      income tax assets:Accounts
      receivable reserves
              
              $
              1,341
              
              
              $
              1,698Accrued
      expenses
              
              
              8,210
              
              
              
              9,837Self-insurance
      reserves
              
              
              4,291
              
              
              
              4,619Net
      operating losses from acquired subsidiaries
              
              
              298
              
              
              
              113Equity-based
      compensation
              
              
              1,293
              
              
              
              2,451Interest
      rate swaps
              
              
              -
              
              
              
              2,709State
      taxes
              
              
              -
              
              
              
              2,369Other
              
              
              -
              
              
              
              308Gross
      deferred income tax assets
              
              
              15,433
              
              
              
              24,104Less: 
      Valuation allowance
              
              
              -
              
              
              
              -Net
      deferred income tax assets
              
              
              15,433
              
              
              
              24,104Deferred
      income tax liabilities:Goodwill
      and other intangibles
              
              
              (75,874
              )
              
              
              (87,060
              )Property
      and equipment
              
              
              (116,853
              )
              
              
              (126,725
              )Landfill
      closure/post-closure
              
              
              (11,180
              )
              
              
              (12,523
              )Interest
      rate swaps
              
              
              (1,914
              )
              
              
              -Prepaid
      expenses
              
              
              (4,990
              )
              
              
              (6,372
              )Other
              
              
              (781
              )
              
              
              -Total
      deferred income tax liabilities
              
              
              (211,592
              )
              
              
              (232,680
              )Net
      deferred income tax liability
              
              $
              (196,159
              )
              
              $
              (208,576
              )
 
  As of the
year ended December 31, 2007, 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.  On January
23, 2008, the Company received communication from the IRS that it was inclined
to deny the request.  The Company intends to meet with the IRS in February
2008 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.
  During
the years ended December 31, 2006 and 2007, the Company reduced its taxes
payable by $8,209 and $15,294, 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 $7,728 and
$14,137 for the years ended December 31, 2006 and 2007, 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 31,2005
              
              
              2006
              
              
              2007Income
      tax provision at the statutory rate
              
              
              35.0
              %
              
              
              35.0
              %
              
              
              35.0
              %State
      taxes, net of federal benefit
              
              
              1.3
              
              
              
              2.9
              
              
              
              3.9Other
              
              
              -
              
              
              
              0.5
              
              
              
              (1.2
              )36.3
              %
              
              
              38.4
              %
              
              
              37.7
              %
 
 At
December 31, 2007, the Company had approximately $293 of federal and state
net operating loss (“NOL”) carryforwards.  During the years ended
December 31, 2006 and 2007, the Company utilized $1,741 and $481 of net
operating losses to reduce current tax expense by $661 and $186,
respectively.  At December 31, 2007, the federal and state NOL
carryforwards have expiration dates through 2022. While the Company
expects to realize the related deferred tax assets recorded, changes in
estimates of future taxable income or in tax laws may alter this
expectation.
  76
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
   During
the year ended December 31, 2007, the Company recorded adjustments to
income tax expense resulting from the reconciliation of its 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 and state tax returns, which were filed during 2007.  The net
impact of these adjustments was a decrease in income tax expense of $2,133 for
the year ended December 31, 2007.
  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 2003.  The Company’s
2004 U.S. federal income tax return was examined in 2007 by the IRS.  The
examination has been concluded and no changes were made as a result of such
examination. All
material state and local income tax matters have been concluded for years
through 2002.
  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
beginning balance of retained earnings on the Company’s balance sheet.  At
January 1 and December 31, 2007, the Company had approximately $6,702
and $6,716, respectively, of total gross unrecognized tax benefits.  Of the
total gross unrecognized tax benefits at January 1, and December 31,
2007, $2,618 and $3,402, 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,
2008.
  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
$453 and $851 accrued for interest, net of tax, at January 1 and
December 31, 2007, respectively, and no accrual for penalties at
January 1 and December 31, 2007.  As such, 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.
  A
reconciliation of the change in the unrecognized tax benefits from
January 1, 2007 to December 31, 2007 is as follows:
  Year
      Ended
                December
      31,
                2007Unrecognized
      tax benefits at January 1, 2007
              
              $
              6,702Gross
      increases – tax positions in prior periods
              
              
              918Lapse
      of statute of limitations
              
              
              (904
              )Unrecognized
      tax benefits at December 31, 2007
              
              $
              6,716
 
  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 31,2005
              
              
              2006
              
              
              2007Collection
              
              $
              517,536
              
              
              $
              602,762
              
              
              $
              693,675Disposal
      and transfer
              
              
              227,715
              
              
              
              259,190
              
              
              
              298,954Recycling
      and other
              
              
              77,594
              
              
              
              77,202
              
              
              
              95,212Total
              
              $
              822,845
              
              
              $
              939,154
              
              
              $
              1,087,841Intercompany
      elimination
              
              $
              100,946
              
              
              $
              114,800
              
              
              $
              129,300
   77
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
 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, 2005, 2006 and 2007:
  Years
      Ended December 31,2005
              
              
              2006
              
              
              2007Numerator:Net
      income for basic and diluted earnings per share
              
              $
              83,943
              
              
              $
              77,423
              
              
              $
              99,081Denominator:Basic
      shares outstanding
              
              
              70,050,974
              
              
              
              68,136,126
              
              
              
              68,238,523Dilutive
      effect of 2022 Convertible Subordinated Notes
              
              
              584,631
              
              
              
              393,026
              
              
              
              -Dilutive
      effect of stock options and warrants
              
              
              1,637,990
              
              
              
              1,746,783
              
              
              
              1,592,418Dilutive
      effect of restricted stock
              
              
              43,357
              
              
              
              132,738
              
              
              
              163,772Diluted
      shares outstanding
              
              
              72,316,952
              
              
              
              70,408,673
              
              
              
              69,994,713
 
 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 9).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.  In accordance with EITF 04-8, these shares
have not been included in the computation of diluted net income per share for
the year ended December 31, 2007 because the conversion value was not 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, which the Company will account for as a
debt repayment with no gain or loss, and the issuance of common stock will be
recorded in stockholders’ equity.
  Additionally,
as of December 31, 2005, 2006 and 2007, 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,
      2005
              
              
              December 31,
      2006
              
              
              December 31,
      2007Number
                of
      Shares
              
              
              Exercise
      Price Range
              
              
              Number
                of
      Shares
              
              
              Exercise
      Price Range
              
              
              Number
                of
      Shares
              
              
              Exercise
      Price RangeOutstanding
      options
              
              
              67,500
              
              
              $
              34.87
      to $38.06
              
              
              
              12,000
              
              
              $
              25.37
      to $26.59
              
              
              
              -
              
              
              $
              -Outstanding
      warrants
              
              
              3,500
              
              
              $
              37.17
      to $37.87
              
              
              
              12,338
              
              
              $
              25.82
      to $27.47
              
              
              
              8,777
              
              
              $
              31.09
      to $34.0271,000
              
              
              
              
              
              
              
              24,338
              
              
              
              
              
              
              
              8,777
 
 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, 2005, 2006 and 2007.  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, 2005,
2006 and 2007, total employer expenses, including employer contributions, for
the WCI and Murrey 401(k) Plans were approximately $3,203, $3,497 and
$4,046, respectively.
  78
  WASTE
CONNECTIONS, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (DOLLAR
AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
   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, up to 100% of their bonuses and
commissions and 100% of income from restricted stock vesting.  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, 2006 and 2007 was
$1,577 and $2,578, respectively.
  17.
              SELECTED
      QUARTERLY FINANCIAL DATA
(UNAUDITED)
  The
following table summarizes the unaudited consolidated quarterly results of
operations as reported for 2006:
  First
      Quarter
              
              
              Second
      Quarter
              
              
              Third
      Quarter
              
              
              Fourth
      QuarterRevenues
              
              $
              190,169
              
              
              $
              206,970
              
              
              $
              216,547
              
              
              $
              210,668Operating
      income
              
              
              39,155
              
              
              
              40,803
              
              
              
              47,531
              
              
              
              43,897Net
      income
              
              
              15,723
              
              
              
              19,200
              
              
              
              21,873
              
              
              
              20,627Basic
      income per common share
              
              
              0.23
              
              
              
              0.28
              
              
              
              0.32
              
              
              
              0.30Diluted
      income per common share
              
              
              0.22
              
              
              
              0.27
              
              
              
              0.31
              
              
              
              0.29
 
 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
  79
   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, 2007, 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, 2007.  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,
2007.
  The
effectiveness of our internal control over financial reporting as of
December 31, 2007, 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, 2007, that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
  ITEM 9B.
              OTHER
      INFORMATION
  None.
  80
   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” and “Section 16(a) Beneficial Ownership Reporting
Compliance” in our definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders, which we will file with the Commission pursuant to
Regulation 14A within 120 days after the end of our 2007 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” in our definitive Proxy
Statement for the 2008 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 2008 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 “Election of Directors” in our definitive Proxy Statement for
the 2008 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 2008 Annual Meeting
of Stockholders.
  81
  PART IV
  ITEM 15.
              EXHIBITS AND FINANCIAL
      STATEMENT SCHEDULES
  (a)
              See
      Index to Consolidated Financial Statements on page 42.  The
      following Financial Statement Schedule is filed herewith on page 84
      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.
  82
  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 11,
      2008
              
              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 11,
      2008/s/
              Worthing
      F. Jackman
              
              Executive
      Vice President and Chief Financial OfficerWorthing
      F. Jackman
              
              (principal
      financial officer)
              
              February 11,
      2008/s/
              David
      G. Eddie
              
              Vice
      President – Corporate ControllerDavid
      G. Eddie
              
              (principal
      accounting officer)
              
              February 11,
      2008/s/
              Eugene
      V. Dupreau
              
              Director
      and Regional Vice President – WesternEugene
      V. Dupreau
              
              Region
              
              February 11,
      2008/s/
              Michael
      W. HarlanMichael
      W. Harlan
              
              Director
              
              February 11,
      2008/s/
              William
      J. RazzoukWilliam
      J. Razzouk
              
              Director
              
              February 11,
      2008/s/
              Robert
      H. DavisRobert
      H. Davis
              
              Director
              
              February 11,
      2008/s/
              Edward
      E. GuilletEdward
      E. Guillet
              
              Director
              
              February 11,
      2008
 
 83
 
 WASTE CONNECTIONS, INC.
 
 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
 Years
Ended December 31, 2005, 2006 and 2007
 (in
thousands)
 
  Additions
              
              
              DeductionsBalance
    at
              
              
              Charged
      to
              
              
              Charged
    to
              
              
              (Write-offs,Beginning
    of
              
              
              Costs
and
              
              
              Other
              
              
              Net of
              
              
              Balance at
      EndDescription
              
              Year
              
              
              Expenses
              
              
              Accounts
              
              
              Collections)
              
              
              of YearAllowance
      for Doubtful Accounts:Year
      Ended December 31, 2005
              
              $
              2,414
              
              
              $
              3,220
              
              
              $
              -
              
              
              $
              (2,808
              )
              
              $
              2,826Year
      Ended December 31, 2006
              
              
              2,826
              
              
              
              3,664
              
              
              
              -
              
              
              
              (3,001
              )
              
              
              3,489Year
      Ended December 31, 2007
              
              
              3,489
              
              
              
              4,112
              
              
              
              -
              
              
              
              (3,214
              )
              
              
              4,387
  84
 
 EXHIBIT INDEX
 
 Exhibit
      Number
                Description of
      Exhibits
 3.1
                
                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 (incorporated by reference to the
      exhibit filed with the Registrant’s Form 10-Q filed on July 22,
      2004)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 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
                
                Amended
      and Restated Revolving Credit and Term Loan Agreement, dated as of
      January 12, 2006 (incorporated by reference to the exhibit filed with
      the Registrant’s Form 8-K filed on January 17,
    2006)4.5
                
                First
      Amendment to Amended and Restated Revolving Credit and Term Loan
      Agreement, dated as of November 16, 2006 (incorporated by reference
      to the exhibit filed with the Registrant’s Form 8-K filed on
      November 21, 2006)
 4.6
                
                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)10.1
                +
                Employment
      Agreement between the Registrant and Eugene V. Dupreau, dated as of
      February 23, 1998 (incorporated by reference to the exhibit filed
      with the Registrant’s Form S-1 filed on March 16,
    1998)10.2
                +
                Form
      of Warrant Agreement (incorporated by reference to the exhibit filed with
      the Registrant’s Form S-1 filed on March 16, 1998)10.3
                +
                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)10.4
                +
                Second
      Amended Employment Agreement between the Registrant and Darrell 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)10.5
                +
                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)10.6
                +
                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)10.7
                *+
                2002
      Senior Management Equity Incentive Plan10.8
                *+
                2002
      Stock Option Plan10.9
                +
                Employment
      Agreement between the Registrant and Kenneth O. Rose, dated as of
      May 1, 2002 (incorporated by reference to the exhibit filed with the
      Registrant’s Form 10-Q filed on August 13,
  2002)
  85
  Exhibit
      Number
                    Description of
      Exhibits
 10.10
                +
                Employment
      Agreement between the Registrant and Robert D. Evans, dated as of
      May 10, 2002 (incorporated by reference to the exhibit filed with the
      Registrant’s Form 10-Q filed on August 13,
  2002)10.11
                +
                2002
      Restricted Stock Plan (incorporated by reference to the exhibit filed with
      the Registrant’s Form S-8 filed on June 19,
  2002)10.12
                *+
                Consultant
      Incentive Plan10.13
                +
                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)10.14
                *+
                Nonqualified
      Deferred Compensation Plan, amended and restated as of January 1,
      200810.15
                +
                Second
      Amended and Restated Employment Agreement between the Registrant and
      Steven 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)10.16
                *+
                Amended
      and Restated Compensation Plan for Independent Directors, dated
      December 7, 200710.17
                +
                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)10.18
                +
                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)10.19
                +
                First
      Amended and Restated Employment Agreement between the Registrant and David
      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)10.20
                *+
                Second
      Amended and Restated 2004 Equity Incentive
Plan
 10.21
                +
                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)10.22
                +
                Employment
      Agreement between 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)12.1
                *
                Statement
      regarding Computation of Ratios21.1
                *
                Subsidiaries
      of the Registrant23.1
                *
                Consent
      of Independent Registered Public Accounting Firm
 24.1
                
                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.