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  Exhibit 4.4    
    

 
 

  BFI Canada Income Fund — MD&A for the year ended December 31, 2007    
    

 Disclaimer  

        This document may contain forward-looking information relating to the operations of BFI Canada Income Fund
(the "Fund") or to the environment in which it operates, which are based on estimates, forecasts, and projections. Forward-looking information is not a guarantee of future performance and
involves risks and uncertainties that are difficult to predict, or are beyond the Fund's control. A number of factors could cause actual outcomes and results to differ materially from those estimated,
forecast or projected. These factors include those set forth in the Fund's Annual Information Form ("AIF") for the year ended December 31, 2007. Consequently, readers should not rely on such
forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. Although the forward-looking information contained herein is based on what
management believes to be
reasonable assumptions, unitholders are cautioned that actual results may differ. Management disclaims any intention or obligation to update or revise any forward-looking information, whether as a
result of new information, future events or otherwise. 

 Introduction  

        The following is a discussion of the consolidated financial condition and results of operations of the Fund for the
year ended December 31, 2007 and has been prepared with all information available up to and including March 6, 2008. All amounts are reported in Canadian dollars, unless otherwise
stated. The consolidated financial statements ("financial statements") of the Fund have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). This discussion
should be read in conjunction with the financial statements of the Fund, including notes thereto, and management's discussion and analysis ("MD&A") for the years ended December 31, 2006 and
2005 filed on www.sedar.com. 

 Corporate Overview  

        The Fund, through its operating subsidiaries, is one of North America's largest full-service waste
management companies, providing non-hazardous solid waste ("waste") collection and disposal services to commercial, industrial, municipal and residential customers in five Canadian
provinces and ten states in the United States ("U.S."). The Fund provides service to over 1.8 million customers with vertically integrated collection and disposal assets. 

        The
Fund's Canadian segment operates under the BFI Canada brand and is Canada's second largest full-service waste management company providing vertically integrated
waste collection and disposal services in the provinces of British Columbia, Alberta, Manitoba, Ontario, and Quebec. This segment provides service to 20 Canadian markets and operates five
landfills, four transfer collection stations, seven material recovery facilities ("MRFs"), and one landfill gas to energy facility. 

        The
Fund's U.S. south and northeast segments, collectively the U.S. segment or U.S. segments, operate under the IESI brand and provide vertically integrated waste
collection and disposal services in two geographic regions: the south, consisting of various service areas in Texas, Louisiana, Oklahoma, Arkansas, Mississippi, and Missouri, and the northeast,
consisting of various service areas in New York, New Jersey, Pennsylvania, and Maryland. This segment provides service to 38 U.S. markets and operates 17 landfills,
31 transfer collection stations, 10 MRFs, and one transportation operation. 

        The
Fund makes cash distributions to unitholders based on all amounts received by the Fund, and IESI Corporation ("IESI"), an indirect subsidiary of the Fund, pays equivalent dividends
to participating preferred shareholders ("non-controlling interest"). Distributions and dividends are determined by the
Trustees from time to time. The Fund's declaration of trust provides that distributions declared are to be paid on or about the 15th day of the succeeding month
(see Disclosure of outstanding trust unit data for additional details). 

1

 

 
 

  Highlights — For the year ended December 31, 2007
  (all amounts are in thousands of Canadian dollars, except per trust unit and
participating preferred share ("PPS"), unless  otherwise stated)    

 Financial highlights  

								
	 
	 	Year ended

December 31 	 
	 
	 	2007 	 	2006 	 
	 Operating results
	 	 	 	 	 	 	 
	 Revenues
	 	$	917,357	 	$	771,819	 
	 Operating expenses
	 	 	531,614	 	 	436,311	 
	 Selling, general and administration expenses ("SG&A")
	 	 	110,208	 	 	99,591	 
	 	 	 	 	 	 
	 Income before the following ("EBITDA(A)")
	 	 	275,535	 	 	235,917	 
	 Amortization
	 	 	161,006	 	 	148,128	 
	 Interest on long-term debt
	 	 	42,964	 	 	34,307	 
	 Financing costs
	 	 	7,192	 	 	79	 
	 Net gain on sale of capital assets
	 	 	(1,434	)	 	(443	)
	 Net loss on financial instruments
	 	 	9,384	 	 	3,363	 
	 Net foreign exchange loss (gain)
	 	 	13,671	 	 	(2,578	)
	 Other expenses
	 	 	48	 	 	210	 
	 	 	 	 	 	 
	 Income before income taxes and non-controlling interest
	 	 	42,704	 	 	52,851	 
	 	 	 	 	 	 
	 Income tax expense
	 	 	4,697	 	 	12,917	 
	 Non-controlling interest
	 	 	6,320	 	 	7,191	 
	 	 	 	 	 	 
	 Net income
	 	$	31,687	 	$	32,743	 
	 	 	 	 	 	 
	 Net income per weighted average trust unit, basic & diluted
	 	$	0.56	 	$	0.61	 
	 	 	 	 	 	 
	 Trust units and PPSs outstanding
	 	 	 	 	 	 	 
	 Weighted average number of trust units outstanding
	 	 	56,564	 	 	53,506	 
	 Weighted average number of PPSs outstanding
	 	 	11,239	 	 	11,885	 
	 	 	 	 	 	 
	 Weighted average number of trust units and PPSs outstanding
	 	 	67,803	 	 	65,391	 
	 	 	 	 	 	 
	 Aggregate number of trust units and PPSs outstanding
	 	 	68,706	 	 	65,391	 
	 	 	 	 	 	 
	 Maintenance and growth expenditures
	 	 	 	 	 	 	 
	 Maintenance capital and landfill expenditures ("maintenance expenditures") — (see page 11)
	 	$	56,463	 	$	52,504	 
	 Growth capital and landfill expenditures ("growth expenditures")
	 	 	97,022	 	 	77,372	 
	 	 	 	 	 	 
	 Total maintenance and growth expenditures
	 	$	153,485	 	$	129,876	 
	 	 	 	 	 	 
	 Operating and free cash flow
	 	 	 	 	 	 	 
	 Cash generated from operating activities
	 	$	217,415	 	$	185,698	 
	 Free cash flow available for distribution(B) (see page 10)
	 	$	168,486	 	$	141,857	 
	 Free cash flow available for distribution(B) per weighted average trust unit and PPS
	 	$	2.48	 	$	2.17	 
	 Distributions and dividends
	 	 	 	 	 	 	 
	 Distributions declared, trust units
	 	$	102,888	 	$	93,721	 
	 Dividends declared, PPSs
	 	 	20,438	 	 	20,582	 
	 	 	 	 	 	 
	 Total distributions and dividends declared
	 	$	123,326	 	$	114,303	 
	 	 	 	 	 	 
	 Total distributions and dividends declared per weighted average trust unit and PPS
	 	$	1.82	 	$	1.75	 

2

 

 Financial highlights for the year ended December 31, 2007  

					
	 
	 	Year ended

December 31 	 
	 Increase in consolidated revenues
	 	$	145,538	 
	 Total consolidated revenue percentage increase
	 	 	18.9%	 
	 Total consolidated revenue percentage increase, excluding the impact of foreign currency translation
	 	 	23.1%	 
	 Total consolidated EBITDA(A) percentage increase, excluding the impact of foreign currency translation
	 	 	20.5%	 
	 Increase in cash generated from operating activities
	 	$	31,717	 
	 Increase in free cash flow available for distribution(B)
	 	$	26,629	 
	 Percentage increase in free cash flow available for distribution(B)
	 	 	18.8%	 
	 Payout ratio
	 	 	73.2%	 
	 Payout ratio, excluding the effect of foreign currency hedge agreements
	 	 	76.2%	 

 Other highlights  

	•
	Effective August 31, 2007, the Fund acquired Winters Bros. Waste Systems, Inc. ("Winters Bros.") for total
cash consideration of approximately U.S. $277,200.  
	•
	Effective August 31, 2007, the Fund amended its U.S. long-term debt facility. Concurrently, the
Fund's U.S. $160,000 note receivable ("U.S. note") from IESI was effectively cancelled through a restructuring.  
	•
	Effective August 28, 2007, the Fund received all of the
necessary permits for the expansion of its Seneca Meadows
landfill.  
	•
	Effective August 31, 2007, the Fund received an operating permit to continue accepting waste at its Calgary
landfill through 2010.  
	•
	Effective April 5, 2007, the Fund closed a 3,565 trust unit offering, inclusive of the exercised
over-allotment option, for net proceeds of approximately $87,600. Proceeds from the offering were used to repay U.S. revolving credit facility advances.  
	•
	Effective March 21,
2007, the Fund amended its Canadian long-term debt facility. 
	•
	Effective March 28, 2007, the Fund entered into a new 15 year agreement for variable rate demand solid waste
disposal revenue bonds ("IRBs") in the state of Texas.  
	•
	For the year ended December 31, 2007, and excluding the acquisition of Winters Bros., the Fund completed
17 acquisitions.  
	•
	The Trustees continue to actively work with management to review the Fund's corporate structure in light of changes to the
taxation of income trusts as it relates to the Fund's continuous improvement and growth strategy. To date no definitive conclusions have been reached. 

 
 

  Review of Operations — For the year ended December 31, 2007
  (all amounts are in thousands of Canadian dollars, except foreign currency
exchange rate amounts, unless otherwise  stated)

 Foreign Currency Exchange Rates  

        The Fund reports its financial results in Canadian dollars, and consequently changes in the foreign currency exchange rate between
Canada and the U.S. impacts the translated value of
the Fund's U.S. operating results. U.S. operating results are translated to Canadian dollars using the current rate method of accounting which applies the average foreign currency
exchange rate in effect between Canada and the U.S. during the reporting period. U.S. assets and liabilities are translated to Canadian dollars at the foreign currency exchange rate in
effect at the consolidated balance sheet date. Translation adjustments are included in other comprehensive (loss) income and are only included in the determination of net income when a reduction in
the Fund's investment in its foreign operations is realized. Effective August 31, 2007, concurrent with the closing of the Winters Bros. acquisition and U.S. long-term debt
facility amendment, the Fund's U.S. note was cancelled. The resulting realized foreign exchange loss, approximately $7,700, is recorded in the consolidated statement of operations and
comprehensive (loss) income. 

3

 

  
        The U.S. segments' financial position and operating results have been translated to Canadian dollars applying the following foreign currency exchange rates: 

																				
	 
	 	2007 	 	2006 	 
	 
	 	Current 	 	Average 	 	Cumulative

Average 	 	Current 	 	Average 	 	Cumulative

Average 	 
	 March 31
	 	$	1.153	 	$	1.172	 	$	1.172	 	$	1.167	 	$	1.155	 	$	1.155	 
	 June 30
	 	$	1.063	 	$	1.098	 	$	1.135	 	$	1.115	 	$	1.122	 	$	1.138	 
	 September 30
	 	$	0.996	 	$	1.045	 	$	1.105	 	$	1.115	 	$	1.121	 	$	1.133	 
	 December 31
	 	$	0.988	 	$	0.982	 	$	1.074	 	$	1.165	 	$	1.139	 	$	1.134	 

 Foreign Currency Hedge  

        A significant portion of the Fund's operating results, maintenance expenditures, interest on long-term debt, and cash
income taxes reported in Canadian dollars, originate in the U.S. Operating expenses, maintenance expenditures, interest on long-term debt, and cash income taxes originating in the
U.S. are settled in U.S. dollars generated from U.S. operations which results in a natural cash flow hedge. A portion of the resulting free cash flow available for
distribution(B) is hedged by three single rate hedge agreements through February 2008 to purchase 4,500 Canadian dollars monthly at an average foreign currency exchange
rate of approximately $1.222. The purpose of these hedge agreements is to protect a portion of Canadian dollar denominated distributions, which are supported by U.S. dollar denominated cash
flows, from fluctuations in the foreign currency exchange rate between Canada and the U.S. The Fund has not designated these derivative financial instruments as a hedge. Accordingly, changes in
the fair value of these derivative financial instruments, non-cash items, are included in the determination of net income. 

 Foreign Currency Exchange Impact on Consolidated Results  

        Readers are reminded that a significant portion of the Fund's financial results originate in the U.S. The following table has
been prepared to assist readers in assessing the impact of foreign currency exchange on the Fund's consolidated results for the year ended December 31, 2007. 

											
	 
	 	Fund results

for 2007 less

2006 	 	Impact of

foreign currency

exchange(1) 	 	Organic growth,

acquisitions

and other

non-operating

changes 	 
	 Financial highlights
	 	 	 	 	 	 	 	 	 	 
	 Revenues
	 	$	145,538	 	$	(32,582	)	$	178,120	 
	 Operating expenses
	 	 	95,303	 	 	(19,987	)	 	115,290	 
	 SG&A
	 	 	10,617	 	 	(3,854	)	 	14,471	 
	 	 	 	 	 	 	 	 
	 Income before the following ("EBITDA(A)")
	 	 	39,618	 	 	(8,741	)	 	48,359	 
	 Amortization
	 	 	12,878	 	 	(5,804	)	 	18,682	 
	 Interest on long-term debt
	 	 	8,657	 	 	(1,817	)	 	10,474	 
	 Financing costs
	 	 	7,113	 	 	(114	)	 	7,227	 
	 Net gain on sale of capital assets
	 	 	(991	)	 	52	 	 	(1,043	)
	 Net loss on financial instruments
	 	 	6,021	 	 	(536	)	 	6,557	 
	 Net foreign exchange loss (gain)
	 	 	16,249	 	 	209	 	 	16,040	 
	 Other expenses
	 	 	(162	)	 	(3	)	 	(159	)
	 	 	 	 	 	 	 	 
	 Income before income taxes and non-controlling interest
	 	 	(10,147	)	 	(728	)	 	(9,419	)
	 	 	 	 	 	 	 	 
	 Income tax expense
	 	 	(8,220	)	 	190	 	 	(8,410	)
	 Non-controlling interest
	 	 	(871	)	 	—	 	 	(871	)
	 	 	 	 	 	 	 	 
	 Net income
	 	$	(1,056	)	$	(918	)	$	(138	)
	 	 	 	 	 	 	 	 

4

 

											
	 
	 	Fund results

for 2007 less

2006 	 	Impact of

foreign currency

exchange(1) 	 	Organic growth,

acquisitions

and other

non-operating

changes 	 
	 Review of Operations
	 	 	 	 	 	 	 	 	 	 
	 Revenues — Canada
	 	$	47,887	 	$	—	 	$	47,887	 
	 Revenues — U.S. south
	 	$	47,569	 	$	(17,653	)	$	65,222	 
	 Revenues — U.S. northeast
	 	$	50,082	 	$	(14,929	)	$	65,011	 
	 Operating expenses — Canada
	 	
$	

28,740	 	 $
	—	 	
$	

28,740	 
	 Operating expenses — U.S. south
	 	$	27,060	 	$	(11,462	)	$	38,522	 
	 Operating expenses — U.S. northeast
	 	$	39,503	 	$	(8,525	)	$	48,028	 
	 SG&A — Canada
	 	
$	

1,418	 	 $
	—	 	
$	

1,418	 
	 SG&A — U.S. south
	 	$	4,173	 	$	(2,286	)	$	6,459	 
	 SG&A — U.S. northeast
	 	$	5,026	 	$	(1,568	)	$	6,594	 
	 Cash generated from operating activities
	 	
$	

31,717	 	
$	

(5,089	
)	
$	

36,806	 
	 Free cash flow available for distribution(B) (see page 10)
	 	$	26,629	 	$	(4,565	)	$	31,194	 
	 Maintenance and growth expenditures
	 	 	 	 	 	 	 	 	 	 
	 Total
	 	$	23,609	 	$	(6,063	)	$	29,672	 
	 Maintenance — Canada
	 	$	1,525	 	$	—	 	$	1,525	 
	 Maintenance — U.S.
	 	$	2,434	 	$	(2,049	)	$	4,483	 
	 Growth — Canada
	 	$	(5,250	)	$	—	 	$	(5,250	)
	 Growth — U.S.
	 	$	24,900	 	$	(4,014	)	$	28,914	 

Notes: 

	(1)
	U.S. segment
results, stated in U.S. dollars, for the year ended December 31, 2007 multiplied by the difference between the 2007 and
2006 average foreign currency exchange rates. 

        The discussions to follow are in addition to the impact of foreign currency exchange fluctuations detailed in the table above. 

 Revenues  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	917,357	 	$	771,819	 	$	145,538	 
	 Canada
	 	
$	

336,527	 	
$	

288,640	 	
$	

47,887	 
	 U.S. south
	 	$	314,690	 	$	267,121	 	$	47,569	 
	 U.S. northeast
	 	$	266,140	 	$	216,058	 	$	50,082	 

        The
increase in consolidated revenues for the year ended is due in part to organic Canadian and U.S. segment growth, approximately $35,000 and $35,600 or 12.6% and 7.5%,
respectively, where organic growth excludes the impact of fuel and environmental surcharges, acquisitions and foreign currency translation. Revenue growth attributable to acquisitions and fuel and
environmental surcharges accounts for the balance of the increase. The Fund's U.S. northeast segment experienced some revenue softness at its landfills in the latter half of the year. The
decline is due to an increase in overall disposal capacity within the segment coupled with an overall economic softening in the region leading primarily to lower volumes entering
Fund-owned landfills. The unfavourable impact of foreign currency translation was partially offset by higher fuel and environmental surcharges. 

5

 

 Operating expenses  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	531,614	 	$	436,311	 	$	95,303	 
	 Canada
	 	
$	

175,305	 	
$	

146,565	 	
$	

28,740	 
	 U.S. south
	 	$	204,323	 	$	177,263	 	$	27,060	 
	 U.S. northeast
	 	$	151,986	 	$	112,483	 	$	39,503	 

        Higher
total disposal and labour costs amount to approximately $60,300 and $28,600, respectively, and are attributable to higher internally collected waste volumes and higher costs to
service new and existing customers, contracts, and acquisitions. The balance of the change is due principally to higher vehicle operating costs and repairs and maintenance expense partially offset by
a decline in insurance and equipment and facility rent. 

 SG&A  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	110,208	 	$	99,591	 	$	10,617	 
	 Canada
	 	
$	

41,504	 	
$	

40,086	 	
$	

1,418	 
	 U.S. south
	 	$	40,743	 	$	36,570	 	$	4,173	 
	 U.S. northeast
	 	$	27,961	 	$	22,935	 	$	5,026	 

        Higher
total salaries represent approximately $8,000 of the total increase. Acquisition and organic growth are the primary reasons for the increase in total salaries. Higher facility and
office costs and travel expenditures, as a result of acquisition and organic growth, are the primary reasons for the balance of the change. 

 Amortization  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	161,006	 	$	148,128	 	$	12,878	 
	 Canada
	 	
$	

57,538	 	
$	

56,215	 	
$	

1,323	 
	 U.S. south
	 	$	50,561	 	$	45,193	 	$	5,368	 
	 U.S. northeast
	 	$	52,907	 	$	46,720	 	$	6,187	 

        Higher
amortization totaling approximately $12,900 is due in large part to acquisitions and acquired growth capital through 2006 and 2007. 

 Interest on long-term debt  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	42,964	 	$	34,307	 	$	8,657	 
	 Canada
	 	
$	

10,567	 	
$	

9,120	 	
$	

1,447	 
	 U.S.
	 	$	32,397	 	$	25,187	 	$	7,210	 

        Financing
growth expenditures, working capital, and acquisitions, partially offset by the application of net proceeds from the Fund's trust unit offering against U.S. revolving
credit facility advances and lower borrowing costs attributable to IRB financings completed in the year, are the primary causes of the increase in interest 

6

 

expense
for the Fund's U.S. segment. Financing growth expenditures, working capital, and acquisitions has also increased interest expense for the Fund's Canadian segment. 

 Financing costs  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	7,192	 	$	79	 	$	7,113	 
	 Canada
	 	
$	

150	 	
$	

79	 	
$	

71	 
	 U.S.
	 	$	7,042	 	$	—	 	$	7,042	 

        Financing
costs were incurred to amend the Fund's U.S. and Canadian revolving credit facilities and to raise IRBs in the state of Texas. 

 Net gain on sale of capital assets  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	(1,434	)	$	(443	)	$	(991	)
	 Canada
	 	
$	

(508	
)	
$	

(77	
)	
$	

(431	
)
	 U.S.
	 	$	(926	)	$	(366	)	$	(560	)

        The
disposition and replacement of landfill equipment in Canada and the U.S. and the sale of certain equipment in the U.S. resulted in the net gains on sale. 

 Net loss on financial instruments  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	9,384	 	$	3,363	 	$	6,021	 
	 Canada
	 	
$	

(176	
)	 $
	—	 	
$	

(176	
)
	 U.S.
	 	$	9,560	 	$	3,363	 	$	6,197	 

        Effective
January 1, 2007, the Fund adopted the Canadian Institute of Chartered Accountants ("CICA") accounting standard for financial instruments. This standard resulted in the
Fund recognizing and measuring fair value changes in certain financial assets and liabilities. The transitional provisions of this standard did not require retroactive application and accordingly no
amounts were recognized in the Canadian segment for the comparative year. 

        The
Canadian segment gain on financial instruments relates to changes in the fair value of funded landfill post-closure costs, approximately ($200). U.S. segment
losses are due largely to interest rate swaps, approximately $8,300. A comparative reduction in losses on foreign currency exchange agreements and old corrugated cardboard ("OCC") hedge agreements
accounts for the balance of the change. 

 Net foreign exchange loss (gain)  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	13,671	 	$	(2,578	)	$	16,249	 
	 Canada
	 	
$	

17,390	 	
$	

94	 	
$	

17,296	 
	 U.S.
	 	$	(3,719	)	$	(2,672	)	$	(1,047	)

7

 

        For
the period from January 1 through August 31, 2007, the Fund's U.S. note was translated as if it was a third-party foreign currency trade balance. The resulting net
unrealized and realized foreign exchange losses on translation of the U.S. note, approximately $9,700 and $7,700, respectively, were recorded in the Fund's Canadian segment results. Net foreign
exchange gains realized by the Fund's U.S. segment are principally attributable to gains realized on the settlement of foreign currency exchange agreements. 

 Other expenses  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	48	 	$	210	 	$	(162	)
	 Canada
	 	 $
	  —	 	 $
	 —	 	 $
	—	 
	 U.S.
	 	$	48	 	$	210	 	$	(162	)

        Other
expenses are comprised of various management bonus costs related to certain acquisitions. 

 Income tax expense  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	4,697	 	$	12,917	 	$	(8,220	)
	 Canada
	 	
$	

8,091	 	
$	

5,885	 	
$	

2,206	 
	 U.S.
	 	$	(3,394	)	$	7,032	 	$	(10,426	)

        Current
income taxes increased approximately $3,300, for the Fund's Canadian segment, and was partially offset by an approximately $1,100 decline in future income tax expense. Cash taxes
payable by certain Canadian operating subsidiaries is the primary cause of the increase in current income taxes. A rise in unutilized tax loss carryfowards in certain Canadian
non-operating subsidiaries was partially offset by the erosion of tax loss carryforwards in certain Canadian operating subsidiaries, and collectively are the primary reason for the decline
in future income tax expense. 

        The
increase in U.S. segment income tax recoveries is due almost entirely to a decline in future income tax expense, approximately $10,300. The decline in future income tax
expense is the result of a decline in non-deductible expenses, approximately $3,300, coupled with recoveries recognized on U.S. to Canadian GAAP adjusted balances, approximately
$4,500, comprised principally of movements in capitalized interest amounts and financing cost expense. The balance of the change is due largely to a decline in valuation allowances recognized in the
prior versus current year. 

 Non-controlling interest  

        The non-controlling interest's share of net income amounts to $6,320 (2006 — $7,191)
for the year ended December 31, 2007. Non-controlling interest, recorded on the Fund's consolidated balance sheet, represents the initial value of issued PPSs, net of exchanges and
cancellations since issuance, plus or minus the non-controlling interest's share of net income or loss, transition adjustments, and distributions declared. 

8

 

 

 
 

  Financial highlights — For the three months ended December 31, 2007
  (all amounts are in thousands of Canadian dollars)    

																										
	 
	 	Three months ended December 31 	 
	 
	 	2007 	 	2006 	 
	 
	 	Canada 	 	U.S. south 	 	U.S.

northeast 	 	Total 	 	Canada 	 	U.S. south 	 	U.S.

northeast 	 	Total 	 
	 Revenues
	 	$	89,418	 	$	77,479	 	$	84,132	 	$	251,029	 	$	74,943	 	$	70,097	 	$	55,279	 	$	200,319	 
	 Operating expenses
	 	 	46,562	 	 	51,805	 	 	52,989	 	 	151,356	 	 	38,573	 	 	45,260	 	 	28,045	 	 	111,878	 
	 SG&A
	 	 	11,888	 	 	9,783	 	 	8,641	 	 	30,312	 	 	12,199	 	 	10,138	 	 	5,869	 	 	28,206	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Income before the following
	 	 	30,968	 	 	15,891	 	 	22,502	 	 	69,361	 	 	24,171	 	 	14,699	 	 	21,365	 	 	60,235	 
	 Amortization
	 	 	 	 	 	 	 	 	 	 	 	40,226	 	 	 	 	 	 	 	 	 	 	 	37,297	 
	 Interest on long-term debt
	 	 	 	 	 	 	 	 	 	 	 	13,824	 	 	 	 	 	 	 	 	 	 	 	9,311	 
	 Net gain on sale of capital assets
	 	 	 	 	 	 	 	 	 	 	 	(91	)	 	 	 	 	 	 	 	 	 	 	(34	)
	 Net loss on derivative financial instruments
	 	 	 	 	 	 	 	 	 	 	 	7,666	 	 	 	 	 	 	 	 	 	 	 	3,902	 
	 Net foreign exchange gain
	 	 	 	 	 	 	 	 	 	 	 	(1,131	)	 	 	 	 	 	 	 	 	 	 	(8,629	)
	 Other expenses
	 	 	 	 	 	 	 	 	 	 	 	43	 	 	 	 	 	 	 	 	 	 	 	23	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Income before income taxes
	 	 	 	 	 	 	 	 	 	 	 	8,824	 	 	 	 	 	 	 	 	 	 	 	18,365	 
	 Income tax expense
	 	 	 	 	 	 	 	 	 	 	 	2,950	 	 	 	 	 	 	 	 	 	 	 	6,351	 
	 Non-controlling interest
	 	 	 	 	 	 	 	 	 	 	 	952	 	 	 	 	 	 	 	 	 	 	 	1,846	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income
	 	 	 	 	 	 	 	 	 	 	$	4,922	 	 	 	 	 	 	 	 	 	 	$	10,168	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 
 

  Review of Operations — For the three months ended December 31, 2007    
    

 Revenues  

        The increase in consolidated revenues is due in part to solid organic Canadian and U.S. segment growth of 14.6% and 7.7%,
respectively, coupled with contributions from acquisitions and fuel and environmental surcharges, approximately $72,700. The U.S. segment revenue increases were partially offset by a decline in
the average foreign currency exchange rate versus the comparative quarter, approximately $22,000. The Fund's U.S. northeast segment experienced a decline in landfill revenues quarter over
quarter. The decline is due to an increase in overall disposal capacity within the segment coupled with an overall economic softening in the region leading primarily to lower volumes entering
Fund-owned landfills. 

 Operating expenses  

        Higher total disposal and labour costs amount to approximately $27,200 and $9,100, respectively, and are attributable to higher
internally collected waste volumes and higher costs to service acquired, new and existing customers. The balance of the total change is due principally to higher vehicle operating costs and repairs
and maintenance expense partially offset by a decline in the average foreign currency exchange rate. 

 SG&A  

        Higher total salaries represent approximately $1,200 of the total increase. Acquisition and organic growth are the primary reasons for
the increase in total salaries. Higher facility and office costs and travel expenditures, as a result of acquisition and organic growth, also contributed to the increase. U.S. segment SG&A
increases were partially offset by a decline in the average foreign currency exchange rate. 

 Amortization  

        An approximately $3,100 increase in total capital asset amortization was offset by a similar decline in landfill asset amortization.
Capital asset purchases to service existing and new customers, including capital assets acquired, is the primary reason for the comparative increase. Revisions to estimated landfill closure and
post-closure cash flow obligations resulted in a reduction to accrued landfill closure and post-closure costs and a similar decline in amortization expense, and is the primary
reason for the comparative decrease in landfill asset amortization. The balance of the change is attributable to an increase in intangible asset amortization due 

9

 

largely
to intangibles recognized on various acquisitions completed in the current and prior year partially offset by a decline in deferred financing cost amortization. 

        Explanations
of quarterly changes for the following: interest on long-term debt, net gain on sale of capital assets, net loss on derivative financial instruments, net foreign
exchange gain, other expenses, income tax expense, and non-controlling interest, are consistent with those outlined in the Review of Operations — For
the year ended December 31, 2007 section of this MD&A. 

 
 

  Other Performance Measures — For the year ended December 31, 2007
  (all amounts are in thousands of Canadian dollars, except per trust
unit and PPS amounts)

 Free cash flow available for distribution(B)  

 Purpose and objective  

        The purpose of presenting this non-GAAP measure is to calculate the amount available for distribution to unitholders and
non-controlling interests. The Fund's primary objective is to grow free cash flow. 

 Change in calculation  

        Effective July 6, 2007, the Canadian Securities Administrators ("CSA") amended National
Policy 41-201 — Income Trusts and Other Indirect Offerings. Amended policy changes, which includes the concept of maintaining productive
capacity, have resulted in a change to the Fund's calculation of free cash flow available for distribution(B). The Fund has historically viewed costs to maintain the productive capacity
of its limited life landfills as a cost funded from excess free cash flow available for distribution(C). Accordingly, these amounts have not been included in the Fund's determination of
free cash flow available for distribution(B). Costs incurred to maintain the productive capacity of landfills are included in the Fund's landfill asset amortization rate per tonne and
effective July 6, 2007 the Fund has elected to charge these amounts to the calculation of free cash flow available for distribution(B). The impact of this change is reflected
through all free cash flow available for distribution(B) amounts disclosed in this MD&A. 

        Costs
incurred to develop a replacement or new landfill site are deferred until such time as the site is successfully permitted. Upon successful permitting, these costs are included in
the Fund's landfill asset amortization rate per tonne and are charged to free cash flow available for distribution(B). 

        Costs
included in the Fund's landfill asset amortization rate per tonne are subject to estimates and assumptions, including but not limited to cost projections and estimated disposal
capacities. At least annually, management updates both cost and disposal capacity estimates based on projections or invoices received, the procurement of similar service, its historical and current
pattern of spending, management's planned course of action, and survey information provided by independent engineers. The impact of changes in both cost and disposal capacity estimates is accounted
for prospectively and is reflected through the Fund's determination of free cash flow available for distribution(B) on a similar basis. Obtaining future disposal capacity expansions is
critical to the maintenance of a landfills' productive capacity. These expansions, and the related costs, are contingent upon economic, political, environmental and social factors, some of which are
out of management's control. In the event the Fund is not successful in securing an expansion, it may have to develop or acquire additional disposal capacity and incur costs which differ materially
from those currently estimated. The inherent variability of disposal capacity expansion costs may have a significant effect on the Fund's ability to generate and distribute cash at similar levels.
Management remains confident that approval for its landfill expansions will be obtained prior to the expiry of its current permits and all estimates reflect this assumption. 

 Payout ratio  

        Management's distribution philosophy is to maintain an annual payout ratio which is less than 90.0%. The annual payout ratio represents
the percentage of distributions and dividends declared divided by free cash flow available for distribution(B). Establishing an annual payout ratio which is less than 90.0% permits the
Fund to use excess free cash flow available for distribution(C), representing the difference between free cash flow available for distribution(B) and distributions and
dividends declared, for the following primary purposes: invest in strategic and accretive acquisitions; invest in growth capital; invest in infrastructure, including but not limited to new 

10

 

buildings;
repay long-term debt to lower interest expense; absorb financing costs; and, maintain distributions during periods of lower earnings, lower cash flows and or periods of
significant investment in maintenance expenditures or changes in working capital. 

 Excess free cash flow available for distribution(C)  

        For the year ended December 31, 2007, the Fund used all of its excess free cash flow available for
distribution(C), excluding the repayment of long-term debt, for the purposes outlined above. 

 Covenants  

        The Fund is not in default of restrictive covenants or compliance matters on its term loan, revolving credit facilities, IRBs and
senior secured series A and B debentures ("debentures"), collectively the long-term debt facilities. Accordingly, the Fund is not restricted by its various
long-term debt facilities to meet its current or anticipated distributions. An event of default, if not remedied, would typically result in the acceleration of repayment and ultimately
restrict the Fund's ability to meet its current or anticipated distribution and dividend payments. 

 Current and future income taxes  

        The Fund has unutilized tax losses available to shelter future taxable earnings from income tax. Management actively monitors its
unutilized tax losses resident throughout the structure and works with various advisors to derive the maximum benefit from its remaining unutilized tax losses. As unutilized tax losses are utilized or
expire, the taxable earnings derived from the Fund's operating entities may be subject to tax. Accordingly, higher cash taxes will reduce the availability of free cash flow available for
distribution(B). Tax incurred on taxable earnings is included in current income tax expense in the Fund's consolidated statement of operations and comprehensive (loss) income. 

 Long-term debt  

        The Fund's long-term debt facilities have various dates of maturity. Under normal operating conditions, these facilities
are not subject to scheduled principal repayment in advance of their maturity dates and the Fund expects to extend, renew or replace its current long-term debt facilities at or before
maturity with similar or other long-term debt instruments or net proceeds derived from further trust unit offerings. Accordingly, the Fund does not include any principal repayment of its
long-term debt facilities in the determination of free cash flow available for distribution(B). 

 Distributions  

        In periods where distributions and dividends declared exceed free cash flow available for distribution(B), the Fund is
permitted under its revolving credit facilities, subject to various restrictions, to borrow amounts to honour its declared distribution. In the event that monies were not available from the Fund's
revolving credit facilities, the Fund would consider curtailing all or a portion of its current and or future distributions. The Fund's distribution philosophy is to distribute less than 90.0% of free
cash flow available for distribution(B) in a given year. The Fund has no intention or ability to satisfy its distributions through revolving credit facility advances for a prolonged
period of time. 

 Results  

        Free cash flow available for distribution(B) totaled $168,486 for the year ended December 31, 2007 versus $141,857
(see Other Performance Measures — Free Cash Flow Available for
Distribution(B) — Change in calculation section of this MD&A) for the comparative year ended December 31, 2006. The
resulting increase is due in large part to higher cash generated from operating activities, approximately $31,700, attributable to organic and acquisition growth. Higher cash generated from operating
activities was due in part to an approximately $9,700 decline in non-cash working capital uses. The decline in working capital uses is due largely to fluctuations in foreign currency
exchange rates. The add back of financing costs absorbed through revolving credit facility advances, approximately $7,900, was partially offset by the net change in landfill closure and 

11

 

post-closure
costs. The net change in landfill closure and post-closure costs is due principally to the timing of expenditures when compared to the previous year. Higher
maintenance expenditures also contributed to the comparative change, details of which are included in the Other Performance
Measures — Maintenance and growth expenditures section of this MD&A. The realized foreign currency exchange loss
on the U.S. note was recorded on its cancellation. 

        Free
cash flow available for distribution(B) per weighted average trust unit and PPS for the year ended December 31, 2007 amounted to $2.48 and is $0.31 higher than
the comparative year ended December 31, 2006. 

 Free cash flow available for distribution(B) — cash flow approach  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	Change 	 
	 Cash generated from operating activities (per statement of cash flows)
	 	$	217,415	 	$	185,698	 	$	31,717	 
	 Operating
	 	 	 	 	 	 	 	 	 	 
	 Changes in non-cash working capital items
	 	 	(6,177	)	 	3,529	 	 	(9,706	)
	 Net change in landfill closure and post-closure costs(2)
	 	 	(4,111	)	 	4,546	 	 	(8,657	)
	 Maintenance expenditures
	 	 	(56,463	)	 	(52,504	)	 	(3,959	)
	 Financing
	 	 	 	 	 	 	 	 	 	 
	 Amortization of gain on settlement of bond forward contracts
	 	 	224	 	 	224	 	 	—	 
	 Financing and deferred costs (net of non-cash portion)
	 	 	7,063	 	 	(847	)	 	7,910	 
	 Effect of foreign currency hedges to support Canadian dollar distributions
	 	 	6,547	 	 	3,885	 	 	2,662	 
	 Realized foreign exchange gain
	 	 	(3,705	)	 	(2,674	)	 	(1,031	)
	 Realized foreign exchange loss on U.S. note
	 	 	7,693	 	 	—	 	 	7,693	 
	 	 	 	 	 	 	 	 
	 Free cash flow available for distribution(B)
	 	$	168,486	 	$	141,857	 	$	26,629	 
	 	 	 	 	 	 	 	 

Notes: 

	(2)
	Net
change in landfill closure and post-closure costs exclude acquired landfill closure and post-closure costs, foreign currency
translation adjustments, revisions to estimated cash flows recorded to operating expense, and amounts reimbursable by various holders of PPSs. 

        Canadian Securities Administrators ("CSA") Staff Notice 52-306 and National Policy 41-201 concludes that
distributable cash or free cash flow available for distribution(B) is, in all circumstances, a cash flow measure, and that distributable cash is fairly presented only when reconciled to
cash flows from operating activities as presented in the issuer's financial statements. To arrive at free cash flow available for distribution(B) various adjustments, all of which are
derived from actual financial results, are made to cash generated from operating activities, details of which are as follows: 

 Operating  

        
Changes in non-cash working capital items:    management of the Fund expects changes in non-cash working capital items to be insignificant
year over year. Various working capital items, including but not limited to the timing of receivables collected and payment of payables and accruals, can have a significant impact on the determination
of free cash flow available for distribution(B). Accordingly,
management excludes the impact of changes in non-cash working capital items to remove the resulting variability of including such amounts in the determination of free cash flow available
for distribution(B). Realized changes in working capital are typically funded from excess free cash flow available for distribution(C) or the Fund's revolving credit
facilities. 

         
Net change in landfill closure and post-closure costs:    amounts capitalized to landfill assets in respect of landfill closure and
post-closure costs are immediately amortized. Amortization of landfill assets represents an item not affecting cash in the determination of cash generated from operating activities. In
addition, landfill closure and post-closure expenditures are removed from the determination of cash generated from operating activities. It is management's intention to effectively charge
unitholders with the accrued costs of closure and 

12

 

post-closure
obligations as they are incurred. It is management's view that closure and post-closure accruals are obligatory in nature even though there is some discretion as to when these
obligations are satisfied. Accordingly, management deducts the net change in landfill closure and post-closure costs from cash generated from operating activities. 

         
Maintenance expenditures:    see Other Performance Measures — Maintenance and growth
expenditures section of this MD&A. 

 Financing  

         
Amortization of gain on settlement of bond forward contracts:    the Fund realized a gain on the settlement of two bond forward contracts in the second quarter of
2004. The bond forward contracts were entered into in advance of closing the debt private placement to manage the risk of interest rate volatility prior to its closing. For accounting purposes, the
Fund recognized a $1,550 gain on the settlement of the bond forward contracts. Management is of the view that the gain is directly related to the underlying debt private placement and the gain is
therefore amortized to free cash flow available for distribution(B) on a basis consistent with the terms of the underlying debt. 

         
Financing and deferred costs (net of non-cash portion):    financing costs represent costs incurred to amend long-term debt facilities.
These amounts are typically funded from excess free cash flow available for distribution(C) or the Fund's revolving credit facilities. 

        
Effect of foreign currency hedges to support Canadian dollar distributions:    the Fund has three single rate hedge agreements to protect a portion of its Canadian
dollar denominated distributions, which are supported by U.S. dollar denominated cash flows, from fluctuations in the foreign currency exchange rate between Canada and the U.S. Realized
foreign exchange gains are included in net foreign exchange loss or (gain) in the Fund's consolidated statement of operations and comprehensive (loss) income. Realized gains or losses affect the
Fund's ability to distribute cash and accordingly management includes realized gains or losses on foreign currency hedges in the determination of free cash flow available for
distribution(B). 

        
Realized foreign exchange gain:    realized foreign exchange gains are included in the determination of cash generated from operating activities. These amounts are
also included in the effect of foreign currency hedges to support Canadian dollar distributions. Accordingly, realized foreign exchange gain amounts are removed from the determination of free cash
flow available for distribution(B) to avoid including the benefit twice. 

         
Realized foreign exchange loss on U.S. note:    the realized foreign exchange loss did not result in the payment of cash to a third party and does not affect
the Fund's ability to distribute cash. 

 Free cash flow available for distribution(B) — operations approach  

        Trustees and management of the Fund typically calculate free cash flow available for distribution(B) using an operations
approach. Management views EBITDA(A) as a proxy for cash derived from operations and is required under the terms of its long-term debt facilities to prepare a similar
calculation for its lenders. Accordingly, 

13

 

Trustees
and management continue to use the operations approach when calculating free cash flow available for distribution(B) and when assessing the Fund's payout ratio. 

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	Change 	 
	 EBITDA(A)
	 	$	275,535	 	$	235,917	 	$	39,618	 
	 	 	 	 	 	 	 	 
	 Amortization of capitalized landfill asset closure and post-closure costs, including revisions to estimated cash flows not recorded to operating expense
	 	 	(5,566	)	 	(5,538	)	 	(28	)
	 Interest on long-term debt
	 	 	(42,964	)	 	(34,307	)	 	(8,657	)
	 Management transaction bonuses (other expenses)
	 	 	(48	)	 	(210	)	 	162	 
	 Current income taxes
	 	 	(8,779	)	 	(5,610	)	 	(3,169	)
	 Maintenance expenditures
	 	 	(56,463	)	 	(52,504	)	 	(3,959	)
	 Effect of foreign currency hedges to support Canadian dollar distributions
	 	 	6,547	 	 	3,885	 	 	2,662	 
	 Amortization of gain on settlement of bond forward contracts
	 	 	224	 	 	224	 	 	—	 
	 	 	 	 	 	 	 	 
	 Free cash flow available for distribution(B)
	 	$	168,486	 	$	141,857	 	$	26,629	 
	 	 	 	 	 	 	 	 

        Amortization of capitalized landfill asset closure and post-closure costs, including revisions to estimated cash
flows:    see Free cash flow available for distribution(B) — cash flow
approach — Financing section of this MD&A. 

         
Interest on long-term debt:    interest on long-term debt represents a cash cost of carrying long-term debt to finance the Fund's
continuing operations. Interest on long-term debt reduces the amount of cash available for distribution as these monies are paid to the Fund's lenders. Accordingly, interest on
long-term debt is deducted from EBITDA(A) in the determination of free cash flow available for distribution(B). 

         
Management transaction bonuses (other expenses):    management transaction bonuses represent cash costs associated with fulfilling obligations to certain management
that were not funded from proceeds of the related transaction. 

        
Current income taxes:    current income taxes represent a cash cost to the Fund in respect of provincial, state and federal taxes, including withholding taxes on
certain payments received by the Fund from foreign sources. Current income taxes reduce the amount of cash available for distribution as these monies are paid to various government authorities.
Accordingly, current income taxes are deducted from EBITDA(A) in the determination of free cash flow available for distribution(B). 

         
Maintenance expenditures:    see Other Performance Measures — Maintenance and growth
expenditures section of this MD&A. 

         
Effect of foreign currency hedges to support Canadian dollar distributions:    the Fund has three single rate hedge agreements to protect a portion of its Canadian
dollar denominated distributions, which are supported by U.S. dollar denominated cash flows, from fluctuations in the foreign currency exchange rate between Canada and the U.S. Realized
foreign exchange gains or losses are included in foreign exchange loss or (gain) in the Fund's consolidated statement of operations and comprehensive (loss) income. The realization of gains or
losses on foreign currency hedges increases or reduces the amount of cash available for distribution as these monies are paid to parties to the hedge transactions. Accordingly, gains or losses on
foreign currency hedges to support Canadian dollar distributions are included in or deducted from EBITDA(A) in the determination of free cash flow available for
distribution(B). 

         
Amortization of gain on settlement of bond forward contracts:    see Free cash flow available for
distribution(B) — cash flow approach — Financing section of
this MD&A. 

14

 

 Free cash flow available for distribution(B) — sources of funding  

        In accordance with OSC National Policy 41-201, the following table compares both cash generated from operating
activities and net income to distributions and dividends paid to unitholders and participating preferred shareholders. 

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	2005 	 
	 Cash generated from operating activities
	 	$	217,415	 	$	185,698	 	$	124,656	 
	 	 	 	 	 	 	 	 
	 Net income
	 	$	31,687	 	$	32,743	 	$	10,643	 
	 	 	 	 	 	 	 	 
	 Distributions and dividends paid to unitholders and participating preferred shareholders
	 	$	122,824	 	$	113,649	 	$	97,545	 
	 	 	 	 	 	 	 	 
	 Excess of cash generated from operating activities over distributions and dividends paid to unitholders and participating preferred shareholders
	 	$	94,591	 	$	72,049	 	$	27,111	 
	 Shortfall of net income over distributions and dividends paid to unitholders and participating preferred shareholders
	 	$	(91,137	)	$	(80,906	)	$	(86,902	)

        Cash
generated from operating activities is significantly higher than distributions and dividends paid to unitholders and participating preferred shareholders. The use of the resulting
excess free cash flow available for distribution(C) is outlined in the Free cash flow available for
distribution(B) — cash flow approach, Payout ratio and Excess free cash flow available for
distribution(C) sections of this MD&A. 

 Free cash flow available for distribution(B) — shortfall of net income over distributions paid  

        Distributions paid to unitholders and participating preferred shareholders are in excess of net income for all years presented in the
previous table. The following table outlines the primary reasons for the shortfall. 

													
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	2005 	 
	 Shortfall of net income over distributions and dividends paid to unitholders and participating preferred shareholders
	 	$	(91,137	)	$	(80,906	)	$	(86,902	)
	 	 	 	 	 	 	 	 
	 Distributions and dividends paid to unitholders include amounts paid to participating preferred shareholders while net income excludes the participating preferred shareholders
(non-controlling interests) share of net income. Accordingly, the non-controlling interests share of net income is added back to arrive at a similar basis of comparison.
	 	 	 	 	 	 	 	 	 	 
	 	 	 Non-controlling interest
	 	 	6,320	 	 	7,191	 	 	3,062	 
	 	 	 	 	 	 	 	 
	 Subtotal
	 	 	(84,817	)	 	(73,715	)	 	(83,840	)
	 Net income includes various non-cash items which have no effect on the Fund's ability to generate or distribute free cash flow.
	 	 	 	 	 	 	 	 	 	 
	 	 Net gain on sale of capital assets
	 	 	(1,434	)	 	(443	)	 	(127	)
	 	 Net loss (gain) on financial instruments
	 	 	9,384	 	 	3,363	 	 	(10,361	)
	 	 Net foreign exchange loss (gain)
	 	 	13,671	 	 	(2,578	)	 	10,081	 
	 	 Future income tax (recovery) expense
	 	 	(4,082	)	 	7,307	 	 	(23,708	)
	 	 	 	 	 	 	 	 
	 Subtotal
	 	 	(67,278	)	 	(66,066	)	 	(107,955	)

15

 

													
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	2005 	 
	 Net income includes the payment of break fees related to the extinguishment of IESI indebtedness that was financed from proceeds of the transaction or financing fees incurred
on the amendment of lending facilities which were financed from revolving credit facilities proceeds or excess free cash flow available for distribution(C).
	 	 	 	 	 	 	 	 	 	 
	 	 	 Financing costs
	 	 	7,192	 	 	79	 	 	36,710	 
	 	 	 	 	 	 	 	 
	 Subtotal
	 	 	(60,086	)	 	(65,987	)	 	(71,245	)
	 Amortization includes fair value adjustments for capital, landfill and intangible assets that are not required to sustain cash flows from operating activities.
Amortization also includes amortization of deferred financing costs which were financed from proceeds of the related financing or from excess free cash flow available for distribution(C). Accordingly, all amortization amounts are added
back and replaced with management's calculation of maintenance expenditures as outlined in the Other Performance Measures — Maintenance and growth expenditures section of this
MD&A.
	 	 	 	 	 	 	 	 	 	 
	 	 	 Amortization
	 	 	161,006	 	 	148,128	 	 	145,974	 
	 	 	 Maintenance expenditures
	 	 	(56,463	)	 	(52,504	)	 	(45,398	)
	 	 	 	 	 	 	 	 
	 Adjusted excess of net income over distributions and dividends paid to unitholders and participating preferred shareholders
	 	$	44,457	 	$	29,637	 	$	29,331	 
	 	 	 	 	 	 	 	 

        To
arrive at excess free cash flow available for distribution(c) the following adjustments are made to the adjusted excess of net income over distributions and dividends
paid to unitholders and participating preferred shareholders: amortization of capitalized landfill asset closure and post-closure costs, including revisions to estimated cash flows,
deferred costs, effect of foreign currency hedges to support Canadian dollar distributions and amortization of gain on settlement of bond forward contracts. The rationale for each adjustment is
outlined in the Other Performance Measures — Free cash flow available for
distribution(B) — operations approach section of this MD&A. 

        Management
of the Fund contends that distributions and dividends paid to unitholders and participating preferred shareholders excludes an economic return of capital and that no cash
shortfall exists based on the rationale presented in the previous table. Distributions and dividends paid to unitholders and participating preferred shareholders were all funded from cash generated
from operating activities. Management of the Fund is of the opinion that cash generated from operating activities will continue into the foreseeable future and expects such amounts will be sufficient
to meet current annualized distribution and dividend amounts per trust unit and PPS as established by the Trustees. 

 Return on investment and distributions  

        Returns on an investment in trust units issued by the Fund are not comparable to returns on a fixed income security. The recovery of an
investment in the Fund is at risk, and the total return is subject to the variability of many factors. Distributions are dependent on a variety of factors including the Fund's ability to operate
effectively, the Fund's financial and cash flow performance, efficient and continued sources of financing, variable interest rates, fluctuations in working capital, sustainability of margins,
maintenance expenditure requirements, the deductibility of intercompany interest for tax purposes, cash taxes, foreign currency exchange rates, and distribution levels established by the Trustees from
time to time. In addition, the market value of the Fund's trust units may decline if the Fund is unable to meet its current or future distribution declarations or expectations and the resulting
decline may be significant. Distributions are established by the Trustees from time to time and are not guaranteed. 

16

 

        It
is important for investors to consider all risk factors that affect the Fund and to assess the stability and sustainability of its distributions. Risk factors affecting the Fund are
detailed in the Fund's Annual Information Form which is filed on www.sedar.com.

        The
composition of the Fund's distributions may change over time and may affect an investor's after-tax rate of return. Distributions may contain both a return on and/or
return of capital. Returns on capital are generally taxed as ordinary income or dividends in the hands of unitholders while
returns of capital are generally tax-deferred and reduce the unitholders cost base of their original investment in trust units of the Fund. 

 Maintenance and growth expenditures  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$ Change 	 
	 Total
	 	$	153,485	 	$	129,876	 	$	23,609	 
	 	 	 	 	 	 	 	 
	 Maintenance: (see page 11)
	 	 	 	 	 	 	 	 	 	 
	 Canada
	 	$	19,931	 	$	18,406	 	$	1,525	 
	 U.S.
	 	 	36,532	 	 	34,098	 	 	2,434	 
	 	 	 	 	 	 	 	 
	 Total maintenance
	 	$	56,463	 	$	52,504	 	$	3,959	 
	 	 	 	 	 	 	 	 
	 Growth:
	 	 	 	 	 	 	 	 	 	 
	 Canada
	 	$	25,467	 	$	30,717	 	$	(5,250	)
	 U.S.
	 	 	71,555	 	 	46,655	 	 	24,900	 
	 	 	 	 	 	 	 	 
	 Total growth
	 	$	97,022	 	$	77,372	 	$	19,650	 
	 	 	 	 	 	 	 	 

        Maintenance
and growth expenditures include amounts accrued for capital and landfill assets received but for which payment remains outstanding. Accordingly, total maintenance and growth
expenditure amounts presented in the table above will differ from total capital and landfill asset purchases presented in the Fund's consolidated statement of cash flows. 

 Maintenance  

        Maintenance expenditures generally represent the outlay of monies to sustain current cash flows. Maintenance expenditures typically
include the replacement of existing capital assets, including vehicles, equipment, containers, compactors, furniture, fixtures and computer equipment. Maintenance expenditures also include a charge
for the consumption and maintenance of landfill airspace calculated as follows: the cost of landfill airspace from the date of purchase together with estimated landfill construction costs, including
costs to maintain landfill disposal capacity, for the balance of the landfill's permitted or deemed permitted useful life, is divided by the total remaining permitted or deemed permitted capacity,
where capacity is measured in tonnes. The resulting amount is multiplied by capacity consumed in the respective period or year and represents the maintenance expenditure charge for the consumption of
landfill airspace. The cost to construct and maintain landfill airspace is not linear. Accordingly, there may be periods or years where landfill construction and airspace maintenance costs exceed the
maintenance expenditure charge for landfill airspace consumed. Landfill construction and airspace maintenance costs incurred in any period or year which exceeds the maintenance expenditure charge is
reflected as growth expenditures. In periods or years where landfill construction and airspace maintenance costs are lower than the maintenance expenditure charge for landfill airspace consumed, the
resulting difference is reflected as a reduction of growth expenditures. 

        The
Canadian segment increase is largely attributable to the replacement of landfill equipment at the Fund's Lachenaie landfill. The U.S. segment increase is due principally to a
larger business base, which is the result of organic and acquisition growth, and increasing costs to purchase maintenance capital. Foreign currency exchange fluctuations partially offset
the foregoing. 

17

 

 Growth  

        Growth expenditures generally represent the outlay of monies to generate new or future cash flows. Growth expenditures typically
include the purchase of vehicles, equipment, containers, compactors, furniture, fixtures and computer equipment to support new contract wins and organic business growth. Incurred landfill construction
costs, including costs to maintain landfill disposal capacity, which exceed the maintenance expenditure charge for consumed landfill airspace are characterized as growth expenditures until airspace is
consumed in a subsequent period or year. Growth expenditures are funded from excess free cash flow available for distribution(C) or from the Fund's revolving credit facilities. 

        Canadian
segment residential contract wins which commenced in 2006 exceeded those that commenced in 2007 resulting in a decline in comparative growth expenditures. The timing of landfill
expenditures, primarily at the Seneca Meadows landfill, and an increase in municipal contract wins are the primary reasons for the U.S. segment increase in growth expenditures. 

        Readers
are reminded that revenue, EBITDA(A), and cash flow contributions derived from vehicles, equipment and container growth expenditures will materialize over the
assets useful life. The Fund's typical pay back benchmark is three to five years. 

 Maintenance expenditures — risks and uncertainties  

        The Fund is required to maintain the productive capacity of various capital and landfill assets, including but not limited to vehicles
and equipment and landfill disposal capacity. A failure to maintain or replace vehicles and equipment will typically result in higher operating and maintenance costs, and could impact revenues if the
Fund cannot adequately service its customer base. A failure to maintain or replace landfill disposal capacity will ultimately result in a reduction of landfill revenues. The Fund is dependent on
various suppliers to maintain satisfactory maintenance expenditure levels and costs. Supply disruptions or curtailments, rising procurement costs, the cost of technological advancement, government
imposed regulation with regards to emissions or other regulations may impact revenues and operating costs, and all of these factors may impact free cash flow available for
distribution(B). 

 Distributions
  (all amounts are in thousands of Canadian dollars, except per trust unit and PPS amounts)

        The following table summarizes various details of the Fund's 2007 and 2006 distributions and dividends: 

																
	 
	 	Year ended December 31 	 
	 
	 	Period 	 	Monthly

distribution per

trust unit and

PPS dividend 	 	Annual

distribution per

trust unit and

PPS dividend 	 	Total trust unit

distributions

and PPS

dividends

declared 	 	Percentage

increase in total

distributions

and PPS

dividends 	 
	 2007
	 	January-December	 	$	0.1515	 	$	1.8180	 	$	123,326	 	 	7.9%	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 2006
	 	

August-December	 	
$	

0.1515	 	
$	

1.8180	 	
$	

49,534	 	 	 	 
	
	 	January-July	 	$	0.1415	 	$	1.6980	 	$	64,769	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	
	 	 	 	 	 	 	 	 	 	$	114,303	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

18

 

        The
following tables present the Fund's payout ratio by quarter and annually and on a cumulative quarterly and annual basis, from inception: 

																	
	2007

 
	 	Q4 	 	Q3 	 	Q2 	 	Q1 	 	Total 	 
	 Free cash flow available for distribution(B) (see page 10)
	 	$	47,628	 	$	48,001	 	$	39,767	 	$	33,090	 	$	168,486	 
	 Distributions declared, trust units
	 	$	26,165	 	$	26,154	 	$	26,016	 	$	24,553	 	$	102,888	 
	 Dividends declared, PPSs
	 	 	5,062	 	 	5,073	 	 	5,211	 	 	5,092	 	 	20,438	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Total distributions and dividends declared
	 	$	31,227	 	$	31,227	 	$	31,227	 	$	29,645	 	$	123,326	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Payout ratio
	 	 	65.6%	 	 	65.1%	 	 	78.5%	 	 	89.6%	 	 	73.2%	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Cumulative payout ratio, from inception
	 	 	80.8%	 	 	82.3%	 	 	84.2%	 	 	84.8%	 	 	80.8%	 
	 	 	 	 	 	 	 	 	 	 	 	 

 

																	
	2006

 
	 	Q4 	 	Q3 	 	Q2 	 	Q1 	 	Total 	 
	 Free cash flow available for distribution(B) (see page 10)
	 	$	39,283	 	$	38,762	 	$	33,250	 	$	30,562	 	$	141,857	 
	 Distributions declared, trust units
	 	$	24,369	 	$	23,802	 	$	22,775	 	$	22,775	 	$	93,721	 
	 Dividends declared, PPSs
	 	 	5,351	 	 	5,227	 	 	5,002	 	 	5,002	 	 	20,582	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Total distributions and dividends declared
	 	$	29,720	 	$	29,029	 	$	27,777	 	$	27,777	 	$	114,303	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Payout ratio
	 	 	75.7%	 	 	74.9%	 	 	83.5%	 	 	90.9%	 	 	80.6%	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Cumulative payout ratio, from inception
	 	 	84.3%	 	 	85.4%	 	 	86.8%	 	 	87.2%	 	 	84.3%	 
	 	 	 	 	 	 	 	 	 	 	 	 

 

																	
	2005

 
	 	Q4 	 	Q3 	 	Q2 	 	Q1 	 	Total 	 
	 Free cash flow available for distribution(B) (see page 10)
	 	$	30,542	 	$	32,913	 	$	33,131	 	$	24,151	 	$	120,737	 
	 Distributions declared, trust units
	 	$	21,595	 	$	20,672	 	$	18,739	 	$	15,624	 	 	76,630	 
	 Distributions declared, subscription receipts
	 	 	—	 	 	—	 	 	—	 	 	1,175	 	 	1,175	 
	 Dividends declared, PPSs
	 	 	6,130	 	 	6,429	 	 	6,963	 	 	6,374	 	 	25,896	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Total distributions and dividends declared
	 	$	27,725	 	$	27,101	 	$	25,702	 	$	23,173	 	$	103,701	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Payout ratio
	 	 	90.8%	 	 	82.3%	 	 	77.6%	 	 	96.0%	 	 	85.9%	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Cumulative payout ratio, from inception
	 	 	86.7%	 	 	86.0%	 	 	86.8%	 	 	89.2%	 	 	86.7%	 
	 	 	 	 	 	 	 	 	 	 	 	 

 
 

  Selected Annual Information
  (all amounts are in thousands of Canadian dollars, except per trust unit, PPS, and subscription receipt amounts)    
    

														
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	2005 	 	2004(3) 	 
	 Revenues
	 	$	917,357	 	$	771,819	 	$	677,424	 	$	193,389	 
	 Net income
	 	$	31,687	 	$	32,743	 	$	10,643	 	$	19,962	 
	 Net income per trust unit, basic and diluted
	 	$	0.56	 	$	0.61	 	$	0.22	 	$	0.75	 
	 Total assets
	 	$	1,971,212	 	$	1,766,660	 	$	1,717,742	 	$	397,670	 
	 Total long-term liabilities
	 	$	920,640	 	$	634,470	 	$	498,261	 	$	125,290	 
	 Distributions and dividends declared, per weighted average trust unit, subscription receipt, and PPS
	 	$	1.82	 	$	1.75	 	$	1.64	 	$	1.33	 

Notes: 

	(3)
	Revenues
have been reclassified to conform to the current year's presentation. 

19

 

 Revenues  

 2004-2005  

        The increase of approximately $484,000 is due primarily to the acquisition and consolidation of IESI for the period January 21
to December 31, 2005. Contributions from the IESI acquisition totaled approximately $429,800. The balance of the increase is due in large part to Canadian segment acquisitions which contributed
approximately $32,700 to the year over year change. The remainder of the increase relates to price increases, organic growth, higher fuel surcharges, and higher volumes of accepted waste entering
Fund-owned landfills. 

 2005-2006  

        The increase in consolidated revenues is due in part to solid organic Canadian and U.S. segment growth of approximately $31,300
and $46,000 or 12.9% and 10.7%, respectively. Strategic Canadian and U.S. "tuck-in" acquisitions also contributed to the total increase. 

 2006-2007  

        The increase in revenues is detailed in the Review of Operations — Revenues section of
this MD&A. 

 Net income  

        Included in net income are some or all of the following: amortization, interest on long-term debt, financing costs, net
(gain) loss on sale of capital and/or capital and landfill assets, net loss (gain) on financial instruments and/or derivative financial instruments, net foreign exchange (gain) loss,
write-off of deferred financing costs, other expenses, income taxes, and non-controlling interest. 

 2004-2005  

        The decrease, approximately $9,300, is primarily a function of the Fund's acquisition of IESI. IESI incurred a net loss for the period
January 21 to December 31, 2005 due largely to the retirement of their U.S. $150,000 10.25% senior subordinated notes. These notes were cancelled on the closing of the Fund's
acquisition of IESI. 

 2005-2006  

        The increase, approximately $22,100, is due largely to an increase in revenues which translated to EBITDA(A) growth,
approximately $29,900. In addition, a decline in 2006 financing costs, net of the related tax effect, approximately $22,800 versus the comparative year also contributed to the increase in net income.
The foregoing was partially offset by higher amortization and interest expense, due in part to the consolidation of IESI for a period of 344 days in 2005 compared to 365 in 2006, and a
larger business base due to organic and acquisition growth, approximately $9,200. The balance of the change is due to higher future income tax expense, excluding recoveries recognized on financing
costs, approximately $17,100, and higher non-controlling interest participation in net income, approximately $4,100. Higher future income tax expense is due largely to strong financial
results which eroded tax losses available to shelter taxable income and results in a decline in future income tax assets. 

 2006-2007  

        The increase in net income is detailed in the Review of Operations section of this MD&A. 

 Total assets  

 2004-2005  

        The increase in total assets of approximately $1,320,100 is due principally to assets recognized on the acquisitions of IESI and the
Ridge landfill totaling approximately $1,384,000, in aggregate. 

20

 

 2005-2006  

        The increase in total assets is approximately $48,900. The increase is due largely to a rise in goodwill, approximately $14,700,
attributable to acquisitions completed in 2006 net of foreign currency exchange fluctuations. The increase in capital assets, approximately $29,900 is attributable to completed acquisitions coupled
with an increase in purchases to accommodate growth, net of amortization and foreign currency fluctuations. Lower landfill asset balances, approximately $8,900, are due principally to amortization and
foreign currency fluctuations. 

        Intangible
assets also declined, approximately $7,300, due to amortization outpacing acquired intangibles and foreign currency fluctuations. The approximately $4,900 decline in cash and
cash equivalents is due largely to the timing of cash receipts and payments, partially offset by higher restricted cash balances. An approximately $6,600 increase in amounts due from
non-controlling interest represented amounts due from various IESI selling shareholders in satisfaction of various representations and warranties agreed to on the Fund's acquisition of
IESI. Accounts receivable increased approximately $20,500 due to the timing of collections and acquisitions. 

 2006-2007  

        The increase in total assets is approximately $204,600. The increase is due largely to a rise in goodwill and intangibles,
approximately $135,200 and $67,500, respectively, and is attributable to acquisitions completed in the current year net of amortization and foreign currency exchange fluctuations. The increase in
capital assets, approximately $82,500, was offset by a like decline in landfill assets, approximately $85,600. Higher capital asset balances are due principally to completed acquisitions coupled with
higher purchases to accommodate growth, net of amortization and foreign currency fluctuations. Lower landfill asset balances are due principally to amortization and foreign currency fluctuations. 

        Other
notables include, an approximately $6,600 decline in amounts due from non-controlling interests, the balance of which was repaid on the cancellation of PPS's, and an
approximately $7,000 decline in deferred financing costs which were written-off on the adoption of the CICA's guidance on financial instruments. Increases in cash and cash equivalents,
accounts receivable and prepaid expenses, approximately $4,100, $13,500 and $3,300, respectively, contributed to the increase in total assets. Acquisitions coupled with the timing of cash receipts,
payments and collections are the primary reasons for the increase in the aforementioned assets. 

 Total long-term liabilities  

 2004-2005  

        The increase in total long-term liabilities of approximately $373,000 is primarily attributable to the Fund's acquisitions
of IESI and the Ridge landfill in January 2005. 

 2005-2006  

        Of the $136,200 increase in long-term liabilities, approximately $77,100 is in respect of U.S. segment acquisition
and growth spending. In addition, approximately $44,000 is due to the Fund's renegotiation of its Canadian revolving credit facility, which resulted in the reclassification of $29,500 previously
recorded in current liabilities to long-term liabilities, and to acquisition and growth spending. The balance of the increase is due largely to an approximately $8,100 increase in closure
and post-closure cost accruals, primarily on account of provisions for landfill closure and post-closure costs, and an approximately $5,200 increase in future income tax
liabilities, due in large part to an approximately $4,300 valuation allowance established on certain U.S. loss carryforwards in the current year. 

 2006-2007  

        Total long-term liabilities increased by approximately $286,200. An increase of $258,500 in long-term debt, due
in large part to the acquisition of Winters Bros. and growth expenditures, was partially offset by the application of net proceeds from the Fund's trust unit offering to long-term debt
balances. Future income tax liabilities increased by approximately $25,700, due in large part to the acquisition of Winters Bros. Additional 

21

 

details
with respect to movements in future income tax balances can be found in the Review of Operations — for the year ended December 31,
2007 — Income tax expense (recovery) section of this MD&A. 

 
 

  Summary of Quarterly Results
  (all amounts are in thousands of Canadian dollars, except per trust unit amounts)

																		
	2007

 
	 	Q4 	 	Q3(4) 	 	Q2(4) 	 	Q1(4) 	 	Total 	 
	 Revenues
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Canada
	 	$	89,418	 	$	87,735	 	$	86,019	 	$	73,355	 	$	336,527	 
	 	 U.S. south
	 	$	77,479	 	 	82,278	 	 	80,398	 	 	74,535	 	 	314,690	 
	 	 U.S. northeast
	 	$	84,132	 	 	68,500	 	 	59,098	 	 	54,410	 	 	266,140	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Total revenues
	 	$	251,029	 	$	238,513	 	$	225,515	 	$	202,300	 	$	917,357	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income
	 	$	4,922	 	$	10,540	 	$	5,860	 	$	10,365	 	$	31,687	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income per weighted average trust unit, basic and diluted
	 	$	0.09	 	$	0.18	 	$	0.10	 	$	0.19	 	$	0.56	 
	 	 	 	 	 	 	 	 	 	 	 	 

 

																		
	2006

 
	 	Q4 	 	Q3 	 	Q2 	 	Q1 	 	Total 	 
	 Revenues
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Canada
	 	$	74,943	 	$	76,891	 	$	72,329	 	$	64,477	 	$	288,640	 
	 	 U.S. south
	 	 	70,097	 	 	67,183	 	 	66,021	 	 	63,820	 	 	267,121	 
	 	 U.S. northeast
	 	 	55,279	 	 	55,907	 	 	54,305	 	 	50,567	 	 	216,058	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Total revenues
	 	$	200,319	 	$	199,981	 	$	192,655	 	$	178,864	 	$	771,819	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income
	 	$	10,168	 	$	10,457	 	$	7,190	 	$	4,928	 	$	32,743	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income per weighted average trust unit, basic and diluted
	 	$	0.19	 	$	0.20	 	$	0.13	 	$	0.09	 	$	0.61	 
	 	 	 	 	 	 	 	 	 	 	 	 

 

																		
	2005

 
	 	Q4 	 	Q3 	 	Q2 	 	Q1 	 	Total 	 
	 Revenues
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Canada
	 	$	61,948	 	$	65,573	 	$	65,073	 	$	55,000	 	$	247,594	 
	 	 U.S. south
	 	 	63,196	 	 	62,710	 	 	62,760	 	 	45,079	 	 	233,745	 
	 	 U.S. northeast
	 	 	52,743	 	 	54,433	 	 	53,933	 	 	34,976	 	 	196,085	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Total revenues
	 	$	177,887	 	$	182,716	 	$	181,766	 	$	135,055	 	$	677,424	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income
	 	$	5,053	 	$	6,296	 	$	7,756	 	$	(8,462	)	$	10,643	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income per weighted average trust unit, basic and diluted
	 	$	0.10	 	$	0.13	 	$	0.16	 	$	(0.21	)	$	0.22	 
	 	 	 	 	 	 	 	 	 	 	 	 

Notes: 

	(4)
	See
New Accounting Policies Adopted — Financial instruments section of this MD&A. 

 Total approximate quarterly revenue growth from Q1 2005 to Q4 2007  

						
	 Revenues — Q1 2005
	 	$	135,100	 
	 Revenue growth additions:
	 	 	 	 
	 	 Acquisitions completed from 2005 to 2007
	 	 	48,700	 
	 	 Net price, volume, and fuel and environmental surcharge growth
	 	 	67,200	 
	 	 	 	 
	 Revenues — Q4 2007
	 	$	251,000	 
	 	 	 	 

22

 

 

 
 

  Financial Condition
  (all amounts are in thousands of Canadian dollars, unless otherwise stated)    
    

 Selected Consolidated Balance Sheet Information  

																				
	 
	 	Canada —

December 31,

2007 	 	U.S. —

December 31,

2007 	 	Consolidated —

December 31,

2007 	 	Canada —

December 31,

2006 	 	U.S. —

December 31,

2006 	 	Consolidated —

December 31,

2006 	 
	 Accounts receivable
	 	$	51,897	 	$	63,954	 	$	115,851	 	$	46,084	 	$	56,266	 	$	102,350	 
	 Intangibles
	 	$	33,736	 	$	110,950	 	$	144,686	 	$	45,375	 	$	31,829	 	$	77,204	 
	 Goodwill
	 	$	61,461	 	$	555,073	 	$	616,534	 	$	53,760	 	$	427,574	 	$	481,334	 
	 Deferred costs
	 	$	3,502	 	$	3,804	 	$	7,306	 	$	1,208	 	$	2,843	 	$	4,051	 
	 Capital assets
	 	$	144,681	 	$	260,219	 	$	404,900	 	$	124,418	 	$	197,954	 	$	322,372	 
	 Landfill assets
	 	$	194,039	 	$	450,672	 	$	644,711	 	$	203,421	 	$	526,869	 	$	730,290	 
	 Working capital position (deficit) — (current assets less current liabilities)
	 	$	(3,423	)	$	(21,921	)	$	(25,344	)	$	(6,690	)	$	(10,520	)	$	(17,210	)

 Accounts receivable  

					
	 $ Change — Consolidated December 31, 2007 versus December 31, 2006
	 	$	13,501	 
	 $ Change — Canada — December 31, 2007 versus December 31, 2006
	 	$	5,813	 
	 $ Change — U.S. — December 31, 2007 versus December 31, 2006
	 	$	7,688	 

        Solid
organic growth and the timing of collections are the primary reasons for the increase in Canadian segment accounts receivable, approximately $3,800. Acquisitions completed in 2007
also contributed approximately $2,000 to the increase. 

        Acquisitions
completed in 2007 resulted in an approximately $23,700 increase in U.S. segment accounts receivable. This increase was partially offset by an approximately $9,000
decline in amounts owing from a single customer in the U.S. and an approximately $10,000 decline due to foreign currency translation. Solid organic growth and the timing of collections are the primary
reasons for the balance of the change. 

 Intangibles  

					
	 $ Change — Consolidated December 31, 2007 versus December 31, 2006
	 	$	67,482	 
	 $ Change — Canada — December 31, 2007 versus December 31, 2006
	 	$	(11,639	)
	 $ Change — U.S. — December 31, 2007 versus December 31, 2006
	 	$	79,121	 

        Amortization
represents approximately $13,900 of the decline in Canadian segment intangibles. Intangibles recognized on current year acquisitions totaled $2,300, which partially offset
amortization. 

        Intangibles
recognized on acquisitions completed in the Fund's U.S. segment through 2007 total approximately $106,100, the most notable being the approximately $89,800 recognized on the
acquisition of Winters Bros. Normal course amortization, approximately $11,500, and foreign currency translation, approximately $15,500, represents the balance of the change. 

 Goodwill  

					
	 $ Change — Consolidated December 31, 2007 versus December 31, 2006
	 	$	135,200	 
	 $ Change — Canada — December 31, 2007 versus December 31, 2006
	 	$	7,701	 
	 $ Change — U.S. — December 31, 2007 versus December 31, 2006
	 	$	127,499	 

        Goodwill
recognized on acquisitions completed in the year represents the entire Canadian segment change. 

23

 

        Goodwill
recognized on U.S. segment acquisitions completed in the year totals approximately $195,000, while recognized goodwill attributable to contingent landfill payments
amounted to $20,200. These increases were partially offset by foreign currency translation, approximately $87,700. 

 Deferred costs  

					
	 $ Change — Consolidated December 31, 2007 versus December 31, 2006
	 	$	3,255	 
	 $ Change — Canada — December 31, 2007 versus December 31, 2006
	 	$	2,294	 
	 $ Change — U.S. — December 31, 2007 versus December 31, 2006
	 	$	961	 

        The
increase in Canadian segment deferred costs is due entirely to landfill development initiatives. 

        The
increase in U.S. segment deferred costs is due principally to corporate development activities, approximately $2,200, partially offset by foreign currency translation. 

 Capital assets  

					
	 $ Change — Consolidated December 31, 2007 versus December 31, 2006
	 	$	82,528	 
	 $ Change — Canada — December 31, 2007 versus December 31, 2006
	 	$	20,263	 
	 $ Change — U.S. — December 31, 2007 versus December 31, 2006
	 	$	62,265	 

        The
increase in Canadian segment capital asset additions is primarily attributable to vehicle, equipment, and container purchases, totaling $36,900 while acquired capital assets totaled
approximately $5,900. Capital asset additions were incurred in respect of new contract wins and solid organic growth with the balance due to capital asset maintenance. Additions were partially offset
by normal course amortization, approximately $21,600, and working capital adjustments, representing additions which remain unpaid, approximately $900. 

        Capital
asset purchases, approximately $59,300, coupled with capital assets acquired, approximately $89,500, are the primary reasons for the increase in the U.S. segment capital
asset balance. Totaling approximately $71,200, the Winters Bros. acquisition represents the bulk of acquired capital assets while U.S. segment purchases increased for the same reasons outlined
for the Fund's Canadian segment. Amortization, foreign currency translation, and working capital adjustments, approximately $44,700, $41,000, and $500, respectively, partially offset the foregoing
increases. The balance of the U.S. segment change is due to the sale of various capital assets. 

 Landfill assets  

					
	 $ Change — Consolidated December 31, 2007 versus December 31, 2006
	 	$	(85,579	)
	 $ Change — Canada — December 31, 2007 versus December 31, 2006
	 	$	(9,382	)
	 $ Change — U.S. — December 31, 2007 versus December 31, 2006
	 	$	(76,197	)

        Amortization,
including the amortization of capitalized landfill asset closure and post-closure costs, approximately $22,000, coupled with working capital adjustments,
representing landfill asset additions which remain unpaid, approximately $800, are the primary reasons for the Canadian segment decline in landfill assets. These amounts were partially offset by
additions, approximately $10,000, coupled with capitalized landfill closure and post-closure costs, a non-cash item, approximately $3,400. Landfill construction efforts were
principally carried out at the Fund's Lachenaie and Winnipeg landfills during the year. 

        Foreign
currency translation, approximately $80,500, coupled with amortization, including amortization of capitalized landfill asset closure and post-closure costs,
approximately $47,300, and working capital adjustments, approximately $200, is the primary reason for the U.S. segment decline. Additions, approximately $49,700, and capitalized landfill
closure and post-closure costs, a non-cash item, approximately $2,100, accounts for the balance of the U.S. segment change. Landfill construction at the Fund's Seneca
Meadow site is the primary contributor to landfill asset additions. 

24

 

 Working capital position (deficit)  

					
	 $ Change — Consolidated December 31, 2007 versus December 31, 2006
	 	$	(8,134	)
	 $ Change — Canada — December 31, 2007 versus December 31, 2006
	 	$	3,267	 
	 $ Change — U.S. — December 31, 2007 versus December 31, 2006
	 	$	(11,401	)

        The
Fund's Canadian segment experienced a rise in accounts receivable, approximately $5,800, and an approximately $5,000 decline in accounts payable, both of which result in a
strengthening of the Fund's working capital position. The increase in accounts receivable is largely on account of solid organic growth and acquisitions, while the decline in accounts payables is due
principally to the timing of capital and landfill asset purchases and payment thereof. A decline in other receivables coupled with an increase in deferred revenues and accrued charges, approximately
$1,300, $1,800 and $2,100, respectively, partially offset the strengthening working capital position attributable to accounts receivable and payables. The balance of the change is due to an increase
in the distribution payable coupled with a decline in prepaid expense and cash and cash equivalent amounts. 

        Upon
approval of the Seneca Meadow's landfill expansion, the Fund accrued amounts payable to the original seller totaling approximately U.S. $15,000. This accrual is the primary
cause of the decline in the Fund's U.S. segment working capital position. 

 Disclosure of outstanding trust unit data  

								
	 
	 	December 31, 2007 	 
	 
	 	Trust units 	 	$ 	 
	 Trust units
	 	 	57,568	 	 	1,006,751	 
	 Class A units
	 	 	—	 	 	—	 
	 	 	 	 	 	 
	 Total contributed equity
	 	 	57,568	 	 	1,006,751	 
	 	 	 	 	 	 

        Effective
April 5, 2007, the Fund closed a 3,565 trust unit offering, including the exercised over-allotment option, at $26.10 per trust unit. 

 Trust units  

        An unlimited number of trust units may be issued. Each trust unit is transferable, voting and represents an equal and undivided
beneficial interest in any distributions from the Fund whether of income, net realized capital gains or other amounts and in any net assets of the Fund in the event of termination
or wind-up. 

 Class A unit  

        IESI, as holder of the Class A unit, has the right to vote with trust units of the Fund on all matters on a basis of one vote
for each trust unit receivable on exercise of the exchange rights for each PPS. The Class A unit will generally vote together with trust units of the Fund at all unitholder meetings or in
respect of any written resolutions of unitholders. The holder of the Class A unit has the right to designate up to two Trustees of the Fund. The entitlement to designate Trustees is dependent
on the ownership interest of the non-controlling interest and the right to designate two Trustees is conditional on the non-controlling interest holding an ownership interest
in the Fund, on a fully diluted basis, in excess of 20%. If the ownership interest of the non-controlling interest falls below 20%, but is greater than 10%, the Class A unitholder
has the right to designate one Trustee of the Fund. If the ownership interest of the non-controlling interest falls below 10%, the Class A unitholder has no right to designate any
Trustees of the Fund. At December 31, 2007, the indirect ownership interest held by the non-controlling interest is approximately 16.2%. 

        The
Second Amended and Restated Declaration of Trust approved at the special unitholder meeting provides that, for so long as any PPSs remain outstanding, the Trustees shall not declare
payable, pay or make any distribution of distributable cash flow, as defined therein, or any other distribution of cash or property on a trust unit of the Fund unless IESI declares a payment or
dividend to holders of the PPSs in an amount equal to the per trust unit distribution payable to unitholders of the Fund. The Class A unit is redeemable at the option 

25

 

of
the holder at any time or at the option of the Fund at any time after the date that no PPSs are outstanding and the Class A unit rights against the Fund have ceased. The redemption price of
the Class A unit will be for a nominal amount. 

 Withholding taxes on foreign source income  

        Withholding tax paid on foreign source income is available for pass through for the benefit of the Fund's unitholders.
Withholding taxes on foreign source income represents a charge to current income tax expense on the Fund's consolidated statement of operations and comprehensive (loss) income. Effective
August 31, 2007, and concurrent with the acquisition of Winters Bros. and U.S. revolving credit facility amendment, the Fund cancelled its U.S. note. Accordingly, the Fund has no
foreign source interest income which is subject to withholding taxes effective August 31, 2007. 

 Non-controlling interest  

        As of March 6, 2008, 10,878 PPSs have been converted into trust units of the Fund since issuance on January 21,
2005. Each holder of a PPS receives dividends equivalent to those received by holders of the Fund's trust units. In satisfaction of various representations and warranties made by certain IESI selling
shareholders, 250 PPSs were redeemed and cancelled by the Fund in February 2007. Assuming exchange of all PPSs, for trust units of the Fund, 68,706 equivalent trust units would be
outstanding at December 31, 2007. 

 
 

  Liquidity and Capital Resources
  (all amounts are in thousands of Canadian dollars, except per tonne amounts, unless otherwise stated)

 Contractual obligations  

																	
	 
	 	December 31, 2007 	 
	 
	 	Payments due 	 
	 
	 	Total 	 	Less than 1 year 	 	1-3 years 	 	4-5 years 	 	After 5 years 	 
	 Long-term debt
	 	$	801,973	 	$	—	 	$	376,531	 	$	264,680	 	$	160,762	 
	 Landfill closure and post-closure costs, undiscounted
	 	 	373,364	 	 	2,900	 	 	18,076	 	 	14,455	 	 	337,933	 
	 Operating leases
	 	 	28,254	 	 	5,520	 	 	8,172	 	 	3,945	 	 	10,617	 
	 Other long-term obligations(4)
	 	 	22,500	 	 	1,500	 	 	—	 	 	—	 	 	21,000	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Total contractual obligations
	 	$	1,226,091	 	$	9,920	 	$	402,779	 	$	283,080	 	$	530,312	 
	 	 	 	 	 	 	 	 	 	 	 	 

Notes: 

	(4)
	Other
long-term obligations include the following: a $1.50 per tonne royalty at the Lachenaie landfill site, estimated at the maximum annual
payout of $1,500, and payments on account of a license agreement to use the trade name "BFI" and the related logo for the period from June 30, 2015 to June 30, 2034. Contingent
consideration in respect of certain acquisitions is not included in the table above. 

26

 

 Long-term debt  

        Summarized details of the Fund's long-term debt facilities are as follows: 

														
	 
	 	Available

lending 	 	Facility drawn at

December 31,

2007 	 	Letters of credit

(not reported as

long-term debt

on the

Consolidated

Balance Sheets) 	 	Current

available

capacity 	 
	 Canadian long-term debt facilities — stated in Canadian dollars
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Senior secured debentures, series A
	 	$	47,000	 	$	47,000	 	$	—	 	$	—	 
	 Senior secured debentures, series B
	 	$	58,000	 	$	58,000	 	$	—	 	$	—	 
	 Revolving credit facility
	 	$	150,000	 	$	72,000	 	$	24,713	 	$	53,287	 
	 U.S. long-term debt facilities — stated in U.S. dollars
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Term loan
	 	$	195,000	 	$	195,000	 	$	—	 	$	—	 
	 Revolving credit facility
	 	$	575,000	 	$	333,500	 	$	166,755	 	$	74,745	 
	 IRBs
	 	$	104,000	 	$	104,000	 	$	—	 	$
	—

	 

        Effective
August 31, 2007 and concurrent with the closing of the Winters Bros. acquisition, the Fund entered into a third amendment to its Amended and Restated Revolving Credit
and Term Loan Agreement. The amendment makes available an additional U.S. $320,000 bringing the total available capacity under the U.S. revolving credit facility to U.S. $575,000.
With the exception of certain modified financial covenants and the maintenance of interest rate swaps, all significant terms, including but not limited to pricing and maturity, remain unchanged. The
previous long-term debt facility required IESI to maintain interest rate swaps for not less than 60% of its variable rate interest payable on the term loan, but not more than 50% of the
total drawn facility. This condition has been modified and now requires IESI to maintain not less than 40% of total funded debt on a fixed rate basis within 30 days from the third
amendment date. 

        Effective
April 5, 2007, the Fund closed its trust unit offering and applied the net proceeds from the offering, approximately $87,600, against advances on its
U.S. revolving credit facility. 

        Effective
March 21, 2007, the Fund entered into a Second Amending Agreement to its Fourth Amended and Restated Credit Agreement. The second amendment increases the total committed
Canadian segment credit to $150,000 from $80,000 and the total available credit from this facility, subject to lender consent, to $200,000 from $120,000. The maturity date was extended to
May 30, 2011 from June 30, 2010, and the maturity date remains subject to one year extensions. 

        Effective
March 28, 2007, IESI entered into a new 15 year agreement for IRBs in the state of Texas. The IRBs are made available, to a maximum of U.S. $24,000 and are
available to fund a portion of landfill construction activities, and equipment, vehicle, and container expenditures in the Fund's Texas operations. The IRBs bear interest at a discount to LIBOR. A
portion of the Fund's drawings under this facility with the
balance used to finance landfill construction activities, and equipment, vehicle, and container expenditures. At December 31, 2007, approximately U.S. $1,600 of cash was restricted for
the purpose of financing future activities and expenditures. 

        Both
the Canadian and U.S. long-term debt facilities have an accordion feature which can increase the available capacity of the Canadian revolving credit facility from
$150,000 to $200,000 and can increase the available capacity of the U.S. term loan and revolving credit facility from U.S. $770,000, in aggregate, to U.S. $825,000, in aggregate,
subject to certain restrictions. 

        At
December 31, 2007 the Fund is not in default of its long-term debt facility covenants. On a consolidated basis, the Fund's long-term debt to last twelve
months EBITDA(A) ratio is 2.91 times. Readers are reminded that contributions to EBITDA(A) from acquisitions completed within the last twelve months are not included
in the foregoing ratio and that the Fund has two revolving credit facilities to support its Canadian and U.S. segment operations which require financial covenant tests to be prepared
separately. Management of the Fund is confident that the Fund's long-term debt facilities, available capacities, including its accordion features, and 

27

 

access
to other sources of long-term debt financing are sufficient to meet the Fund's near-term planned growth and development activities. 

        A
portion of the Fund's term loan, its two revolving credit facilities, and its IRBs are subject to interest rate fluctuations with bank prime, the 30 day rate on bankers'
acceptances or LIBOR. The Fund has hedged U.S. $262,000 of variable rate interest on its U.S. long-term debt facility. The balance of drawings on the U.S. long-term debt facility,
U.S. $266,500, together with amounts drawn on the Fund's Canadian revolving credit facility totaling $72,000, and amounts drawn on the IRBs, are subject to interest rate risk. A 1.0% rise or
fall in the variable interest rate results in a U.S. $2,665, $720, and U.S. $1,040, change in annualized interest expense incurred on the Fund's U.S. long-term debt facility,
Canadian revolving credit facility, and IRBs, respectively. 

        The
Fund is obligated under the terms of its debentures, term loan, revolving credit facilities, and IRBs (collectively the "facilities") to repay the full principal amount of each at
their respective maturities. A failure to comply with the terms of any facility could result in an event of default which, if not cured or waived, could accelerate repayment of the relevant
indebtedness. If repayment of the facilities were to be accelerated, there can be no assurance that the assets of the Fund would be sufficient to repay these facilities in full. 

        The
terms of the facilities contain restrictive covenants that limit the discretion of the Fund's management with respect to certain business matters. These covenants place restrictions
on, among other things, the ability of the Fund to incur additional indebtedness, to create liens or other encumbrances, to pay distributions on trust units and dividends on PPSs above certain levels
or make certain other payments, investments, loans and guarantees, and to sell or otherwise dispose of assets and merge or consolidate with another entity. In addition, the debentures and revolving
credit facilities contain a number of financial covenants that require the Fund to meet certain financial ratios and financial condition tests. A failure to
comply with the terms of the facilities could result in an event of default which, if not cured or waived, could result in accelerated repayment. If the repayment of the facilities were to be
accelerated, there can be no assurance that the assets of the Fund would be sufficient to repay these facilities in full. 

        The
Fund's U.S. revolving credit facility restricts total annualized capital and landfill expenditures, less expenditures for new municipal contracts, to 1.1 times annual capital
and landfill asset amortization. If opportunities arise that require growth capital expenditures that are in excess of the restrictive covenant, the Fund would seek a waiver of this covenant. Failure
to receive the waiver could accelerate the repayment of the relevant indebtedness or result in the postponement of growth capital expenditures. If the repayment of the facility were to be accelerated,
there can be no assurance that the assets of the Fund would be sufficient to repay this facility in full. 

        Management
of the Fund actively reviews its financing alternatives. 

 Cash flows  

											
	 
	 	Year ended December 31 	 
	 
	 	2007 	 	2006 	 	$Change 	 
	 Cash flows generated from (utilized in):
	 	 	 	 	 	 	 	 	 	 
	 Operating activities
	 	$	217,415	 	$	185,698	 	$	31,717	 
	 Investing activities
	 	$	(522,988	)	$	(166,677	)	$	(356,311	)
	 Financing activities
	 	$	308,509	 	$	(23,953	)	$	332,462	 

 Operating activities  

        Solid organic and acquisition growth is the primary reason for the increase in cash generated from operating activities for the year
ended December 31. Cash generated from organic and acquisition growth was partially offset by higher borrowing and financing costs, approximately $8,700 and $7,100, respectively. Higher
borrowing and financing costs were incurred principally to support organic and acquisition growth. Changes in non-cash working capital is the primary reason for the bulk of the remaining
change, details of which are outlined in the Financial Condition — Working capital position (deficit) section of
this MD&A. 

28

 

 Investing activities  

        Acquisitions completed in 2007 compared to those completed in 2006 are the primary reasons for the increase in cash utilized in
investing activities, approximately $332,700. Representing approximately $306,300 of the total current year acquisitions, Winters Bros. is the primary reason for the year over year increase. Capital
asset purchases also rose, approximately $21,800, due in large part to maintaining capital assets for a larger business base coupled with higher aggregate growth expenditures. 

 Financing activities  

        Net proceeds from long-term debt facilities, and net proceeds from the Fund's trust unit offering, approximately $339,700
are the primary reasons for the increase. Net proceeds were used primarily to fund acquisitions and, to a lesser extent, growth expenditures. The balance of the change is due principally to higher
distributions and dividends paid to unitholders and participating preferred shareholders. 

 
 

  Seasonality    
  

        Revenues are generally higher in spring, summer and autumn months due to higher collected and disposed of waste
volumes. Higher collection and disposal revenues are partially offset by higher operating expenses to service and dispose of additional waste volumes. 

 
 

  Risks and Uncertainties    
  

        The Fund is subject to various risks and uncertainties which are summarized below. Additional details are contained in
the Fund's 2007 Annual Information Form filed on SEDAR, which can be found at www.sedar.com.

	•
	renewal or maintenance of landfill operating permits  
	•
	modifications to landfill operating permits  
	•
	continued focus on growth through acquisition  
	•
	continued management of business growth  
	•
	loss of contracts through competitive bidding or early termination  
	•
	reliance on third party disposal customers  
	•
	geographic concentration of operations  

	•
	customer concentration  
	•
	weather and seasonality  
	•
	union labour
agreements  
	•
	fuel surcharge cost pass through  
	•
	reliance on key management executives  
	•
	localized decision making  
	•
	surety bonds, letters of credit and insurance   

	•
	leverage, restrictive covenants, and capital requirements  
	•
	uninsured and underinsured losses  
	•
	legislation and governmental regulation  
	•
	environmental regulation and litigation  
	•
	environmental contamination  
	•
	competition  
	•
	governmental initiatives to reduce landfill disposal by encouraging
alternatives
 
	•
	control of 4264126 Canada Limited  
	•
	foreign exchange exposure  
	•
	accounting estimates  
	•
	internal control over financial reporting and disclosure control procedures  
	•
	distributions are not guaranteed  
	•
	nature of trust units  
	•
	
income tax matters in Canada, including the taxation of income trusts, and the United States 
	•
	distribution of securities on redemption or termination of the Fund

	•
	unitholder liability 

29

 
	•
	investment eligibility and foreign property  
	•
	restrictions on certain unitholders and liquidity of trust units  
	•
	future exchanges of the non-controlling interests investment 

 
 

  Outlook
  (all amounts are in thousands of Canadian dollars, unless otherwise stated)

 Overview  

        Management is committed to employing its improvement and market-focused strategies with the goal of continuously delivering value to
its unitholders. Management's objective is continuous improvement, which equates to continuous revenue growth coupled with effective cost management. New market entry, existing market densification
and landfill development will be a continued focus of the Fund as it looks for ways to expand its operations, increase customer density in strategic markets, and increase internalization. The Fund's
strengths remain founded in the following: consistent historical organic growth, growth through strategic acquisition, strong competitive position, a solid customer base with long-term
contracts, disciplined operating process, predictable maintenance expenditure requirements, and stable generation of free cash flow available for distribution(B). Management of the Fund
remains committed to actively managing these strengths in the future. 

 Structure  

        It is management's belief that the Fund requires both capital market breadth and certainty. Without these fundamentals, efficient
access to, and cost of, capital diminish the attractiveness of acquisitions, which management contends is a key element to the Fund's past and future success and value driver. Accordingly, the
Trustees continue to work actively with management to review the Fund's corporate structure with a committed goal of enhancing total return for its investors. 

 Strategic acquisitions  

        The Fund is active in its review and pursuit of new market or strategic "tuck-in" acquisitions. 

 Maintenance expenditures  

        For fiscal 2008, maintenance expenditures, representing the replacement of capital and landfill assets to sustain current business
operations, are expected to approximate $22,000 to $24,000 and U.S. $37,000 to U.S. $39,000 for the Canadian and U.S. operations, respectively. Maintenance expenditures are
expected to be concentrated in the first three quarters, which may result in the declaration and payment of distributions and dividends in these quarters that are in excess of free cash flow available
for distribution(B). 

 Growth expenditures  

        Growth expenditures represent capital and landfill asset additions required to meet the demands of acquired or organic growth or
expenditures that specifically benefit a future period or periods. For 2008, management expects to incur growth expenditures for the construction of landfill airspace capacity that will benefit a
future period or periods and to grow the Fund's collection operations. 

 Liquidity  

        Management of the Fund remains active in its review of interest rate alternatives and foreign currency exchange rates. 

 Operations  

        The Fund has received significant volumes of waste at its landfills, which may not continue at a similar rate. The Fund is active in
various permit expansion efforts at certain landfills as permitted life is consumed. The Fund is actively reviewing alternatives to replace its Calgary landfill site and effective April 2006 is
deferring costs incurred to develop an alternative site. The Fund is also active in its efforts to expand the Lachenaie 

30

 

landfill.
Development spending in respect of both initiatives is included in deferred costs on the consolidated balance sheet. 

        The
Fund continuously bids residential and other government contracts which may require significant growth expenditures. 

        The
Fund will continue to pass through fuel surcharges, and environmental costs, including government imposed disposal charges, to its customers with a view to eliminating operating cost
variability in its operating results and free cash flow available for distribution(B). Readers are reminded that increasing fuel costs, environmental costs, and government imposed
disposal charges result in higher revenues and, all else equal, reduce the Fund's gross operating margin (defined as revenues less operating expenses divided by revenues). 

 Other  

 Taxation of income trusts  

        On October 31, 2006, the Minister of Finance (Canada) announced proposed changes to the income tax treatment of distributions
and allocations to and from the Fund. On June 12, 2007, the proposed legislation, with certain modifications, passed third reading and received royal assent on June 22, 2007. The
proposals, which are effective for the 2011 taxation year, subject to certain conditions, make certain income earned by the Fund taxable in a manner similar to income earned by a corporation. 

 Financing strategic growth  

        One of management's principal objectives is to grow organically and through strategic acquisition. Growth is dependent on the Fund's
ability to access debt and equity in the capital markets. Any restrictions will affect the Fund's growth objective. 

 Distributions  

        Distributions are dependent on free cash flow available for distribution(B) and other factors, including but not limited
to the Fund's ability to access debt and equity in the capital markets. The rate of distribution declared per trust unit, and by extension PPS dividends, is reviewed by the Trustees from time
to time. 

 Normal course issuer bid  

        On November 6, 2006, the Fund received approval to commence a normal course issuer bid for up to 2% of the trust units
outstanding in any 30 day period and not more than 10% of trust units outstanding in any 365 day period, where total trust units outstanding is equal to 53,617. The normal course issuer
bid has terminated and no trust units were repurchased. 

 Withholding taxes on foreign source income  

        Withholding taxes on foreign source income are recorded as current income tax expense on the consolidated statement of operations and
comprehensive (loss) income. An increase in dividends paid, or the erosion of IESI's ability to return capital, will result in increasing withholding taxes. 

 Optimization of tax losses and tax efficiency of structure  

        Management of the Fund periodically reviews its organizational structure to promote tax efficiency and optimize the use of tax losses
within the structure. The Fund expects to incur additional reorganization costs in this regard. 

31

 

 

 
 

  Critical Accounting Estimates    
  

 Landfill closure and post-closure costs  

        Costs associated with capping, closing and monitoring the landfill after it ceases to accept waste are recognized at fair value over
the landfill's operating life which is the period over which the landfill accepts waste. The Fund develops estimates for closure and post-closure costs with input from its engineers, and
landfill and accounting personnel. Estimates are reviewed at least once annually and consider the various regulations that govern each facility. Revenues derived from the Fund's landfill gas to energy
facilities do not reduce the Fund's closure and post-closure cost estimates for periods during or post waste acceptance. The Fund's landfill closure and post-closure cost
estimates approximate fair value, as quoted market prices are generally not available. Accordingly, the Fund develops its fair value estimates using present value techniques that considers and
incorporates assumptions marketplace participants would use in the determination of these estimates, including inflation, markups, inherent uncertainties due to the timing of work performed,
information obtained from third parties, quoted and actual prices paid for similar work and engineering estimates. Inflation assumptions are based on management's understanding of current and future
economic conditions and the expected timing of expenditures. An inflation factor of 3.0% and 2.5% has been used in the derivation of fair value estimates for the Fund's Canadian and
U.S. landfills, respectively. Fair value estimates are then discounted back to their present value using the credit adjusted risk free rate, which is the rate of interest that is essentially
free of default risk, plus an adjustment for the Fund's credit standing. The credit adjusted risk free rate is based on management's understanding of current and future economic conditions and the
expected timing of expenditures. Accordingly, the Fund has discounted landfill closure
and post-closure costs using a credit adjusted risk free rate of 5.6% and 7.2% for its Canadian and U.S. landfills, respectively. Due to the inherent uncertainty in making these
estimates, actual results could differ. Future changes in the Fund's credit standing do not change previously recorded closure and post-closure costs, but impact subsequent fair value
calculations. 

        Reliable
estimates of market risk premiums are not available as there is no existing market for selling the responsibility of landfill closure and post-closure activities.
Accordingly, the Fund has excluded any estimate of market risk premiums in the determination of fair value for landfill closure and post-closure costs. 

        Upward
revisions to estimated closure and post-closure costs are discounted using the current credit adjusted risk free rate. Downward revisions to estimated closure and
post-closure costs are discounted using the credit adjusted risk free rate when the estimated closure and post-closure costs were originally recorded or a weighted average
credit adjusted risk free rate if the period of original recognition cannot be identified. 

        The
Fund records the estimated fair value of landfill closure and post-closure costs as airspace is consumed. The total obligation will be fully accrued at the time these
facilities cease to accept waste and are closed. 

        Maintenance
activities including: environmental monitoring, mowing and fertilizing, leachate management, well monitoring, buffer maintenance, landfill gas to energy collection and
flaring systems, and other activities, are charged to operating expenses during the operating life of the landfill. These same costs are estimated and included in the Fund's landfill closure and
post-closure accruals for all activities that occur post the landfill's operating life. Maintenance activities are generally required for a period of 30 years post waste acceptance. 

        Accretion,
representing an increase in the carrying amount of landfill closure and post-closure cost accruals due to the passage of time, is recognized as an operating
expense in the consolidated statement of operations and comprehensive (loss) income and continues post waste acceptance. 

        The
assumptions included in the determination of closure and post-closure cost obligations are significant and numerous. Accordingly, it is not practical to disclose the
sensitivity of each estimate in isolation or in aggregate or to provide a probable range of possible outcomes which may differ from recorded or disclosed amounts. Changes in estimated costs, the
estimated closure and post-closure spending sequence, discount rates, and capacities may have a significant impact on future closure and post-closure cost obligations, the
related landfill assets, and the results of operations. Changes to assumptions while a landfill is accepting waste is accounted for prospectively and reflected as a revision in estimated cash flows in
the year of the change. The impact of the change in subsequent periods is recognized over the landfills estimated remaining useful life. Changes in assumptions that affect landfills which are no
longer accepting waste are charged to operations when known. 

32

 

        The
following tables outline key assumptions used to determine the fair value of landfill closure and post-closure costs, the expected timing of landfill closure and post-closure
expenditures, and reconcile beginning and ending landfill closure and post-closure costs: 

					
	 
	 	December 31,

2007 	 
	 Fair value of legally restricted assets
	 	$	5,976	 
	 Undiscounted closure and post-closure costs
	 	$	373,364	 
	 Credit adjusted risk free rate — Canadian segment landfills
	 	 	5.6%	 
	 Credit adjusted risk free rate — U.S. segment landfills
	 	 	7.2%	 
	 	 	 	 
	 Expected timing of undiscounted landfill closure and post-closure expenditures
	 	 	 	 
	 2008
	 	$	2,900	 
	 2009
	 	 	9,184	 
	 2010
	 	 	8,892	 
	 2011
	 	 	4,984	 
	 2012
	 	 	9,471	 
	 Thereafter
	 	 	337,933	 
	 	 	 	 
	
	 	$	373,364	 
	 	 	 	 

 

								
	 
	 	2007 	 	2006 	 
	 Landfill closure and post-closure costs, beginning of year
	 	$	64,535	 	$	66,405	 
	 Provision for landfill closure and post-closure costs, during the year
	 	 	9,554	 	 	8,180	 
	 Accretion expense, during the year
	 	 	3,086	 	 	2,932	 
	 Landfill closure and post-closure expenditures, during the year
	 	 	(4,541	)	 	(13,016	)
	 Revisions to estimated cash flows, during the year
	 	 	(5,430	)	 	177	 
	 Foreign currency translation adjustment, during the year
	 	 	(8,361	)	 	(143	)
	 	 	 	 	 	 
	 Landfill closure and post-closure costs, end of year
	 	$	58,843	 	$	64,535	 
	 	 	 	 	 	 

        Readers
are reminded that the Fund reports its financial results in Canadian dollars. Consequently, changes in the foreign currency exchange rate between Canada and the
U.S. impacts the translated value of the Fund's U.S. landfill assets and landfill closure and post-closure cost obligations and operating results. U.S. denominated
amounts are settled in U.S. dollars from U.S. cash flows. 

 Other  

        Other estimates include, but are not limited to, the following: estimates of the Fund's allowance for doubtful accounts receivable;
realization of future income tax assets; future earnings, income tax and other estimates used in the determination of the fair value of goodwill for the Fund's annual test of impairment; deferred cost
recoverability assumptions; the useful life of capital and intangible assets; estimates and assumptions used in the determination of the fair value of contingent acquisition payments; accrued accident
claims reserves; projected landfill construction and development costs and estimated permitted airspace capacity consumed in the determination of landfill asset amortization; estimated landfill
remediation costs; various economic estimates used in the development of fair value estimates; and future income tax assets and liabilities. 

 
 

  New Accounting Policies Adopted    
  

        On January 1, 2007, the Fund adopted revisions to the CICA accounting standard for Accounting Changes
(section 1506). The revised standard sets forth expanded disclosures for changes in accounting policies, accounting estimates, and accounting errors. The standard requires that accounting
changes be applied retrospectively unless otherwise permitted or where it is deemed impractical. The standard also requires that the Fund disclose new primary sources of GAAP that have been issued,
but are not adopted because they are not currently effective. 

33

 

        On
January 1, 2007, the Fund adopted the following CICA accounting standards: Financial Instruments — Recognition and Measurement
(section 3855), Financial Instruments — Disclosure and Presentation (section 3861), Hedges (section 3865), Comprehensive Income
(section 1530), Investments (section 3051), and Equity (section 3251). The Fund adopted these standards retrospectively without restatement, with the exception of the
presentation of accumulated gains and losses on the translation of self sustaining foreign operations. 

 Financial instruments  

        This section outlines standards for recognizing and measuring balance sheet financial instruments and for reporting the resulting gains
and losses. The standard requires that all financial assets and liabilities, including derivatives and derivatives that are part of a hedging relationship, be measured at fair value, with the
exception of the following: loans and receivables; held-to-maturity investments; investments in available for sale equity instruments that do not have a quoted market price in
an active market; and financial liabilities measured at amortized cost. The standard also requires that all non-financial derivatives, subject to certain exceptions, be measured at
fair value. 

        Gains
or losses on financial instruments measured at fair value are recognized in the determination of net income in the periods in which they arise, with the exception of the following:
gains and losses on financial assets classified as available for sale and certain financial instruments that are part of a designated hedging relationship. 

        The
effect of adopting these sections is detailed in the Fund's consolidated financial statements. 

        On
adoption of CICA 3855, the Fund concluded that the redemption option on its debentures was an embedded derivative. Accordingly, the Fund recorded the difference between the carrying
amount of its debentures and the redemption options values. In addition, subsequent fair value changes to the redemption options were recorded in the Fund's consolidated statement of operations and
comprehensive (loss) income. Management has determined that its interpretation of CICA 3855, as it relates to embedded derivatives, was inconsistent with interpretations of other reporting issuers and
other ancillary interpretations and practices. The 

34

 

Fund
has since concluded that the fair value of the redemption option on its debentures is $nil. The Fund's adjustment, are as follows: 

											
	 
	 	2007 	 
	 
	 	Q1 	 	Q2 	 	Q3 	 
	 Consolidated Balance Sheets
	 	 	 	 	 	 	 	 	 	 
	 Future income tax (liabilities) assets
	 	$	(1,399	)	$	2,043	 	$	1,159	 
	 Other liabilities
	 	$	1,003	 	$	2,602	 	$	548	 
	 Non-controlling interest
	 	$	263,046	 	$	259,009	 	$	255,980	 
	 Unitholders' equity
	 	$	687,080	 	$	710,930	 	$	653,357	 
	 Consolidated Statements of Operations and Comprehensive (Loss) Income
	 	 	 	 	 	 	 	 	 	 
	 Net loss (gain) on financial instruments
	 	$	1,855	 	$	(3,061	)	$	2,924	 
	 Income before income taxes and non-controlling interest
	 	$	6,723	 	$	12,195	 	$	14,962	 
	 Income tax (recovery) expense — future
	 	$	(7,455	)	$	1,217	 	$	485	 
	 Income before non-controlling interest
	 	$	12,515	 	$	7,034	 	$	12,584	 
	 Non-controlling interest
	 	$	2,150	 	$	1,174	 	$	2,044	 
	 Net income
	 	$	10,365	 	$	5,860	 	$	10,540	 
	 Comprehensive income (loss)
	 	$	5,307	 	$	(39,575	)	$	(31,419	)
	 Net income per trust unit, basic and diluted
	 	$	0.19	 	$	0.10	 	$	0.18	 
	 Consolidated Statements of Cash Flows
	 	 	 	 	 	 	 	 	 	 
	 Net income
	 	$	10,365	 	$	5,860	 	$	10,540	 
	 Future income taxes
	 	$	(7,455	)	$	1,217	 	$	485	 
	 Net loss (gain) on financial instruments
	 	$	1,855	 	$	(3,061	)	$	2,924	 
	 Non-controlling interest
	 	$	2,150	 	$	1,174	 	$	2,044	 
	 Consolidated Statements of Unitholders' Equity, Deficit and Accumulated
	 	 	 	 	 	 	 	 	 	 
	 Other Comprehensive Loss
	 	 	 	 	 	 	 	 	 	 
	 Accumulated net income, beginning of period or year
	 	$	86,947	 	$	93,742	 	$	99,602	 
	 Net income, during the period
	 	$	10,365	 	$	5,860	 	$	10,540	 
	 Transition adjustment
	 	$	(3,570	)	$	—	 	$	—	 
	 Accumulated net income, end of period
	 	$	93,742	 	$	99,602	 	$	110,142	 
	 Unitholders' equity
	 	$	687,080	 	$	710,930	 	$	653,357	 

 Hedges  

        This section outlines when and how hedge accounting may be applied. Applying hedge accounting is at the option of the issuer.
Management of the Fund has not adopted hedge accounting and accordingly adopting this section did not have any effect on the Fund's consolidated financial statements. 

 Comprehensive income  

        This section outlines reporting and disclosure standards for comprehensive income and its components. The new standard does not address
issues of recognition and measurement. Comprehensive income represents all changes to unitholders' equity, other than those arising from investments by and distributions to unitholders. The effect of
adopting this section is detailed in the Fund's consolidated financial statements. 

 Investments  

        This section establishes accounting standards for investments subject to significant influence and for measuring and disclosing certain
other non-financial investments. Adopting this section had no impact on the consolidated financial statements of the Fund. 

35

 

 Equity  

        This section establishes standards for the presentation of equity and changes in equity during the reporting period. Adopting this
section resulted in changes to the Fund's included in the Fund's consolidated financial statements. 

 
 

  New Accounting Policies Requiring Adoption    
  

 Financial instruments  

        CICA accounting standards, Financial Instruments — Disclosures (section 3862), Financial
Instruments — Presentation (section 3863), and Capital Disclosures (section 1535) require additional disclosures with respect to the significance
and risks, and management, of financial instruments and capital disclosures as they relate to the Fund's objectives, policies and process for managing capital. The standards are applicable to annual
and interim financial statements for fiscal years beginning on or after October 1, 2007. The Fund is currently evaluating the impact of adopting these new standards and does not expect their
adoption to have a material impact on the Fund's consolidated financial statements. 

 Goodwill and intangible assets  

        CICA accounting standard, Goodwill and Intangibles (section 3064), replaces Goodwill and Other Intangibles (section 3062)
and Research and Development Costs (section 3450). The primary changes to CICA 3064 establish standards for the recognition, measurement, presentation and
disclosure of internally generated goodwill and intangible assets. This section applies to annual and interim financial statements relating to fiscal years beginning on or after October 1,
2008, with early adoption encouraged. Adopting this section is not expected to have any impact on the Fund's consolidated financial statements. 

 
 

  Financial Information Controls and Procedures    
  

        The Vice Chairman and Chief Executive Officer and the Chief Financial Officer of the Fund, together with various levels
of management, have evaluated the Fund's controls and procedures at December 31, 2007 and are collectively satisfied that the Fund's disclosure controls and procedures were adequate and
effective to ensure significant information relating to the Fund is disclosed in accordance with regulatory requirements. 

        For
the year ended 2007, there have been no changes to the Fund's internal control over financial reporting that had, or is reasonably likely to have, a material affect on its internal
controls over financial reporting. 

 
 

  Definitions of EBITDA and free cash flow available for distribution    
  

	(A)
	All
references to "EBITDA" in Management's Discussion and Analysis are to "income before the following" on the consolidated statement of operations and
comprehensive (loss) income. "Income before the following" excludes some or all of the following: "amortization, interest on long-term debt, financing costs, net gain or loss on sale of
capital and landfill assets, net gain or loss on financial instruments, net foreign exchange gain or loss, write-off of deferred financing costs, other expenses, income taxes, and
non-controlling interest". EBITDA is a term used by the Fund that does not have a standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and is
therefore unlikely to becomparable to similar measures used by other issuers. EBITDA is a measure of the Fund's operating profitability, and by definition, excludes certain items as detailed above.
These items are viewed by management as either non-cash (in the case of amortization, certain financing costs, write-off of deferred financing costs, net gain or loss on
financial instruments, net foreign exchange gain or loss, and future income taxes) or non-operating (in the case of interest on long-term debt, net gain or loss on sale
of capital and landfill assets, certain financing costs, other expenses, current income taxes, and non-controlling interest). EBITDA is a useful financial and operating metric for
management, the Fund's Trustees, and its 

36

 

lenders,
as it represents a starting point in the determination of free cash flow available for distribution(B). The underlying reasons for exclusion of each item are as follows: 

Amortization — as a non-cash item amortization has no impact on the determination of free cash flow
available for distribution(B). 

Interest on long-term debt — interest on long-term debt is a function of the Fund's
reflects the treasury/financing activities of the Fund and represents a different class of expense than those included in EBITDA. 

Financing costs — financing costs are a function of the Fund's treasury financing activities and represents a
different class of expense than those included in EBITDA. 

Net gain or loss on sale of capital and landfill assets — the gain or loss on sale of capital and landfill assets
has no impact on the determination of free cash flow available for distribution(B), because proceeds from the sale were either reinvested in other capital or landfill assets or used to
repay the Fund's revolving credit facility. 

Net gain or loss on financial instruments — as non-cash items, gains or losses on financial
instruments have no impact on the determination of free cash flow available for distribution(B). 

Net foreign exchange gain or loss — as non-cash items, foreign exchange gains or losses have no impact
on the determination of free cash flow available for distribution(B). 

Write-off of deferred financing costs — as a non-cash item, write-off of
deferred financing costs has no impact on the determination of free cash flow available for distribution(B). 

Other expenses — other expenses represent amounts paid to management of the Fund on account of certain
acquisitions and are not considered an expense indicative of continuing operations. Accordingly, other expenses represent a different class of expense than those included in EBITDA. 

Income taxes — income taxes are a function of tax laws and rates and are affected by matters which are separate
from the daily operations of the Fund. 

Non-controlling interest — non-controlling interest represents a direct
non-controlling equity interest in IESI through PPS holdings. Accordingly, non-controlling interest represents a different class of expense than those included
in EBITDA. 

EBITDA
should not be construed as a measure of income or of cash flows. The reconciling items between EBITDA and net income (loss) are detailed in the consolidated statement of operations and
comprehensive (loss) income beginning with "income before the following" and ending with "net income (loss)".  

	(B)
	The
Fund has adopted a measurement called "free cash flow available for distribution" to supplement net income (loss) as a measure of operating performance.
Free cash flow available for distribution is a term which does not have a standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures used by other issuers.
The objective of presenting this non-GAAP measure is to calculate the amount which is available for distribution to unitholders and non-controlling interest. PPS holdings are
presented as non-controlling interest in the consolidated financial statements; however, management of the Fund has elected to include the shareholdings of the non-controlling
interest in the calculation of free cash flow available for distribution as PPSs are entitled to dividends that are economically equivalent to the distributions received by unitholders and PPSs are
exchangeable on a one-to-one basis for trust units of the Fund. Details of the calculation are included in the "Other Performance
Measures — Free cash flow available for distribution(B)" section of this MD&A. Free cash flow
available for distribution is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flow as a measure of liquidity. All references to
"free cash flow available for distribution" in this MD&A have the meaning set out in this note.

	(C)
	Excess
free cash flow available for distribution represents the result of free cash flow available for distribution(B) less distributions and
dividends declared. 

37

QuickLinks

Exhibit 4.4

BFI Canada Income Fund — MD&A for the year ended December 31, 2007

Highlights — For the year ended December 31, 2007 (all amounts are in thousands of Canadian dollars, except per trust unit and participating preferred share ("PPS"), unless otherwise stated)

Review of Operations — For the year ended December 31, 2007 (all amounts are in thousands of Canadian dollars, except foreign currency exchange rate amounts, unless otherwise stated)

Financial highlights — For the three months ended December 31, 2007 (all amounts are in thousands of Canadian dollars)

Review of Operations — For the three months ended December 31, 2007

Other Performance Measures — For the year ended December 31, 2007 (all amounts are in thousands of Canadian dollars, except per trust unit and PPS amounts)

Selected Annual Information (all amounts are in thousands of Canadian dollars, except per trust unit, PPS, and subscription receipt amounts)

Summary of Quarterly Results (all amounts are in thousands of Canadian dollars, except per trust unit amounts)

Financial Condition (all amounts are in thousands of Canadian dollars, unless otherwise stated)

Liquidity and Capital Resources (all amounts are in thousands of Canadian dollars, except per tonne amounts, unless otherwise stated)

Seasonality

Risks and Uncertainties

Outlook (all amounts are in thousands of Canadian dollars, unless otherwise stated)

Critical Accounting Estimates

New Accounting Policies Adopted

New Accounting Policies Requiring Adoption

Financial Information Controls and Procedures

Definitions of EBITDA and free cash flow available for distributionQuickLinks
 -- Click here to rapidly navigate through this document
 

 

 
 

  Exhibit 4.5    
    

 
 

  BFI Canada Income Fund — MD&A for the three and six months ended June 30, 2008    
    

 Disclaimer  

        This document may contain forward-looking information relating to the operations of BFI Canada Income Fund
(the "Fund") or to the environment in which it operates, which are based on estimates, forecasts, and projections. Forward-looking information is not a guarantee of future performance and
involves risks and uncertainties that are difficult to predict, or are beyond the Fund's control. A number of factors could cause actual outcomes and results to differ materially from those estimated,
forecast or projected. These factors include those set forth in the Fund's Annual Information Form ("AIF") for the year ended December 31, 2007. Consequently, readers should not rely on such
forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. Although the forward-looking information contained herein is based on what
management believes to be
reasonable assumptions, users are cautioned that actual results may differ. Management disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of
new information, future events or otherwise. 

 Introduction  

        The following is a discussion of the consolidated financial condition and results of operations of the Fund for the
three and six months ended June 30, 2008 and has been prepared with all available information up to and including August 7, 2008. All amounts are reported in Canadian dollars, unless
otherwise stated. The consolidated financial statements ("financial statements") of the Fund have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") applicable
to interim financial statements. This discussion should be read in conjunction with the financial statements of the Fund, including notes thereto, and management's discussion and analysis ("MD&A") for
the three and six months ended June 30, 2007 and year ended December 31, 2007 filed on www.sedar.com. 

 Corporate Overview  

        The Fund, through its operating subsidiaries, is one of North America'srgest full-service waste management
companies, providing non-hazardous solid waste ("waste") collection and disposal services to commercial, industrial, municipal and residential customers in five Canadian provinces and ten
states in the United States ("U.S."). The Fund provides service to over 1.8 million customers with vertically integrated collection and disposal assets. 

        The
Fund's Canadian segment operates under the BFI Canada brand and is Canada's second largest full-service waste management company providing vertically integrated
waste collection and disposal services in the provinces of British Columbia, Alberta, Manitoba, Ontario, and Quebec. This segment provides service to 20 Canadian markets and operates five
landfills, four transfer collection stations, seven material recovery facilities ("MRFs"), and one landfill gas to energy facility. 

        The
Fund's U.S. south and northeast segments, collectively the U.S. segment or U.S. segments, operate under the IESI brand and provide vertically integrated waste
collection and disposal services in two geographic regions: the south, consisting of various service areas in Texas, Louisiana, Oklahoma, Arkansas, Mississippi, and Missouri, and the northeast,
consisting of various service areas in New York, New Jersey, Pennsylvania, and Maryland. This segment provides service to 39 U.S. markets and operates 17 landfills,
31 transfer collection stations, 10 MRFs, and one transportation operation. 

        The
Fund makes cash distributions to unitholders based on all amounts received by the Fund, and IESI Corporation ("IESI"), an indirect subsidiary of the Fund, pays equivalent dividends
to participating preferred
shareholders ("non-controlling interest"). Distributions and dividends are determined by the Trustees from time to time. The Fund's declaration of trust provides that distributions
declared are to be paid on or about the 15th day of the succeeding month (see Disclosure of outstanding trust unit data
section of this MD&A for additional details). 

29

 

 
 

  Highlights — For the three and six months ended June 30, 2008
  (all amounts are in thousands of Canadian dollars, except per trust unit
and participating preferred share ("PPS"), unless  otherwise stated)    
    

 Financial highlights  

														
	 
	 	Three months ended

June 30 	 	Six months ended

June 30 	 
	 
	 	2008 	 	2007 	 	2008 	 	2007 	 
	 
	 	(unaudited)
	 	(unaudited)
	 	(unaudited)
	 	(unaudited)
	 
	 Operating results
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Revenues
	 	$	280,262	 	$	225,515	 	$	524,609	 	$	427,815	 
	 Operating expenses
	 	 	170,351	 	 	127,888	 	 	317,499	 	 	244,518	 
	 Selling, general and administration expenses ("SG&A")
	 	 	31,666	 	 	26,193	 	 	62,007	 	 	53,191	 
	 	 	 	 	 	 	 	 	 	 
	 Income before the following ("EBITDA(A)")
	 	 	78,245	 	 	71,434	 	 	145,103	 	 	130,106	 
	 Amortization
	 	 	45,736	 	 	41,372	 	 	88,313	 	 	79,290	 
	 Interest on long-term debt
	 	 	12,695	 	 	8,471	 	 	26,069	 	 	18,365	 
	 Financing costs
	 	 	930	 	 	—	 	 	930	 	 	864	 
	 Net gain on sale of capital assets
	 	 	(127	)	 	(1,026	)	 	(87	)	 	(1,234	)
	 Net (gain) loss on financial instruments
	 	 	(5,497	)	 	(3,061	)	 	3,550	 	 	(1,206	)
	 Net foreign exchange loss (gain)
	 	 	—	 	 	13,483	 	 	(624	)	 	15,104	 
	 Other expenses
	 	 	26	 	 	—	 	 	57	 	 	5	 
	 	 	 	 	 	 	 	 	 	 
	 Income before income taxes and non-controlling interest
	 	 	24,482	 	 	12,195	 	 	26,895	 	 	18,918	 
	 	 	 	 	 	 	 	 	 	 
	 Net income tax expense (recovery)
	 	 	6,522	 	 	5,161	 	 	(1,539	)	 	(631	)
	 Non-controlling interest
	 	 	2,911	 	 	1,174	 	 	4,609	 	 	3,324	 
	 	 	 	 	 	 	 	 	 	 
	 Net income
	 	$	15,049	 	$	5,860	 	$	23,825	 	$	16,225	 
	 	 	 	 	 	 	 	 	 	 
	 Net income per weighted average trust unit, basic & diluted
	 	$	0.26	 	$	0.10	 	$	0.41	 	$	0.29	 
	 Trust units and PPSs outstanding
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Weighted average number of trust units outstanding
	 	 	57,568	 	 	57,350	 	 	57,568	 	 	55,557	 
	 Weighted average number of PPSs outstanding
	 	 	11,138	 	 	11,160	 	 	11,138	 	 	11,328	 
	 	 	 	 	 	 	 	 	 	 
	 Weighted average number of trust units and PPSs outstanding
	 	 	68,706	 	 	68,510	 	 	68,706	 	 	66,885	 
	 	 	 	 	 	 	 	 	 	 
	 Aggregate number of trust units and PPSs outstanding
	 	 	68,706	 	 	68,706	 	 	68,706	 	 	68,706	 
	 	 	 	 	 	 	 	 	 	 

30

 

														
	 
	 	Three months ended

June 30 	 	Six months ended

June 30 	 
	 
	 	2008 	 	2007 	 	2008 	 	2007 	 
	 
	 	(unaudited)
	 	(unaudited)
	 	(unaudited)
	 	(unaudited)
	 
	 Maintenance and growth expenditures
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Maintenance capital and landfill expenditures
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ("maintenance expenditures")
	 	$	18,696	 	$	18,056	 	$	29,542	 	$	30,411	 
	 Growth capital and landfill expenditures
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 ("growth expenditures")
	 	 	15,857	 	 	23,332	 	 	28,287	 	 	33,516	 
	 	 	 	 	 	 	 	 	 	 
	 Total maintenance and growth expenditures
	 	$	34,553	 	$	41,388	 	$	57,829	 	$	63,927	 
	 	 	 	 	 	 	 	 	 	 
	 Operating and free cash flow
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Cash generated from operating activities
	 	$	55,001	 	$	53,806	 	$	97,935	 	$	82,261	 
	 Free cash flow available for distribution(B) (see page 9)
	 	$	41,825	 	$	39,767	 	$	81,765	 	$	72,857	 
	 Free cash flow available for distribution(B) per weighted
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 average trust unit and PPS
	 	$	0.61	 	$	0.58	 	$	1.19	 	$	1.09	 
	 Distributions and dividends
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Distributions declared, trust units
	 	$	26,165	 	$	26,016	 	$	52,329	 	$	50,569	 
	 Dividends declared, PPSs
	 	 	5,062	 	 	5,211	 	 	10,125	 	 	10,303	 
	 	 	 	 	 	 	 	 	 	 
	 Total distributions and dividends declared
	 	$	31,227	 	$	31,227	 	$	62,454	 	$	60,872	 
	 	 	 	 	 	 	 	 	 	 
	 Total distributions and dividends declared per weighted
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 average trust unit and PPS
	 	$	0.45	 	$	0.46	 	$	0.91	 	$	0.91	 

 Financial highlights for the three and six months ended June 30, 2008  

								
	 
	 	Three months

ended

June 30 	 	Six months

ended

June 30 	 
	 Increase in consolidated revenues
	 	$	54,747	 	$	96,794	 
	 Percentage increase in consolidated revenues
	 	 	24.3%	 	 	22.6%	 
	 Percentage increase in consolidated revenues, excluding the impact of foreign currency translation
	 	 	31.6%	 	 	32.7%	 
	 Percentage increase in consolidated EBITDA(A), excluding the impact of foreign currency translation
	 	 	15.1%	 	 	19.6%	 
	 Increase in cash generated from operating activities
	 	$	1,195	 	$	15,674	 
	 Increase in free cash flow available for distribution(B)
	 	$	2,058	 	$	8,908	 
	 Percentage increase in free cash flow available for distribution(B)
	 	 	5.2%	 	 	12.2%	 
	 Payout ratio
	 	 	74.7%	 	 	76.4%	 
	 Payout ratio, excluding the effect of foreign currency hedge agreements
	 	 	74.7%	 	 	77.1%	 

 Other highlights for the three and six months ended June 30, 2008  

	•
	Effective July 30, 2008, the Fund increased and amended its Canadian long-term debt facility.

 
	•
	Effective August 6, 2008, the Fund extended and amended its U.S. long-term debt facility.

 
	•
	Effective August 1, 2008, the Fund fixed the interest rate on U.S. $45,000 of variable rate demand
solid waste disposal revenue bonds ("IRBs"). 

 
	•
	For the six months ended, the Fund completed four acquisitions comprised of three "tuck-in's", one in each of
the Canadian, U.S. south and U.S. northeast segments, and one new market entry in the U.S. northeast. 

31

 

	•
	DBRS re-affirmed their rating of BBB low on the Fund's Canadian senior secured series A
and B debentures. 

 
	•
	Standard & Poor's ("S&P") re-affirmed their rating of BB on the Fund's U.S. term loan and
revolving credit facility. 

 
	•
	The Trustees continue to actively work with management to review the Fund's corporate structure in response to changes to
the taxation of income trusts and its related impact on the Fund's continuous improvement and growth strategy. 

 
 

  Review of Operations — For the three and six months ended June 30, 2008
  (all amounts are in thousands of Canadian dollars, except foreign
currency exchange rate amounts, unless otherwise  stated)

 Foreign Currency Exchange Rates  

        The Fund reports its financial results in Canadian dollars, accordingly, changes in the foreign currency exchange rate between Canada
and the U.S. impacts the translated value of the Fund's U.S. operating results. U.S. operating results are translated to Canadian dollars using the current rate method of accounting
which applies the average foreign currency exchange rate in effect between Canada and the U.S. during the reporting period. U.S. assets and liabilities are translated to Canadian dollars
at the foreign currency exchange rate in effect at the consolidated balance sheet date. Translation adjustments are included in other comprehensive income (loss) and are only included in the
determination of net income when a reduction in the Fund's 

        The
U.S. segments' have been translated to Canadian dollars applying the investment in its foreign operations is realized following foreign currency exchange rates: 

																				
	 
	 	2008 	 	2007 	 
	 
	 	Consolidated

Balance Sheet 	 	Consolidated

Statement of

Operations and

Comprehensive

Income (Loss) 	 	Consolidated

Balance Sheet 	 	Consolidated

Statement of

Operations and

Comprehensive

Income (Loss) 	 
	 
	 	Current 	 	Average 	 	Cumulative

Average 	 	Current 	 	Average 	 	Cumulative

Average 	 
	 December 31
	 	 	 	 	 	 	 	 	 	 	$	0.988	 	$	0.982	 	$	1.074	 
	 March 31
	 	$	1.028	 	$	1.004	 	$	1.004	 	$	1.153	 	$	1.172	 	$	1.172	 
	 June 30
	 	$	1.019	 	$	1.010	 	$	1.007	 	$	1.063	 	$	1.098	 	$	1.135	 

 Foreign Currency Hedge  

        A significant portion of the Fund's operating results, maintenance expenditures, interest on long-term debt, and cash
income taxes reported in Canadian dollars, originate in the U.S. Operating and SG&A expenses, maintenance expenditures, interest on long-term debt, and cash income taxes originating
in the U.S. are settled in U.S. dollars generated from U.S. operations which results in a natural cash flow hedge. A portion of the resulting free cash flow available for
distribution(B) was hedged by three single rate hedge agreements through February 2008 to purchase 4,500 Canadian dollars monthly at an average foreign currency exchange
rate of approximately $1.222. The purpose of these hedge agreements was to protect a portion of Canadian dollar denominated distributions, which are supported by U.S. dollar denominated cash
flows, from fluctuations in the foreign currency exchange rate between Canada and the U.S. The Fund did not designate these derivative financial instruments as a hedge. Accordingly, changes in
the fair value of these derivative financial instruments, non-cash items, are included in the determination of net income through February 2008. Since February 2008, the Fund
has not entered into any additional foreign currency hedge agreements. The Fund continuously monitors its foreign currency exchange exposure. 

32

 

   Foreign Currency Exchange Impact on Consolidated Results  

        The following table has been prepared to assist readers in assessing the impact of foreign currency exchange on the Fund's consolidated
results for the three and six months ended June 30, 2008. 

																				
	 
	 	Three months ended 	 	Six months ended 	 
	 
	 	Fund results

for 2008 less

2007 for the

three months

ended

June 30 	 	Impact of

foreign currency

exchange(1) 	 	Organic growth,

acquisitions

and other

non-operating

changes 	 	Fund results

for 2008 less

2007 for the

six months

ended

June 30 	 	Impact of

foreign currency

exchange(1) 	 	Organic growth,

acquisitions

and other

non-operating

changes 	 
	 
	 	(unaudited)
	 	(unaudited)
	 	(unaudited)
	 	(unaudited)
	 	(unaudited)
	 	(unaudited)
	 
	 Financial highlights
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Revenues
	 	$	54,747	 	$	(16,488	)	$	71,235	 	$	96,794	 	$	(42,941	)	$	139,735	 
	 Operating expenses
	 	 	42,463	 	 	(10,680	)	 	53,143	 	 	72,981	 	 	(27,462	)	 	100,443	 
	 SG&A
	 	 	5,473	 	 	(1,804	)	 	7,277	 	 	8,816	 	 	(5,018	)	 	13,834	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 EBITDA(A)
	 	 	6,811	 	 	(4,004	)	 	10,815	 	 	14,997	 	 	(10,461	)	 	25,458	 
	 Amortization
	 	 	4,364	 	 	(2,676	)	 	7,040	 	 	9,023	 	 	(7,512	)	 	16,535	 
	 Interest on long-term debt
	 	 	4,224	 	 	(837	)	 	5,061	 	 	7,704	 	 	(2,604	)	 	10,308	 
	 Financing costs
	 	 	930	 	 	(119	)	 	1,049	 	 	66	 	 	(119	)	 	185	 
	 Net gain on sale of capital assets
	 	 	899	 	 	(12	)	 	911	 	 	1,147	 	 	(19	)	 	1,166	 
	 Net (gain) loss on financial instruments
	 	 	(2,436	)	 	1,050	 	 	(3,486	)	 	4,756	 	 	(455	)	 	5,211	 
	 Net foreign exchange loss (gain)
	 	 	(13,483	)	 	(24	)	 	(13,459	)	 	(15,728	)	 	79	 	 	(15,807	)
	 Other expenses
	 	 	26	 	 	(3	)	 	29	 	 	52	 	 	(8	)	 	60	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Income before income taxes and non-controlling interest
	 	 	12,287	 	 	(1,383	)	 	13,670	 	 	7,977	 	 	177	 	 	7,800	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income tax expense (recovery)
	 	 	1,361	 	 	(1,093	)	 	2,454	 	 	(908	)	 	134	 	 	(1,042	)
	 Non-controlling interest
	 	 	1,737	 	 	—	 	 	1,737	 	 	1,285	 	 	—	 	 	1,285	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income
	 	$	9,189	 	$	(290	)	$	9,479	 	$	7,600	 	$	43	 	$	7,557	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Review of Operations
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Revenues — Canada
	 	$	14,735	 	$	—	 	$	14,735	 	$	27,148	 	$	—	 	$	27,148	 
	 Revenues — U.S. south
	 	$	7,836	 	$	(8,030	)	$	15,866	 	$	13,117	 	$	(21,344	)	$	34,461	 
	 Revenues — U.S. northeast
	 	$	32,176	 	$	(8,458	)	$	40,634	 	$	56,529	 	$	(21,597	)	$	78,126	 
	 Operating expenses — Canada
	 	
$	

9,686	 	 $
	—	 	
$	

9,686	 	
$	

18,563	 	 $
	—	 	
$	

18,563	 
	 Operating expenses — U.S. south
	 	$	4,111	 	$	(5,109	)	$	9,220	 	$	6,958	 	$	(13,684	)	$	20,642	 
	 Operating expenses — U.S. northeast
	 	$	28,666	 	$	(5,571	)	$	34,237	 	$	47,460	 	$	(13,778	)	$	61,238	 
	 SG&A — Canada
	 	
$	

2,120	 	 $
	—	 	
$	

2,120	 	
$	

2,708	 	 $
	—	 	
$	

2,708	 
	 SG&A — U.S. south
	 	$	614	 	$	(983	)	$	1,597	 	$	942	 	$	(2,720	)	$	3,662	 
	 SG&A — U.S. northeast
	 	$	2,739	 	$	(821	)	$	3,560	 	$	5,166	 	$	(2,298	)	$	7,464	 
	 Cash generated from operating activities
	 	
$	

1,195	 	
$	

(4,976	
)	
$	

6,171	 	
$	

15,674	 	
$	

(6,593	
)	
$	

22,267	 
	 Free cash flow available for distribution(B) (see page 9)
	 	
$	

2,058	 	
$	

(1,705	
)	
$	

3,763	 	
$	

8,908	 	
$	

(4,789	
)	
$	

13,697	 
	 Maintenance and growth expenditures
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Total
	 	$	(6,835	)	$	(2,385	)	$	(4,450	)	$	(6,098	)	$	(4,736	)	$	(1,362	)
	 Maintenance — Canada
	 	$	1,427	 	$	—	 	$	1,427	 	$	(305	)	$	—	 	$	(305	)
	 Maintenance — U.S.
	 	$	(787	)	$	(1,268	)	$	481	 	$	(564	)	$	(2,516	)	$	1,952	 
	 Growth — Canada
	 	$	(3,471	)	$	—	 	$	(3,471	)	$	(933	)	$	—	 	$	(933	)
	 Growth — U.S.
	 	$	(4,004	)	$	(1,117	)	$	(2,887	)	$	(4,296	)	$	(2,220	)	$	(2,076	)

Notes:

	(1)
	U.S. segment
results, stated in U.S. dollars, for the three and six month periods ended June 30, 2008 multiplied by the difference
between the 2008 and 2007 average foreign currency exchange rates for the respective periods. 

33

 

        The discussions to follow are in addition to the impact of foreign currency exchange fluctuations detailed in the table above. 

 Revenues  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	280,262	 	$	225,515	 	$	54,747	 	$	524,609	 	$	427,815	 	$	96,794	 
	 Canada
	 	
$	

100,754	 	
$	

86,019	 	
$	

14,735	 	
$	

186,522	 	
$	

159,374	 	
$	

27,148	 
	 U.S. south
	 	$	88,234	 	$	80,398	 	$	7,836	 	$	168,050	 	$	154,933	 	$	13,117	 
	 U.S. northeast
	 	$	91,274	 	$	59,098	 	$	32,176	 	$	170,037	 	$	113,508	 	$	56,529	 

        The
increase in consolidated revenues for the three months ended is due in part to organic Canadian and U.S. segment growth, approximately $9,200 and $8,400 or 11.1% and 6.2%,
respectively. Organic growth excludes the impact of fuel and environmental surcharges, acquisitions, and foreign currency translation. 

        Organic
revenue growth in Canada and the U.S., approximately $18,600 and $16,200 or 12.2% and 6.2%, respectively, contributed to the increase in consolidated revenues for the six
months ended. 

        For
the three and six months ended, acquisitions, and surcharges for fuel and environmental expenses, were the primary contributors to the balance of the increases. In addition, the
Fund's U.S. northeast segment continues to experience the impact of an overall economic slowdown, which in combination with increasing fuel costs, is affecting both volumes and pricing. 

 Operating expenses  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	170,351	 	$	127,888	 	$	42,463	 	$	317,499	 	$	244,518	 	$	72,981	 
	 Canada
	 	
$	

54,740	 	
$	

45,054	 	
$	

9,686	 	
$	

101,284	 	
$	

82,721	 	
$	

18,563	 
	 U.S. south
	 	$	56,337	 	$	52,226	 	$	4,111	 	$	107,739	 	$	100,781	 	$	6,958	 
	 U.S. northeast
	 	$	59,274	 	$	30,608	 	$	28,666	 	$	108,476	 	$	61,016	 	$	47,460	 

        Higher
total disposal and labour costs, approximately $29,000 and $8,500, respectively, are attributable to higher internally collected waste volumes and higher costs to service new and
existing customers, contracts, and acquisitions for the three months ended. Similarly, and for the same reasons outlined for the three months ended, higher disposal and labour costs for the six months
ended amounted to $49,700 and $15,900. The balance of the change for both periods is due principally to higher vehicle operating costs, including but not limited to fuel and lubricants. The impact of
increasing fuel prices is most pronounced for the Seneca Meadows landfill. Fuel and lubricants consumed to operate the landfill, together with fuel price increases charged by third party carriers of
waste to the landfill, are being absorbed by the Fund, which is a direct result of current market operating conditions. 

 SG&A  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	31,666	 	$	26,193	 	$	5,473	 	$	62,007	 	$	53,191	 	$	8,816	 
	 Canada
	 	
$	

11,428	 	
$	

9,308	 	
$	

2,120	 	
$	

22,498	 	
$	

19,790	 	
$	

2,708	 
	 U.S. south
	 	$	11,008	 	$	10,394	 	$	614	 	$	21,415	 	$	20,473	 	$	942	 
	 U.S. northeast
	 	$	9,230	 	$	6,491	 	$	2,739	 	$	18,094	 	$	12,928	 	$	5,166	 

34

 

        Higher
salary expense represents approximately $2,300 and $4,100 of the three and six month period increases, respectively. Acquisition and organic growth are the primary reasons for the
increases in salary expense. Higher facility, office, and travel expenditures, as a result of acquisition and organic growth, coupled with higher professional fees, are the primary reasons for the
balance of the changes. 

 Amortization  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	45,736	 	$	41,372	 	$	4,364	 	$	88,313	 	$	79,290	 	$	9,023	 
	 Canada
	 	
$	

15,574	 	
$	

15,046	 	
$	

528	 	
$	

29,166	 	
$	

28,447	 	
$	

719	 
	 U.S. south
	 	$	12,726	 	$	13,431	 	$	(705	)	$	24,970	 	$	26,441	 	$	(1,471	)
	 U.S. northeast
	 	$	17,436	 	$	12,895	 	$	4,541	 	$	34,177	 	$	24,402	 	$	9,775	 

        In
aggregate, higher intangible and capital asset amortization is due in large part to acquisitions and growth capital expenditures through 2007 and 2008 and represents approximately
$3,100 and $3,600 of the three and $5,900 and $7,200 of the six period month increases, respectively. These increases were partially offset by a decline in landfill asset amortization, approximately
$2,300 and $4,000 for the three and six months ended, respectively, due principally to lower landfill volumes and foreign currency translation. 

 Interest on long-term debt  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	12,695	 	$	8,471	 	$	4,224	 	$	26,069	 	$	18,365	 	$	7,704	 
	 Canada
	 	
$	

2,782	 	
$	

2,545	 	
$	

237	 	
$	

5,566	 	
$	

4,970	 	
$	

596	 
	 U.S.
	 	$	9,913	 	$	5,926	 	$	3,987	 	$	20,503	 	$	13,395	 	$	7,108	 

        Financing
the Winters Bros. Waste Systems, Inc. ("Winter Bros.") acquisition entirely with long-term debt is the primary reason for the three and six month
U.S. segment increase. The balance of the U.S. segment change is due to borrowing for growth expenditures, working capital, and acquisition financing, partially offset by a decline in
the variable lending rate and IRB financings completed in 2007. The Canadian segment increase for the three and six months ended is on account of financing acquisitions, growth, and working capital
expenditures. 

 Financing costs  

																				
	 
	 	Three months ended

June 30 	 	Six months ended

June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	930	 	$	—	 	$	930	 	$	930	 	$	864	 	$	66	 
	 Canada
	 	 $
	—	 	 $
	—	 	 $
	—	 	 $
	—	 	
$	

150	 	
$	

(150	
)
	 U.S.
	 	$	930	 	$	—	 	$	930	 	$	930	 	$	714	 	$	216	 

        The
Fund incurred financing costs in connection with an amendment to its U.S. long-term debt facility and raising IRB's in the state of Texas in 2008 and 2007,
respectively agreement was the reason for financing costs incurred in 2007. 

35

 

 Net gain on sale of capital assets  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	(127	)	$	(1,026	)	$	899	 	$	(87	)	$	(1,234	)	$	1,147	 
	 Canada
	 	
$	

(234	
)	
$	

(238	
)	
$	

4	 	
$	

(237	
)	
$	

(407	
)	
$	

170	 
	 U.S.
	 	$	107	 	$	(788	)	$	895	 	$	150	 	$	(827	)	$	977	 

        The
disposition of certain equipment in Canada and the U.S. resulted in the net gains or losses on sale. 

 Net (gain) loss on financial instruments  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	(5,497	)	$	(3,061	)	$	(2,436	)	$	3,550	 	$	(1,206	)	$	4,756	 
	 Canada
	 	
$	

(55	
)	
$	

(50	
)	
$	

(5	
)	
$	

(33	
)	
$	

(50	
)	
$	

17	 
	 U.S.
	 	$	(5,442	)	$	(3,011	)	$	(2,431	)	$	3,583	 	$	(1,156	)	$	4,739	 

        For
the three and six months ended, the Canadian segment gain on financial instruments relates to changes in the fair value of funded landfill post-closure costs. 

        The
U.S. segment gain and loss for the three and six months ended, respectively, is due to changes in the fair value of interest rate swaps. Interest rate fluctuations, coupled
with shorter terms to maturity, are the primary reasons for the resulting changes. 

 Net foreign exchange loss (gain)  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	—	 	$	13,483	 	$	(13,483	)	$	(624	)	$	15,104	 	$	(15,728	)
	 Canada
	 	 $
	—	 	
$	

14,324	 	
$	

(14,324	
)	
$	

(5	
)	
$	

16,305	 	
$	

(16,310	
)
	 U.S.
	 	$	—	 	$	(841	)	$	841	 	$	(619	)	$	(1,201	)	$	582	 

        Unrealized
foreign exchange losses on translation of the Fund's U.S. note receivable ("U.S. note") from IESI were recorded in the Fund's Canadian segment 2007 results. The
U.S. note was cancelled in August 2007 resulting in no comparable gains or losses for the three and six months ended in 2008. Net foreign exchange gains realized by the Fund's
U.S. segment are principally attributable to gains realized on the settlement of foreign currency hedge agreements through February 2008. 

 Other expenses  

																				
	 
	 	Three months ended

June 30 	 	Six months ended

June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	26	 	$	—	 	$	26	 	$	57	 	$	5	 	$	52	 
	 Canada
	 	 $
	—	 	 $
	—	 	 $
	—	 	 $
	—	 	 $
	—	 	 $
	—	 
	 U.S.
	 	$	26	 	$	—	 	$	26	 	$	57	 	$	5	 	$	52	 

        Other
expenses are comprised of management bonus costs related to certain acquisitions. 

36

 

 Net income tax expense (recovery)  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	6,522	 	$	5,161	 	$	1,361	 	$	(1,539	)	$	(631	)	$	(908	)
	 Canada
	 	
$	

215	 	
$	

352	 	
$	

(137	
)	
$	

(489	
)	
$	

1,427	 	
$	

(1,916	
)
	 U.S.
	 	$	6,307	 	$	4,809	 	$	1,498	 	$	(1,050	)	$	(2,058	)	$	1,008	 

        Upon
cancellation of the Fund's note and concurrent restructuring, the restructured U.S note (the "note") resides in a Canadian non-operating subsidiary of the Fund.
The note carries an interest charge which management believes will be applied against taxable income prior to expiry. For the three months ended, losses generated by the note resulted in approximately
$1,700 of future income tax recoveries in 2008. In the comparative period, approximately $2,000 of future income tax recoveries were recorded in response to changes in tax legislation which resulted
in the recognition of timing differences present in a wholly-owned flow through entity. For the six months ended, losses generated by the note were partially offset by adjustments to the tax base of
various assets and non-capital losses, approximately $800, and higher current income tax expense, approximately $800. 

        For
the three months ended, the increase in net income tax expense for the Fund's U.S. segment is due to lower future income tax recoveries partially offset by lower current
income tax expense. Lower future income tax recoveries are due largely to the utilization of loss carryforwards, which reduces future income tax assets and results in higher future income tax expense,
approximately $5,400, partially offset by higher income tax recoveries related to timing differences for landfill closure and post-closure costs and intangibles, approximately $1,500 and
$2,100, respectively. 

        The
reason for the U.S. segment decrease in recovery for the six months ended is consistent with that outlined for the three months ended. Lower future income tax recoveries are
due largely to the utilization of loss carryforwards, approximately $10,300, partially offset by higher income tax recoveries related to timing differences for landfill closure and
post-closure costs, intangibles, and other liabilities (interest rate swaps), approximately $1,800, $5,000 and $1,600, respectively. 

 Non-controlling interest  

        The non-controlling interest's share of net income amounts to $2,911 and $4,609
(2007 — $1,174 and $3,324) for the three and six months ended June 30, 2008. Non-controlling interest, recorded on the Fund's consolidated
balance sheet, represents the initial value of issued PPSs, net of exchanges and cancellations since issuance, plus or minus the non-controlling interest's share of net income or loss,
transition adjustments, and dividends declared. 

 Other Performance Measures — For the three and six months ended June 30, 2008
  (all amounts are in thousands of Canadian dollars, except per trust
unit and PPS amounts)  

 Free cash flow available for distribution(B)  

 Purpose and objective  

        The purpose of presenting this non-GAAP measure is to calculate the amount available for distribution to unitholders and
non-controlling interests. The Fund's primary objective is to grow free cash flow. 

 Payout ratio  

        Management's distribution philosophy is to maintain an annual payout ratio which is less than 90.0%. The annual payout ratio represents
the percentage of distributions and dividends declared divided by free cash flow available for distribution(B). Establishing an annual payout ratio which is less than 90.0% permits the
Fund to use excess free cash flow available for distribution(C), representing the difference between free cash flow available for distribution(B) and distributions and
dividends declared, for the following primary purposes: invest in strategic and accretive acquisitions; invest in growth capital; invest in infrastructure, including but not limited to new buildings;
repay long-term debt to lower interest expense; absorb financing costs; and, maintain distributions during periods of lower earnings, lower cash flows and or periods of significant
investment in maintenance expenditures or changes in working capital. 

37

 

   Excess free cash flow available for distribution(C)  

        For the three and six months ended June 30, 2008, the Fund used all of its excess free cash flow available for
distribution(C), excluding the repayment of long-term debt, for the purposes outlined above. 

 Covenants  

        At June 30, 2008, the Fund's lenders have not demanded accelerated repayment of the Fund's term loan, revolving credit
facilities, IRBs and senior secured series A and B debentures ("debentures"), collectively the long-term debt facilities. Accordingly, the Fund is not restricted by its
various long-term debt facilities to meet its current or anticipated distributions and dividends. An event of default, if not remedied, would result in the acceleration of repayment of the
respective long-term debt facility and ultimately restrict the Fund's ability to meet its current or anticipated distribution and dividend payments. 

 Current and future income taxes  

        The Fund has unutilized tax losses available to shelter future taxable earnings from income tax. Management actively monitors its
unutilized tax losses and works with various advisors to
derive the maximum benefit from these losses. As unutilized tax losses are utilized or expire, the taxable earnings derived from the Fund's operating entities may be subject to tax. Accordingly,
higher cash taxes will reduce the availability of free cash flow available for distribution(B). Tax incurred on taxable earnings is included in current income tax expense in the Fund's
consolidated statement of operations and comprehensive income (loss). 

 Long-term debt  

        The Fund's long-term debt facilities have various dates of maturity. Under normal operating conditions, these facilities
are not subject to scheduled principal repayment in advance of their maturity dates and the Fund expects to extend, renew or replace its long-term debt facilities at or before maturity
with similar or other long-term debt instruments or net proceeds derived from equity offerings. Accordingly, the Fund does not include any principal repayment of its long-term
debt facilities in the determination of free cash flow available for distribution(B). 

 Distributions  

        In periods where distributions and dividends declared exceed free cash flow available for distribution(B), the Fund is
permitted under its revolving credit facilities, subject to various restrictions, to borrow amounts to honour its declared distribution. In the event that monies were not available from the Fund's
revolving credit facilities, the Fund would consider curtailing a portion or all of its current and or future distributions. The Fund has no intention or ability to satisfy its distributions through
revolving credit facility advances for a prolonged period of time. 

 Results  

        Free cash flow available for distribution(B) totaled $41,825 and $81,765 for the three and six months ended
June 30, 2008 versus $39,767 and $72,857 for the comparative periods ended June 30, 2007. Higher cash generated from operating activities, $1,195 and $15,674 for the three and six months
ended, respectively, is due largely to organic and acquisition growth and is the primary reason for the increases. For the six months ended, lower non-cash working capital uses partially
offset the increase in cash generated from operating activities. Lower non-cash working capital uses are due in large part to higher accounts receivable balances, on account of organic and
acquisition growth and the timing of receipt, partially offset by higher cash payments made to satisfy accounts payable and accrued charges. 

        Free
cash flow available for distribution(B) per weighted average trust unit and PPS for the three and six months ended June 30, 2008 amounted to $0.61 and $1.19 and
is $0.03 and $0.10 higher than the comparative periods ended June 30, 2007, respectively. 

38

 

 Free cash flow available for distribution(B) — cash flow approach  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Cash generated from operating activities (per statement of cash flows)
	 	$	55,001	 	$	53,806	 	$	1,195	 	$	97,935	 	$	82,261	 	$	15,674	 
	 Operating
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Write-off of deferred costs
	 	 	(191	)	 	(33	)	 	(158	)	 	(919	)	 	(68	)	 	(851	)
	 Changes in non-cash working capital items
	 	 	7,145	 	 	6,074	 	 	1,071	 	 	17,724	 	 	24,538	 	 	(6,814	)
	 Net change in landfill closure and post-closure costs(2)
	 	 	(2,420	)	 	(2,614	)	 	194	 	 	(4,654	)	 	(5,169	)	 	515	 
	 Maintenance expenditures
	 	 	(18,696	)	 	(18,056	)	 	(640	)	 	(29,542	)	 	(30,411	)	 	869	 
	 Financing
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Amortization of gain on settlement of bond forward contracts
	 	 	56	 	 	56	 	 	—	 	 	112	 	 	112	 	 	—	 
	 Financing costs
	 	 	930	 	 	—	 	 	930	 	 	930	 	 	864	 	 	66	 
	 Effect of foreign currency hedges to support Canadian dollar distributions
	 	 	—	 	 	1,371	 	 	(1,371	)	 	803	 	 	1,930	 	 	(1,127	)
	 Realized foreign exchange gain
	 	 	—	 	 	(837	)	 	837	 	 	(624	)	 	(1,200	)	 	576	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Free cash flow available for distribution(B)
	 	$	41,825	 	$	39,767	 	$	2,058	 	$	81,765	 	$	72,857	 	$	8,908	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 

Notes: 

	(2)
	Net
change in landfill closure and post-closure costs exclude acquired landfill closure and post-closure costs, foreign currency
translation adjustments, and revisions to estimated cash flows or other items recorded to operating expense. 

        Canadian Securities Administrators ("CSA") Staff Notice 52-306 and National Policy 41-201 concludes that
distributable cash or free cash flow available for distribution(B) is, in all circumstances, a cash flow measure, and that distributable cash is fairly presented only when reconciled to
cash flows from operating activities as presented in the issuer's financial statements. To arrive at free cash flow available for distribution(B) various adjustments, all of which are
derived from actual financial results, are made to cash generated from operating activities, details of which are as follows: 

 Operating  

        
Write-off of deferred costs:    deferred costs represent costs which are deferred to a future period. Impaired landfill development costs are included in
operating costs but are added back in the determination of cash generated from operating activities, a non-cash item. These costs are not contemplated in the determination of productive
capacity and are therefore reflected as a charge in the determination of free cash flow available for distribution(B). 

         
Changes in non-cash working capital items:    management of the Fund expects changes in non-cash working capital items to be insignificant
year over year. Various working capital items, including but not limited to the timing of receivables collected and payment of payables and accruals, can have a significant impact on the determination
of free cash flow available for distribution(B). Accordingly, management excludes the impact of changes in non-cash working capital items to remove the resulting variability
of including such amounts in the determination of free cash flow available for distribution(B). Realized changes in working capital and working capital acquired by way of acquisition are
typically funded from excess free cash flow available for distribution(C) or the Fund's revolving credit facilities. 

         
Net change in landfill closure and post-closure costs:    amounts capitalized to landfill assets in respect of landfill closure and
post-closure costs are immediately amortized. Amortization of landfill assets represents an item not affecting cash in the determination of cash generated from operating activities. In
addition, landfill closure and post-closure expenditures are removed from the determination of cash generated from operating 

39

 

activities.
It is management's intention to effectively charge unitholders with the accrued costs of closure and post-closure obligations as they are incurred. It is management's view that
closure and post-closure accruals are obligatory in nature even though there is some discretion as to when these obligations are satisfied. Accordingly, management deducts the net change
in landfill closure and post-closure costs from cash generated from operating activities. 

         
Maintenance expenditures:    see Other Performance Measures — Maintenance and growth
expenditures section of this MD&A. 

 Financing  

        
Amortization of gain on settlement of bond forward contracts:    the Fund realized a gain on the settlement of two bond forward contracts in the second quarter of
2004. The bond forward contracts were entered into in advance of closing the debt private placement to manage the risk of interest rate volatility prior to its closing. For accounting purposes, the
Fund recognized a $1,550 gain on the settlement of the bond forward contracts. Management is of the view that the gain is directly related to the underlying debt private placement and the gain is
therefore amortized to free cash flow available for distribution(B) on a basis consistent with the terms of the underlying. 

        
Financing costs:    financing costs represent costs incurred to amend long-term debt facilities. These amounts are typically funded from excess free cash
flow available for distribution(C) or the Fund's revolving credit facilities. 

         
Effect of foreign currency hedges to support Canadian dollar distributions:    the Fund had three single rate hedge agreements to protect a portion of its Canadian
dollar denominated distributions, which are supported by U.S. dollar denominated cash flows, from fluctuations in the foreign currency exchange rate between Canada and the U.S. Realized
foreign exchange gains are included in net foreign exchange loss or (gain) in the Fund's consolidated statement of operations and comprehensive income (loss). Realized gains or losses affect the
Fund's ability to distribute cash and accordingly management includes realized gains or losses on foreign currency hedges in the determination of free cash flow available for
distribution(B). 

         
Realized foreign exchange loss (gain):    realized foreign exchange losses and gains are included in the determination of cash generated from operating activities.
These amounts are also included in the effect of foreign currency hedges to support Canadian dollar distributions. Accordingly, realized foreign exchange losses and gains are removed from the
determination of free cash flow available for distribution(B) to avoid their inclusion twice. 

 Free cash flow available for distribution(B) — operations approach  

        Trustees and management of the Fund typically calculate free cash flow available for distribution(B) using an operations
approach. Management views EBITDA(A) as a proxy for cash derived from operations and is required under the terms of its long-term debt facilities to prepare a similar
calculation for its lenders. Accordingly, 

40

 

Trustees
and management continue to use the operations approach when calculating free cash flow available for distribution(B) and when assessing the Fund's payout ratio. 

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 EBITDA(A)
	 	$	78,245	 	$	71,434	 	$	6,811	 	$	145,103	 	$	130,106	 	$	14,997	 
	 Amortization of capitalized landfill asset closure and post-closure costs, including revisions to estimated cash flows not recorded to operating expense
	 	 	(2,017	)	 	(2,623	)	 	606	 	 	(3,715	)	 	(4,903	)	 	1,188	 
	 Interest on long-term debt
	 	 	(12,695	)	 	(8,471	)	 	(4,224	)	 	(26,069	)	 	(18,365	)	 	(7,704	)
	 Management transaction bonuses (other expenses)
	 	 	(26	)	 	—	 	 	(26	)	 	(57	)	 	(5	)	 	(52	)
	 Current income taxes
	 	 	(3,042	)	 	(3,944	)	 	902	 	 	(4,870	)	 	(5,607	)	 	737	 
	 Maintenance expenditures
	 	 	(18,696	)	 	(18,056	)	 	(640	)	 	(29,542	)	 	(30,411	)	 	869	 
	 Effect of foreign currency hedges to support Canadian dollar distributions
	 	 	—	 	 	1,371	 	 	(1,371	)	 	803	 	 	1,930	 	 	(1,127	)
	 Amortization of gain on settlement of bond forward contracts
	 	 	56	 	 	56	 	 	—	 	 	112	 	 	112	 	 	—	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Free cash flow available for distribution(B)
	 	$	41,825	 	$	39,767	 	$	2,058	 	$	81,765	 	$	72,857	 	$	8,908	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 

         
Amortization of capitalized landfill asset closure and post-closure costs, including revisions to estimated cash flow not recorded to operating
expenses:    see Free cash flow available for distribution(B) — cash flow
approach — Operating section of this MD&A. 

         
Interest on long-term debt:    interest on long-term debt represents a cash cost of carrying long-term debt to finance the Fund's
continuing operations. Interest on long-term debt reduces the amount of cash available for distribution as these monies are paid to the Fund's lenders. Accordingly, interest on long-term
debt is deducted from EBITDA(A) in the determination of free cash flow available for distribution(B). 

         
Management transaction bonuses (other expenses):    management transaction bonuses represent cash costs associated with fulfilling obligations to certain management
that were not funded from proceeds of the related transaction. 

        
Current income taxes:    current income taxes represent a cash cost to the Fund in respect of provincial, state and federal taxes, including withholding taxes on
certain payments received by the Fund from foreign sources. Current income taxes reduce the amount of cash available for distribution as these monies are paid to various government authorities.
Accordingly, current income taxes are deducted from EBITDA(A) in the determination of free cash flow available for distribution(B). 

         
Maintenance expenditures:    see Other Performance Measures — Maintenance and growth
expenditures section of this MD&A. 

         
Effect of foreign currency hedges to support Canadian dollar distributions:    the Fund had three single rate hedge agreements to protect a portion of its Canadian
dollar denominated distributions, which are supported by U.S. dollar denominated cash flows, from fluctuations in the foreign currency exchange rate between Canada
and the U.S. Realized foreign exchange gains or losses are included in foreign exchange loss or (gain) in the Fund's consolidated statement of operations and comprehensive income (loss). The
realization of gains or losses on foreign currency hedges increases or reduces the amount of cash available for distribution as these monies are paid to parties to the hedge transactions. Accordingly,
gains or losses on foreign currency hedges to support Canadian dollar distributions are included in or deducted from EBITDA(A) in the determination of free cash flow available for
distribution(B). 

         
Amortization of gain on settlement of bond forward contracts:    see Free cash flow available for
distribution(B) — cash flow approach — Financing section of
this MD&A. 

41

 

   Free cash flow available for distribution(B) — sources of funding  

        In accordance with Ontario Securities Commission ("OSC") National Policy 41-201, the following table compares both
cash generated from operating activities and net income to distributions and dividends paid to unitholders and participating preferred shareholders. 

														
	 
	 	Three months

ended

June 30 	 	Six months

ended

June 30 	 	Year ended December 31 	 
	 
	 	2008 	 	2008 	 	2007 	 	2006 	 
	 Cash generated from operating activities
	 	$	55,001	 	$	97,935	 	$	217,415	 	$	185,698	 
	 	 	 	 	 	 	 	 	 	 
	 Net income
	 	$	15,049	 	$	23,825	 	$	31,687	 	$	32,743	 
	 	 	 	 	 	 	 	 	 	 
	 Distributions and dividends paid to unitholders and participating preferred shareholders
	 	$	31,227	 	$	62,454	 	$	122,824	 	$	113,649	 
	 	 	 	 	 	 	 	 	 	 
	 Excess of cash generated from operating activities over distributions and dividends paid to unitholders and participating preferred shareholders
	 	$	23,774	 	$	35,481	 	$	94,591	 	$	72,049	 
	 	 	 	 	 	 	 	 	 	 
	 Shortfall of net income over distributions and dividends paid to unitholders and participating preferred shareholders
	 	$	(16,178	)	$	(38,629	)	$	(91,137	)	$	(80,906	)
	 	 	 	 	 	 	 	 	 	 

        Cash
generated from operating activities is significantly higher than distributions and dividends paid to unitholders and participating preferred shareholders. The use of the resulting
excess free cash flow available for distribution(C) is outlined in the Free cash flow available for
distribution(B) — cash flow approach, Payout ratio and Excess free cash flow available for
distribution(C) sections of this MD&A. 

 Free cash flow available for distribution(B) — shortfall of net income over distributions and dividends paid  

        Distributions and dividends paid to unitholders and participating preferred shareholders are in excess of net income for all periods
and years presented in the previous table. The following table outlines the primary reasons for the shortfall. 

															
	 
	 	 
	 	 
	 	

Year ended

December 31 	 
	 
	 	 
	 	Six months

ended

June 30

2008 	 
	 
	 	Three months

ended June 30

2008 	 
	 
	 	2007 	 	2006 	 
	 Shortfall of net income over distributions and dividends paid to unitholders and participating preferred shareholders
	 	$	(16,178	)	$	(38,629	)	$	(91,137	)	$	(80,906	)
	 	 	 	 	 	 	 	 	 	 
	 Distributions and dividends paid to unitholders include amounts paid to participating preferred shareholders while net income excludes the participating preferred shareholders
(non-controlling interests) share of net income. Accordingly, the non-controlling interests share of net income is added back to arrive at a similar basis of comparison.
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Non-controlling interest
	 	 	2,911	 	 	4,609	 	 	6,320	 	 	7,191	 
	 	 	 	 	 	 	 	 	 	 
	 Subtotal
	 	 	(13,267	)	 	(34,020	)	 	(84,817	)	 	(73,715	)

42

 

															
	 
	 	 
	 	 
	 	

Year ended

December 31 	 
	 
	 	 
	 	Six months

ended

June 30

2008 	 
	 
	 	Three months

ended June 30

2008 	 
	 
	 	2007 	 	2006 	 
	 Net income includes various non-cash items which have no effect on the Fund's ability to generate or distribute free cash flow.
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Net gain on sale of capital assets
	 	 	(127	)	 	(87	)	 	(1,434	)	 	(443	)
	 	 Net (gain) loss on financial instruments
	 	 	(5,497	)	 	3,550	 	 	9,384	 	 	3,363	 
	 	 Net foreign exchange loss (gain)
	 	 	—	 	 	(624	)	 	13,671	 	 	(2,578	)
	 	 Future income tax expense (recovery)
	 	 	3,480	 	 	(6,409	)	 	(4,082	)	 	7,307	 
	 	 	 	 	 	 	 	 	 	 
	 Subtotal
	 	 	(15,411	)	 	(37,590	)	 	(67,278	)	 	(66,066	)
	 Net income includes the payment of financing fees incurred on the amendment of lending facilities which were financed from revolving credit facilities proceeds
or excess free cash flow available for distribution(C).
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Financing costs
	 	 	930	 	 	930	 	 	7,192	 	 	79	 
	 	 	 	 	 	 	 	 	 	 
	 Subtotal
	 	 	(14,481	)	 	(36,660	)	 	(60,086	)	 	(65,987	)
	 Amortization includes fair value adjustments for capital, landfill and intangible assets that are not required to sustain cash flows from operating activities.
For the year ended December 31, 2006, amortization also includes amortization of deferred financing costs which were financed from proceeds of the related financing or from excess free cash flow available for distribution(C).
Accordingly, all amortization amounts are added back and replaced with management's calculation of maintenance expenditures as outlined in the Other Performance Measures — Maintenance and growth
expenditures section of this MD&A.
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Amortization
	 	 	45,736	 	 	88,313	 	 	161,006	 	 	148,128	 
	 	 Maintenance expenditures
	 	 	(18,696	)	 	(29,542	)	 	(56,463	)	 	(52,504	)
	 	 	 	 	 	 	 	 	 	 
	 Adjusted excess of net income over distributions and dividends paid to unitholders and participating preferred shareholders
	 	$	12,559	 	$	22,111	 	$	44,457	 	$	29,637	 
	 	 	 	 	 	 	 	 	 	 

        To arrive at excess free cash flow available for distribution(C) the following adjustments are made to the adjusted excess of net
income over distributions and dividends paid to unitholders and participating preferred shareholders: amortization of capitalized landfill asset closure and post-closure costs, including
revisions to estimated cash flows, deferred costs, effect of foreign currency hedges to support Canadian dollar distributions and amortization of gain on settlement of bond forward contracts. The
rationale for each adjustment is outlined in the Other Performance Measures — Free cash flow available for
distribution(B) — operations approach section of this MD&A. 

        Management
of the Fund contends that distributions and dividends paid to unitholders and participating preferred shareholders excludes an economic return of capital and that no cash
shortfall exists based on the rationale presented in the previous table. Distributions and dividends paid to unitholders and participating preferred shareholders were all funded from cash generated
from operating activities. Management of the Fund is of the opinion that cash generated from operating activities will continue into the foreseeable future
and expects such amounts will be sufficient to meet current annualized distribution and dividend amounts per trust unit and PPS as established by the Trustees. 

43

 

 Return on investment and distributions  

        Returns on an investment in trust units issued by the Fund are not comparable to returns on a fixed income security. The recovery and
total return on an investment in the Fund is at risk and is subject to the variability of many factors. Distributions are dependent on a variety of factors including the Fund's ability to operate
effectively, the Fund's financial and cash flow performance, efficient and continued sources of financing, variable interest rates, fluctuations in working capital, sustainability of margins,
maintenance expenditure requirements, the deductibility of intercompany interest for tax purposes, cash taxes, foreign currency exchange rates, and distribution levels established by the Trustees from
time to time. In addition, the market value of the Fund's trust units may decline if the Fund is unable to meet its current or future distribution declarations or expectations and the resulting
decline may be significant. Distributions are established by the Trustees from time to time and are not guaranteed. 

        It
is important for investors to consider all risk factors that affect the Fund and to assess the stability and sustainability of its distributions. Risk factors affecting the Fund are
detailed in the Fund's Annual Information Form which is filed on www.sedar.com.

        The
composition of the Fund's distributions may change over time and may affect an investor's after-tax rate of return. Distributions may contain both a return on and/or
return of capital. Returns on capital are generally taxed as ordinary income or dividends in the hands of unitholders while returns of capital are generally tax-deferred and reduce the
unitholders cost base of their original investment in trust units of the Fund. 

 Maintenance and growth expenditures  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Total
	 	$	34,553	 	$	41,388	 	$	(6,835	)	$	57,829	 	$	63,927	 	$	(6,098	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Maintenance:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Canada
	 	$	6,367	 	$	4,940	 	$	1,427	 	$	9,731	 	$	10,036	 	$	(305	)
	 U.S.
	 	 	12,329	 	 	13,116	 	 	(787	)	 	19,811	 	 	20,375	 	 	(564	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Total maintenance
	 	$	18,696	 	$	18,056	 	$	640	 	$	29,542	 	$	30,411	 	$	(869	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Growth:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Canada
	 	$	4,988	 	$	8,459	 	$	(3,471	)	$	10,805	 	$	11,738	 	$	(933	)
	 U.S.
	 	 	10,869	 	 	14,873	 	 	(4,004	)	 	17,482	 	 	21,778	 	 	(4,296	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Total growth
	 	$	15,857	 	$	23,332	 	$	(7,475	)	$	28,287	 	$	33,516	 	$	(5,229	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 

        Maintenance
and growth expenditures include amounts accrued for capital and landfill assets received but for which payment remains outstanding. Accordingly, total maintenance and growth
expenditure amounts presented in the table above will differ from total capital and landfill asset purchases presented in the Fund's consolidated statement of cash flows. 

 Maintenance  

        Maintenance expenditures generally represent the outlay of monies to sustain current cash flows. Maintenance expenditures may include
some or all of the following: the replacement of existing capital assets, including vehicles, equipment, containers, compactors, furniture, fixtures and computer equipment. Maintenance expenditures
also include a charge for the consumption and maintenance of landfill airspace calculated as follows: the cost of landfill airspace from the date of purchase together with estimated landfill
construction costs, including costs to maintain landfill disposal and productive capacity, for the balance of the landfill's permitted or deemed useful life, divided by the total remaining permitted
or deemed permitted capacity, where capacity is measured in tonnes. The resulting amount is multiplied by capacity consumed in the respective period or year and represents the maintenance expenditure
charge for the consumption of landfill airspace. The cost to construct and maintain landfill airspace is not linear. Accordingly, there may be periods or 

44

 

years
where landfill construction and airspace maintenance costs exceed the maintenance expenditure charge for landfill airspace consumed. Landfill construction and airspace maintenance costs incurred
in any period or year which exceed the maintenance expenditure charge are reflected as growth expenditures. In periods or years where landfill construction and airspace maintenance costs are lower
than the maintenance expenditure charge for landfill airspace consumed, the resulting difference is reflected as a reduction of growth expenditures. 

        For
the three months ended, the Canadian segment increase is largely attributable to the timing of vehicle purchases, approximately $1,300 higher than the comparative period. The timing
of vehicle purchases is the primary reason for the Canadian segment decline for the six months ended, partially offset by investments in computer equipment. 

        The
U.S. segment declines are due in large part to foreign currency exchange fluctuations. The comparative strength of the Canadian dollar, relative to the U.S. dollar, has
resulted in an approximately $1,300 and $2,500 comparative decline in U.S. segment maintenance expenditures for the three and six months ended, respectively. These declines were partially
offset by higher maintenance expenditures to support a larger business base, which is the result of organic and acquisition growth, and increasing costs to purchase maintenance capital. 

 Growth  

        Growth expenditures generally represent the outlay of monies to generate new or future cash flows. Growth expenditures may include some
or all of the following: vehicles, equipment, containers, compactors, furniture, fixtures and computer equipment to support new contract wins and organic business growth. Landfill construction costs,
including costs to maintain landfill disposal capacity, which
exceed the maintenance expenditure charge for consumed landfill airspace are characterized as growth expenditures until airspace is consumed in a subsequent period or year. Growth expenditures are
funded from excess free cash flow available for distribution(C) or from the Fund's revolving credit facilities. 

        Canadian
segment residential contract wins which commenced in the three and six month periods ended in 2007 exceeded those that commenced in 2008 resulting in a decrease in comparative
growth expenditures. 

        Foreign
currency fluctuations represent approximately $1,100 and $2,200 of the three and six month declines in U.S. segment growth expenditures. The timing of landfill
expenditures, coupled with a decline in growth expenditures related to municipal contract wins in prior periods, also contributed to the U.S. segment declines in growth expenditures. 

        Readers
are reminded that revenue, EBITDA(A), and cash flow contributions derived from vehicles, equipment and container growth expenditures will materialize over the
assets useful life. The Fund's typical pay back period benchmark is three to five years. 

 Maintenance expenditures — risks and uncertainties  

        The Fund is required to maintain the productive capacity of various capital and landfill assets, including but not limited to vehicles
and equipment and landfill disposal capacity. A failure to maintain or replace vehicles and equipment will typically result in higher operating and maintenance costs, and could impact revenues if the
Fund cannot adequately service its customer base. A failure to maintain or replace landfill disposal capacity will ultimately result in a reduction of landfill revenues. The Fund is dependent on
various suppliers to maintain satisfactory maintenance expenditure levels and costs. Supply disruptions or curtailments, rising procurement costs, the cost of technological advancement, government
imposed regulation with regards to emissions or other regulations may impact revenues and operating costs, and all of these factors may impact free cash flow available for
distribution(B). 

45

 

 Distributions
  (all amounts are in thousands of Canadian dollars, except per trust unit and PPS amounts)

        The following table summarizes various details of the Fund's 2008 and 2007 distributions and dividends: 

																
	 
	 	Six months ended June 30 	 
	 
	 	Period 	 	Monthly

distribution per

trust unit and

PPS dividend 	 	Annual

distribution per

trust unit and

PPS dividend 	 	Total trust unit

distributions

and PPS

dividends

declared 	 	Percentage

increase in total

distributions

and PPS

dividends 	 
	 2008
	 	January – June	 	$	0.1515	 	$	1.8180	 	$	62,454	 	 	2.6%	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 2007
	 	January – June	 	$	0.1515	 	$	1.8180	 	$	60,872	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 

        The
following tables present the Fund's payout ratio by quarter and annually and on a cumulative quarterly and annual basis, from inception: 

											
	2008

 
	 	Q2 	 	Q1 	 	Total 	 
	 Free cash flow available for distribution(B) (see page 9)
	 	$	41,825	 	$	39,940	 	$	81,765	 
	 Distributions declared, trust units
	 	$	26,165	 	$	26,164	 	$	52,329	 
	 Dividends declared, PPSs
	 	 	5,062	 	 	5,063	 	 	10,125	 
	 	 	 	 	 	 	 	 
	 Total distributions and dividends declared
	 	$	31,227	 	$	31,227	 	$	62,454	 
	 	 	 	 	 	 	 	 
	 Payout ratio
	 	 	74.7%	 	 	78.2%	 	 	76.4%	 
	 	 	 	 	 	 	 	 
	 Cumulative payout ratio, from inception
	 	 	80.2%	 	 	80.6%	 	 	80.2%	 
	 	 	 	 	 	 	 	 

 

																	
	2007

 
	 	Q4 	 	Q3 	 	Q2 	 	Q1 	 	Total 	 
	 Free cash flow available for distribution(B) (see page 9)
	 	$	47,628	 	$	48,001	 	$	39,767	 	$	33,090	 	$	168,486	 
	 Distributions declared, trust units
	 	$	26,165	 	$	26,154	 	$	26,016	 	$	24,553	 	$	102,888	 
	 Dividends declared, PPSs
	 	 	5,062	 	 	5,073	 	 	5,211	 	 	5,092	 	 	20,438	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Total distributions and dividends declared
	 	$	31,227	 	$	31,227	 	$	31,227	 	$	29,645	 	$	123,326	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Payout ratio
	 	 	65.6%	 	 	65.1%	 	 	78.5%	 	 	89.6%	 	 	73.2%	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Cumulative payout ratio, from inception
	 	 	80.8%	 	 	82.3%	 	 	84.2%	 	 	84.8%	 	 	80.8%	 
	 	 	 	 	 	 	 	 	 	 	 	 

 

																	
	2006

 
	 	Q4 	 	Q3 	 	Q2 	 	Q1 	 	Total 	 
	 Free cash flow available for distribution(B) (see page 9)
	 	$	39,283	 	$	38,762	 	$	33,250	 	$	30,562	 	$	141,857	 
	 Distributions declared, trust units
	 	$	24,369	 	$	23,802	 	$	22,775	 	$	22,775	 	$	93,721	 
	 Dividends declared, PPSs
	 	 	5,351	 	 	5,227	 	 	5,002	 	 	5,002	 	 	20,582	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Total distributions and dividends declared
	 	$	29,720	 	$	29,029	 	$	27,777	 	$	27,777	 	$	114,303	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Payout ratio
	 	 	75.7%	 	 	74.9%	 	 	83.5%	 	 	90.9%	 	 	80.6%	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Cumulative payout ratio, from inception
	 	 	84.3%	 	 	85.4%	 	 	86.8%	 	 	87.2%	 	 	84.3%	 
	 	 	 	 	 	 	 	 	 	 	 	 

46

 

  Summary of Quarterly Results
  (all amounts are in thousands of Canadian dollars, except per trust unit amounts)

												
	2008

 
	 	Q2 	 	Q1 	 	Total 	 
	 Revenues
	 	 	 	 	 	 	 	 	 	 
	 	 Canada
	 	$	100,754	 	$	85,768	 	$	186,522	 
	 	 U.S. south
	 	 	88,234	 	 	79,816	 	 	168,050	 
	 	 U.S. northeast
	 	 	91,274	 	 	78,763	 	 	170,037	 
	 	 	 	 	 	 	 	 
	 Total revenues
	 	$	280,262	 	$	244,347	 	$	524,609	 
	 	 	 	 	 	 	 	 
	 Net income
	 	$	15,049	 	$	8,776	 	$	23,825	 
	 	 	 	 	 	 	 	 
	 Net income per weighted average trust unit, basic and diluted
	 	$	0.26	 	$	0.15	 	$	0.41	 
	 	 	 	 	 	 	 	 

 

																		
	2007

 
	 	Q4 	 	Q3 	 	Q2 	 	Q1 	 	Total 	 
	 Revenues
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Canada
	 	$	89,418	 	$	87,735	 	$	86,019	 	$	73,355	 	$	336,527	 
	 	 U.S. south
	 	$	77,479	 	 	82,278	 	 	80,398	 	 	74,535	 	 	314,690	 
	 	 U.S. northeast
	 	$	84,132	 	 	68,500	 	 	59,098	 	 	54,410	 	 	266,140	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Total revenues
	 	$	251,029	 	$	238,513	 	$	225,515	 	$	202,300	 	$	917,357	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income
	 	$	4,922	 	$	10,540	 	$	5,860	 	$	10,365	 	$	31,687	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income per weighted average trust unit, basic and diluted
	 	$	0.09	 	$	0.18	 	$	0.10	 	$	0.19	 	$	0.56	 
	 	 	 	 	 	 	 	 	 	 	 	 

 

																		
	2006

 
	 	Q4 	 	Q3 	 	Q2 	 	Q1 	 	Total 	 
	 Revenues
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 Canada
	 	$	74,943	 	$	76,891	 	$	72,329	 	$	64,477	 	$	288,640	 
	 	 U.S. south
	 	 	70,097	 	 	67,183	 	 	66,021	 	 	63,820	 	 	267,121	 
	 	 U.S. northeast
	 	 	55,279	 	 	55,907	 	 	54,305	 	 	50,567	 	 	216,058	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Total revenues
	 	$	200,319	 	$	199,981	 	$	192,655	 	$	178,864	 	$	771,819	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income
	 	$	10,168	 	$	10,457	 	$	7,190	 	$	4,928	 	$	32,743	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 Net income per weighted average trust unit, basic and diluted
	 	$	0.19	 	$	0.20	 	$	0.13	 	$	0.09	 	$	0.61	 
	 	 	 	 	 	 	 	 	 	 	 	 

 Total approximate quarterly revenue growth from Q2 2006 to Q2 2008  

						
	 Revenues — Q2 2006
	 	$	192,700	 
	 	 	 	 
	 Revenue growth additions:
	 	 	 	 
	 	 Acquisitions completed from 2006 to 2008
	 	 	53,400	 
	 	 Net price, volume, and fuel and environmental surcharge growth, net of foreign currency translation
	 	 	34,200	 
	 	 	 	 
	 Revenues — Q2 2008
	 	$	280,300	 
	 	 	 	 

47

 

 Financial Condition
  (all amounts are in thousands of Canadian dollars, unless otherwise stated)  

 Selected Consolidated Balance Sheet Information  

																					
	 
	 	Canada —

June 30,

2008 	 	U.S. —

June 30,

2008 	 	Consolidated —

June 30,

2008 	 	Canada —

December 31,

2007 	 	U.S. —

December 31,

2007 	 	Consolidated —

December 31,

2007 	 
	 Accounts receivable
	 	$	55,410	 	$	72,886	 	$	128,296	 	$	51,897	 	$	63,954	 	$	115,851	 
	 Intangibles
	 	$	29,633	 	$	108,899	 	$	138,532	 	$	33,736	 	$	110,950	 	$	144,686	 
	 Goodwill
	 	$	63,789	 	$	579,795	 	$	643,584	 	$	61,461	 	$	555,073	 	$	616,534	 
	 Deferred costs
	 	$	4,084	 	$	4,216	 	$	8,300	 	$	3,502	 	$	3,804	 	$	7,306	 
	 Capital assets
	 	$	155,976	 	$	275,647	 	$	431,623	 	$	144,681	 	$	260,219	 	$	404,900	 
	 Landfill assets
	 	$	188,508	 	$	460,027	 	$	648,535	 	$	194,039	 	$	450,672	 	$	644,711	 
	 Working capital
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 (deficit) position — (current assets less current liabilities)
	 	$	(34,577	)	$	3,057	 	$	(31,520	)	$	(3,423	)	$	(21,921	)	$	(25,344	)

 Accounts receivable  

					
	 Change — Consolidated June 30, 2008 versus December 31, 2007
	 	$	12,445	 
	 Change — Canada — June 30, 2008 versus December 31, 2007
	 	$	3,513	 
	 Change — U.S. — June 30, 2008 versus December 31, 2007
	 	$	8,932	 

        An
acquisition completed in the second quarter of 2008 increased accounts receivable by approximately $2,000. The timing of certain residential customer collections and higher
comparative landfill volumes is the primary reason for the balance of the Canadian segment increase. 

        Foreign
currency translation, acquisitions and amounts owing from a single customer in the U.S., approximately $2,100, $1,300 and $1,200, respectively, are the primary reasons for the
U.S. segment increase. Organic growth and timing of collections represents the balance of the change. 

 Intangibles  

					
	 Change — Consolidated June 30, 2008 versus December 31, 2007
	 	$	(6,154	)
	 Change — Canada — June 30, 2008 versus December 31, 2007
	 	$	(4,103	)
	 Change — U.S. — June 30, 2008 versus December 31, 2007
	 	$	(2,051	)

        Amortization,
approximately $6,900, was partially offset by intangibles recognized on an acquisition, approximately $2,800, for the Fund's Canadian segment. 

        Amortization,
approximately $9,400, and fair value adjustments to preliminary purchase price allocations recorded in prior periods, approximately $3,200, represent, in aggregate, $12,600
of the decline in U.S. segment intangibles. These amounts were partially offset by intangibles recognized on acquisitions completed in 2008, approximately $7,100, and foreign currency
translation, approximately $3,400. 

 Goodwill  

					
	 Change — Consolidated June 30, 2008 versus December 31, 2007
	 	$	27,050	 
	 Change — Canada — June 30, 2008 versus December 31, 2007
	 	$	2,328	 
	 Change — U.S. — June 30, 2008 versus December 31, 2007
	 	$	24,722	 

        Goodwill
recognized on an acquisition completed in the Fund's Canadian segment is the reason for the increase. 

        Foreign
currency translation represents approximately $17,200 of the increase in U.S. segment goodwill while goodwill recognized on U.S. segment acquisitions completed in
the period amounted to approximately 

48

 

$7,900.
Fair value adjustments to preliminary purchase price allocations recorded in prior periods, partially offset contingent landfill payments recorded to goodwill, and together represent the
balance of the change. 

 Deferred costs  

					
	 Change — Consolidated June 30, 2008 versus December 31, 2007
	 	$	994	 
	 Change — Canada — June 30, 2008 versus December 31, 2007
	 	$	582	 
	 Change — U.S. — June 30, 2008 versus December 31, 2007
	 	$	412	 

        Deferred
costs incurred for landfill development initiatives in the Fund's Canadian segment, approximately $1,300, exceeded write-offs, approximately $700. Landfill
development initiatives are specific to permitting a new Calgary landfill site and extending the current Lachenaie landfill permit. 

        The
increase in U.S. segment deferred costs is due to a combination of corporate development activities, approximately $200 and foreign currency translation. 

 Capital assets  

					
	 Change — Consolidated June 30, 2008 versus December 31, 2007
	 	$	26,723	 
	 Change — Canada — June 30, 2008 versus December 31, 2007
	 	$	11,295	 
	 Change — U.S. — June 30, 2008 versus December 31, 2007
	 	$	15,428	 

        The
increase in Canadian segment capital assets is primarily attributable to vehicle, equipment, and container purchases, totaling approximately $16,300 and working capital adjustments,
representing additions which remain unpaid, approximately $800. Capital asset additions were incurred in respect of new contract wins, organic growth, and capital asset maintenance. Acquisitions
contributed approximately $6,100 to the Canadian segment increase, while amortization, approximately $11,900, partially offset the sum of the foregoing. 

        The
increase in U.S. segment capital assets is a function of the following: capital asset purchases, approximately $21,300, capital assets acquired through acquisition,
approximately $7,500, fair value adjustments to preliminary purchase price allocations recorded in the prior year, approximately $6,500, and foreign currency translation, approximately $8,100. Capital
asset purchases are principally comprised of vehicle, equipment and container purchases in support of new contract wins, organic growth, and capital asset maintenance. These increases were partially
offset by amortization, approximately $26,700, and working capital adjustments, approximately $500. The balance of the U.S. segment change is due to the sale of various capital assets. 

 Landfill assets  

					
	 Change — Consolidated June 30, 2008 versus December 31, 2007
	 	$	3,824	 
	 Change — Canada — June 30, 2008 versus December 31, 2007
	 	$	(5,531	)
	 Change — U.S. — June 30, 2008 versus December 31, 2007
	 	$	9,355	 

        Amortization,
including the amortization of capitalized landfill asset closure and post-closure costs, approximately $10,400, coupled with working capital adjustments,
approximately $1,400, are the primary reasons for the Canadian segment decline in landfill assets. These amounts were partially offset by additions, approximately $4,800, coupled with capitalized
landfill closure and post-closure costs, a non-cash item, approximately $1,500. Landfill construction efforts were principally carried out at the Fund's Lachenaie landfill
during the period. 

        Foreign
currency translation, approximately $13,900, coupled with additions and capitalized landfill closure and post-closure costs, approximately $16,400 and $2,200,
respectively, are in aggregate the primary reason for the U.S. segment increase. Amortization, approximately $20,900, coupled with amortization of capitalized landfill closure and
post-closure costs, approximately $2,200, partially offset the aforementioned increases. Landfill construction at the Fund's Seneca Meadows site is a large contributor to landfill
asset additions. 

49

 

 Working capital (deficit) position  

					
	 Change — Consolidated June 30, 2008 versus December 31, 2007
	 	$	(6,176	)
	 Change — Canada — June 30, 2008 versus December 31, 2007
	 	$	(31,154	)
	 Change — U.S. — June 30, 2008 versus December 31, 2007
	 	$	24,978	 

        The
classification of Canadian senior secured series A debentures, $47,000, from long-term to current is the primary reason for the weakening working capital position.
This change was partially offset by an increase in cash and cash equivalents, accounts receivable, and income taxes recoverable, approximately $2,400, $3,500, and $2,600, respectively, and a decline
in accounts payable, accrued charges and income taxes payable, approximately $2,200, $2,100, and $1,000, respectively, all of which resulted in a strengthening working capital position. The increase
in cash and cash equivalents is due in large part to the timing of cheque releases which accounts for approximately $1,400 of the change. Changes in accounts receivable are outlined above, while the
increase in income taxes recoverable and decline in income taxes payable is due to the timing of installment payments made in the current year. The decline in accounts payable and accrued charges are
due largely to the timing of capital and landfill expenditures and compensation amounts accrued at December 31, 2007 and paid in the current period. 

        At
December 31, 2007, the Fund had accrued amounts payable to the original seller of the Seneca Meadows landfill totaling approximately U.S. $15,000. Payment in the current
period is the primary cause of the strengthening U.S. segment working capital position as the payment was financed with long-term debt. The balance of the change is largely
attributable to a decline in accounts payable due primarily to the timing of payment for capital and landfill asset purchases and an increase in accounts receivable which is outlined above. 

 Disclosure of outstanding trust unit data  

								
	 
	 	June 30, 2008 	 
	 
	 	Trust units 	 	$ 	 
	 Trust units
	 	 	57,569	 	 	1,006,772	 
	 Class A units
	 	 	—	 	 	—	 
	 	 	 	 	 	 
	 Total contributed equity
	 	 	57,569	 	 	1,006,772	 
	 	 	 	 	 	 

 Trust units  

        An unlimited number of trust units may be issued. Each trust unit is transferable, voting and represents an equal and undivided
beneficial interest in any distributions from the Fund whether of income, net realized capital gains or other amounts and in any net assets of the Fund in the event of termination
or wind-up. 

 Class A unit  

        IESI, as holder of the Class A unit, has the right to vote with trust units of the Fund on all matters on a basis of one vote
for each trust unit receivable upon exercise of each PPS exchange right. The Class A unit will generally vote together with trust units of the Fund at all unitholder meetings or in respect of
any written resolutions of unitholders. The holder of the Class A unit has the right to designate up to two Trustees of the Fund. The entitlement to designate Trustees is dependent on the
ownership interest of the non-controlling interest and the right to designate two Trustees is conditional on the non-controlling interest holding an ownership interest in the
Fund, on a fully diluted basis, in excess of 20%. If the ownership interest of the non-controlling interest falls below 20%, but is greater than 10%, the Class A unitholder has the
right to designate one Trustee of the Fund. If the ownership interest of the non-controlling interest falls below 10%, the Class A unitholder has no right to designate any Trustees
of the Fund. At June 30, 2008, the indirect ownership interest held by the non-controlling interest is approximately 16.2%. 

        The
Second Amended and Restated Declaration of Trust provides that, for so long as any PPSs remain outstanding, the Trustees shall not declare payable, pay or make any distribution of
distributable cash flow, as defined therein, or any other distribution of cash or property on a trust unit of the Fund unless IESI declares a payment or dividend to holders of the PPSs in an amount
equal to the per trust unit distribution payable to 

50

 

unitholders
of the Fund. The Class A unit is redeemable at the option of the holder at any time or at the option of the Fund at any time after the date that no PPSs are outstanding and the
Class A unit rights against the Fund have ceased. The redemption price of the Class A unit will be for a nominal amount. 

 Withholding taxes on foreign source income  

        Withholding tax paid on foreign source income received by the Fund is available for pass through for the benefit of the Fund's
unitholders. When applicable, withholding taxes on foreign source income represents a charge to current income tax expense on the Fund's consolidated statement of operations and comprehensive
income (loss). 

 Non-controlling interest  

        As of August 7, 2008, 10,879 PPSs have been converted into trust units of the Fund since issuance on January 21,
2005. Each holder of a PPS receives dividends equivalent to those received by holders of the Fund's trust units. Assuming all PPSs are exchanged for trust units of the Fund, 68,706 equivalent
trust units would be outstanding at June 30, 2008. 

 Liquidity and Capital Resources
  (all amounts are in thousands of Canadian dollars, except per tonne amounts, unless otherwise stated)

 Long-term debt  

        Summarized details of the Fund's long-term debt facilities as at June 30, 2008 are as follows: 

														
	 
	 	Available

lending 	 	Facility drawn at

June 30, 2008 	 	Letters of credit

(not reported as

long-term debt

on the

Consolidated

Balance Sheets) 	 	Current

available

capacity 	 
	 Canadian long-term debt facilities — stated in Canadian dollars
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Senior secured debentures, series A
	 	$	47,000	 	$	47,000	 	$	—	 	$	—	 
	 Senior secured debentures, series B
	 	$	58,000	 	$	58,000	 	$	—	 	$	—	 
	 Revolving credit facility
	 	$	150,000	 	$	105,500	 	$	24,964	 	$	19,536	 
	 U.S. long-term debt facilities — stated in U.S. dollars
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Term loan
	 	$	195,000	 	$	195,000	 	$	—	 	$	—	 
	 Revolving credit facility
	 	$	575,000	 	$	380,500	 	$	170,076	 	$	24,424	 
	 IRBs
	 	$	104,000	 	$	104,000	 	$	—	 	$
	—

	 

        Effective
July 30, 2008, the Fund entered into a Third Amending Agreement to its Fourth Amended and Restated Credit Agreement. The Third Amending Agreement increases the Canadian
revolving credit facility commitment from $150,000 to $305,000 and decreases the accordion feature from $50,000 to $45,000. In addition, the Third Amending Agreement increases the pricing grid by one
quarter of one percent and modifies one financial covenant. All other significant terms remain unchanged. 

        Effective
August 6, 2008, the Fund entered into a Fifth Amendment to its Amended and Restated Revolving Credit and Term Loan Agreement. The Fifth Amendment extends the maturity of
the U.S. revolving credit facility to January 21, 2012, increases the U.S. revolving credit facility commitment to U.S. $588,500 from U.S. $575,000, and decreases
the accordion feature from U.S. $50,000 to U.S. $36,500. In addition, the Fifth Amendment increases the applicable margin on the pricing grid by one quarter of one percent throughout.
All other significant terms remain unchanged. 

        Effective
August 1, 2008, the Fund remarketed $45,000 of IRBs. The amended and restated IRBs, which originally bore interest at LIBOR less an applicable discount, bear interest at
6.625% for a term of 5 years. In conjunction with the remarketing, S&P affirmed IESI's BB long term corporate rating, with an outlook of stable, and issued a new B+ rating on the
remarketed IRBs. 

51

 

        At
June 30, 2008, the Fund's lenders have not demanded accelerated repayment of its long-term debt facilities. On a consolidated basis, the Fund's
long-term debt, including the current portion, to last twelve months EBITDA(A) ratio is 3.11 times. Holding foreign exchange rates constant with those in effect at
December 31, 2007 results in a long-term debt to last twelve months EBITDA(A) ratio of 2.98 times. Readers are reminded that contributions to
EBITDA(A) from acquisitions completed within the last twelve months are not included in the foregoing ratio and that the Fund has two revolving credit facilities to support its Canadian
and U.S. segment operations which require financial covenant tests to be prepared separately. Management of the Fund is confident that the Fund's long-term debt facilities,
available capacities, including its accordion features, and access to other sources of long-term debt financing are sufficient to meet the Fund's near-term planned growth and
development activities. 

        A
portion of the Fund's term loan, its two revolving credit facilities, and its IRBs are subject to interest rate fluctuations with bank prime, the 30 day rate on bankers'
acceptances or LIBOR. The Fund has hedged U.S. $262,000 of variable rate interest on its U.S. long-term debt facility. The balance of drawings on the
U.S. long-term debt facility, U.S. $313,500, together with amounts drawn on the Fund's Canadian revolving credit facility totaling $105,500, and amounts drawn on the IRBs,
are subject to interest rate risk. A 1.0% rise or fall in the variable interest rate results in a U.S. $3,135, $1,055, and U.S. $1,040, change in annualized interest expense incurred on
the Fund's U.S. long-term debt facility, Canadian revolving credit facility, and IRBs, respectively. 

        The
Fund is obligated under the terms of its debentures, term loan, revolving credit facilities, and IRBs (collectively the "facilities") to repay the full principal amount of each at
their respective maturities. A failure to comply with the terms of any facility could result in an event of default which, if not cured or waived, could accelerate repayment of the relevant
indebtedness. If repayment of the facilities were to be accelerated, there can be no assurance that the assets of the Fund would be sufficient to repay these facilities in full. 

        The
terms of the facilities contain restrictive covenants that limit the discretion of the Fund's management with respect to certain business matters. These covenants place restrictions
on, among other things, the ability of the Fund to incur additional indebtedness, to create liens or other encumbrances, to pay distributions on trust units and dividends on PPSs above certain levels
or make certain other payments, investments, loans and guarantees, and to sell or otherwise dispose of assets and merge or consolidate with another entity. In addition, the debentures and revolving
credit facilities contain a number of financial covenants that require the Fund to meet certain financial ratios and financial condition tests. A failure to comply with the terms of the facilities
could result in an event of default which, if not cured or waived, could result in accelerated repayment. If the repayment of the facilities were to be accelerated, there can be no assurance that the
assets of the Fund would be sufficient to repay these facilities in full. 

        The
Fund's U.S. revolving credit facility restricts total annualized capital and landfill expenditures, less expenditures for new municipal contracts, to 1.1 times annual
capital and landfill asset amortization. If
opportunities arise that require growth capital expenditures that are in excess of the restrictive covenant, the Fund would seek a waiver of this covenant. Failure to receive the waiver could
accelerate the repayment of the relevant indebtedness or result in the postponement of growth capital expenditures. If the repayment of the facility were to be accelerated, there can be no assurance
that the assets of the Fund would be sufficient to repay this facility in full. 

        Management
of the Fund continues to actively review its financing alternatives. 

 Cash flows  

																				
	 
	 	Three months ended June 30 	 	Six months ended June 30 	 
	 
	 	2008 	 	2007 	 	Change 	 	2008 	 	2007 	 	Change 	 
	 Cash flows generated from (utilized in):
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Operating activities
	 	$	55,001	 	$	53,806	 	$	1,195	 	$	97,935	 	$	82,261	 	$	15,674	 
	 Investing activities
	 	$	(73,392	)	$	(70,833	)	$	(2,559	)	$	(115,150	)	$	(102,970	)	$	(12,180	)
	 Financing activities
	 	$	14,999	 	$	14,290	 	$	709	 	$	18,372	 	$	23,715	 	$	(5,343	)

52

 

 Operating activities  

        Organic and acquisition growth is the primary reason for the increase in cash generated from operating activities, which resulted in
EBITDA(A) growth of approximately $6,800 and $15,000 for the three and six month periods ended, respectively. Higher interest expense, due to financing the Winters Bros. acquisition with
long-term debt facility advances and financing growth expenditures, approximately $4,200 and $7,700, respectively, partially offset the operating increases realized from organic and
acquisition growth. A decline in cash taxes, approximately $900 and $700 for the three and six months, respectively, also contributed to the increase in operating cash flows. Financing costs incurred
in the current three months ended, due to the amendment of U.S. long-term debt facilities, approximately $900, reduced the current cash generated from operations. 

 Investing activities  

        The increase in cash utilized in investing activities is due in large part to completed acquisitions. Acquisitions completed in the
three and six month periods in 2008 increased approximately $2,700 and $17,400, respectively, over the comparative periods. A payment made to the original seller of the Seneca Meadows landfill,
approximately U.S. $15,000, is the primary reason for the six month period ended increase. The increase in acquisition investment was partially offset by a decline in capital and landfill asset
purchases for the six months ended due principally to the timing of payments, effectively working capital adjustments. 

 Financing activities  

        With the exception of the Fund's trust unit issuance and subsequent repayment of U.S. revolving credit facility advances, net
proceeds from long-term debt advances and distributions and dividends paid to unitholders and participating preferred shareholders, are consistent, for the three months ended, with the
comparative period. Marginally higher long-term debt repayments, approximately $2,700, and higher distributions and dividends paid to unitholders and participating preferred shareholders,
approximately $2,100, is the primary reason for the decline in cash generated from financing activities for the six months ended. The Fund's trust unit issuance in 2007 is the reason for the increase
in distributions and dividends paid to unitholders and participating preferred shareholders. 

 Seasonality  

        Revenues are generally higher in spring, summer and autumn months due to higher collected and disposed of waste
volumes. Higher collection and disposal revenues are partially offset by higher operating expenses to service and dispose of additional waste volumes. 

 Risks and Uncertainties  

        The Fund is subject to various risks and uncertainties which are summarized below. Additional details are contained in
the Fund's 2007 Annual Information Form filed on SEDAR, which can be found at www.sedar.com.

	•
	renewal or maintenance of landfill operating permits  
	•
	modifications to landfill operating permits  
	•
	continued focus on growth through acquisition  
	•
	continued management of business growth  
	•
	loss of contracts through competitive bidding or early termination  
	•
	reliance on third party disposal customers
 
	•
	geographic concentration of operations  
	•
	customer concentration  
	•
	weather and seasonality  
	•
	union labour agreements  
	•
	fuel surcharge cost pass through  
	•
	reliance on key management executives  
	•
	localized decision making
 

53

 
	•
	surety bonds, letters of credit, and insurance  
	•
	leverage, restrictive covenants, and capital requirements  
	•
	uninsured and underinsured losses  
	•
	legislation and governmental regulation  

	•
	environmental regulation and litigation  
	•
	environmental contamination  
	•
	competition  
	•
	governmental initiatives to reduce landfill disposal by encouraging alternatives  
	•
	control of
4264126 Canada Limited  
	•
	foreign exchange exposure  
	•
	accounting estimates
 
	•
	internal control over financial reporting and disclosure control procedures  
	•
	distributions are not guaranteed
 
	•
	nature of trust units  
	•
	income tax matters in Canada, including the taxation of income trusts, and the United States
 
	•
	distribution of securities on redemption or termination of the Fund  
	•
	unitholder liability
 
	•
	investment eligibility and foreign property  
	•
	restrictions on certain unitholders and liquidity of trust units
 
	•
	future exchanges of the non-controlling interests investment 

 Outlook
  (all amounts are in thousands of Canadian dollars, unless otherwise stated)  

 Overview  

        Management is committed to employing its improvement and market-focused strategies with the goal of continuously delivering value to
its unitholders. Management's objective is continuous improvement, which equates to continuous revenue growth coupled with effective cost management. New market entry, existing market densification,
and landfill development will be a continued focus of the Fund as it looks for ways to expand its operations, increase customer density in strategic markets, and increase internalization. The Fund's
strengths remain founded in the following: consistent historical organic growth, growth through strategic acquisition, strong competitive position, a solid customer base with long-term
contracts, disciplined operating process, predictable maintenance expenditure requirements, and stable generation of free cash flow available for distribution(B). Management of the Fund
remains committed to actively managing these strengths in the future. 

 Structure  

        It is management's belief that the Fund requires both capital market breadth belief and certainty. Without these fundamentals,
efficient access to, and cost of, capital diminish the attractiveness of acquisitions, which management contends is a key element to the Fund's past and future success and value driver. Accordingly,
the Trustees continue to work actively with management to review the Fund's corporate structure with a committed goal of enhancing total return for its investors. 

 Strategic acquisitions  

        The Fund is active in its review and pursuit of new market and strategic "tuck-in" acquisitions. 

 Maintenance expenditures  

        For fiscal 2008, maintenance expenditures are expected to approximate $22,000 to $24,000 and U.S. $37,000 to U.S. $39,000
for the Canadian and U.S. operations, respectively. Maintenance expenditures are expected to be concentrated in the first three quarters, which may result in the declaration and payment of
distributions and dividends in these quarters that are in excess of free cash flow available for distribution(B). 

54

 

 Growth expenditures  

        For 2008, management expects to incur growth expenditures for the construction of landfill airspace capacity that will benefit a future
period or periods, infrastructure, and to grow its collection operations. 

 Liquidity  

        Management remains active in its review of interest rate alternatives and foreign currency exchange rates. Management remains confident
that its long-term debt facilities, available capacities, including its accordion features, and access to other sources of long-term debt financing are sufficient to the meet
the Fund's near-term planned growth and development activities. 

 Operations  

        Significant landfill volumes have been received and may not continue at a similar rate. 

        Management
is active in various permit expansion efforts at certain landfills as permitted life is consumed. Additionally, management is actively reviewing alternatives to replace its
Calgary landfill site and is also active in its efforts to expand the Lachenaie landfill. In April 2008, the Fund received a one year extension which allows the Lachenaie landfill to continue
operating while management continues to work on a longer-term expansion initiative. Development spending in respect of the Lachenaie expansion initiative is included in deferred costs on
the consolidated balance sheet. 

        Residential
and other government contracts bids may require significant growth expenditures. 

        Fuel
surcharges and environmental costs, including government imposed disposal charges, will continue to be passed through to the end customer, with a view to eliminating cost
variability in its operating results and free cash flow available for distribution(B). Readers are reminded that increasing fuel costs, environmental costs, and government imposed
disposal charges result in higher revenues and, all else equal, reduce the gross operating margin (defined as revenues less operating expenses divided by revenues). 

 Other  

 Taxation of income trusts  

        On October 31, 2006, the Minister of Finance (Canada) announced proposed changes to the income tax treatment of distributions
and allocations to and from the Fund. On June 12, 2007, the proposed legislation, with certain modifications, passed third reading and received royal assent on June 22, 2007. The
proposals, which are effective for the 2011 taxation year, subject to certain conditions, make certain income earned by the Fund taxable in a manner similar to income earned by a corporation. 

        On
July 14, 2008, the Minister of Finance (Canada) released the proposed conversion rules for income trusts. The draft conversion rules are designed to permit an income trust to
convert into a public corporation and wind-up without triggering adverse tax consequences to the income trust and its unitholders. 

 Financing strategic growth  

        One of management's principal objectives is to grow organically and through strategic acquisition. Growth is dependent on the Fund's
ability to access debt and equity in the capital markets. Any restrictions will affect the Fund's growth objective. 

 Withholding taxes on foreign source income  

        Withholding taxes on foreign source income are recorded as current income tax expense on the consolidated statement of operations and
comprehensive income (loss). An increase in dividends paid, or the erosion of IESI's ability to return capital, will result in increasing withholding taxes from foreign source income received by
the Fund. 

 Optimization of tax losses and tax efficiency of structure  

        Management periodically reviews its organizational structure to promote tax efficiency and optimize the use of tax losses within the
structure. The Fund expects to incur additional reorganization costs in this regard. 

55

 

   Amortization  

        In accordance with CICA 1581, business combinations, the Fund is required to apply the purchase method of accounting to all
acquisitions. The purchase method of accounting requires the Fund to recognize the fair value of all assets acquired and liabilities assumed, including recognizing all intangible assets separately
from goodwill. On acquisition, fair value adjustments typically increase the carrying amount of capital and landfill assets and typically results in the allocation of a portion of the purchase price
to identified intangible assets. Accordingly, the Fund's amortization of capital, landfill and intangible assets not only includes amortization of original cost but also includes the amortization of
fair value adjustments recognized on acquisition. Though the Fund has grown organically, a significant portion of its growth has been through acquisitions. Therefore, fair value adjustments included
in the Fund's amortization expense are significant. The Fund's most notable fair value adjustments arose from the formation of the Fund's predecessor company, the initial public offering, and the
Fund's acquisitions of; IESI, the Ridge landfill, and Winters Bros. Due to the inherent difficulty in isolating each fair value adjustment for every acquisition completed by the Fund, the following
selected amounts demonstrate the impact fair value adjustments have on the Fund's amortization expense for the year ended December 31, 2007: fair value adjustments for landfill assets and
recognized intangible assets on the Fund's initial public offering accounted for approximately $21,300, or 13.2%, of the Fund's 2007 amortization expense, and fair value adjustments for capital and
landfill assets recognized on the Fund's acquisition of IESI accounted for approximately $20,000, or 12.4%, of the Fund's 2007 amortization expense. Fair value adjustments are recognized in
amortization expense over the useful life of the underlying asset. For landfill assets, this is the landfills permitted or deemed permitted useful life. As the Fund continues to grow through
acquisition, amortization expense will continue to increase. Increases will be partially offset by declines in fully amortized fair value adjustments. 

 Critical Accounting Estimates  

 Landfill closure and post-closure costs  

        Costs associated with capping, closing and monitoring the landfill after it ceases to accept waste are recognized at fair value over
the landfill's operating life which is the period over which the landfill accepts waste. The Fund develops estimates for closure and post-closure costs with input from its engineers, and
landfill and accounting personnel. Estimates are reviewed at least once annually and consider the various regulations that govern each facility. Revenues derived from the Fund's landfill gas to energy
facilities do not reduce the Fund's closure and post-closure cost estimates for periods during or post waste acceptance. The Fund's landfill closure and post-closure cost
estimates approximate fair value, as quoted market prices are generally not available. Accordingly, the Fund develops its fair value estimates using present value techniques that consider and
incorporate assumptions marketplace participants would use in the determination of these estimates, including inflation, markups, inherent uncertainties due to the timing of work performed,
information obtained from third parties, quoted and actual prices paid for similar work and engineering estimates. Inflation assumptions are based on management's understanding of current and future
economic conditions and the expected timing of expenditures. An inflation factor of 3.0% and 2.5% has been used in the derivation of fair value estimates for the Fund's Canadian and
U.S. landfills, respectively. Fair value estimates are then discounted back to their present value using the credit adjusted risk free rate, which is the rate of interest that is essentially
free of default risk, plus an adjustment for the Fund's credit standing. The credit adjusted risk free rate is based on management's understanding of current and future economic conditions and the
expected timing of expenditures. Accordingly, the Fund has discounted landfill closure and post-closure costs using a credit adjusted risk free rate of 5.6% and 7.2% for its Canadian and
U.S. landfills, respectively. Due to the inherent uncertainty in making these estimates, actual results could differ. Future changes in the Fund's credit standing do not change previously
recorded closure and post-closure costs, but impact subsequent fair value calculations. 

        Reliable
estimates of market risk premiums are not available as there is no existing market for selling the responsibility of landfill closure and post-closure activities.
Accordingly, the Fund has excluded any estimate of market risk premiums in the determination of fair value for landfill closure and post-closure costs. 

        Upward
revisions to estimated closure and post-closure costs are discounted using the current credit adjusted risk free rate. Downward revisions to estimated closure and
post-closure costs are discounted using the 

56

 

credit
adjusted risk free rate when the estimated closure and post-closure costs were originally recorded or a weighted average credit adjusted risk free rate if the period of original
recognition cannot be identified. 

        The
Fund records the estimated fair value of landfill closure and post-closure costs as airspace is consumed. The total obligation will be fully accrued at the time these
facilities cease to accept waste and are closed. 

        Maintenance
activities including: environmental monitoring, mowing and fertilizing, leachate management, well monitoring, buffer maintenance, landfill gas to energy collection and
flaring systems, and other activities, are charged to operating expenses during the operating life of the landfill. These same costs are estimated and included in the Fund's landfill closure and
post-closure accruals for all activities that occur post the landfill's operating life. Maintenance activities are generally required for a period of 30 years post waste acceptance. 

        Accretion,
representing an increase in the carrying amount of landfill closure and post-closure cost accruals due to the passage of time, is recognized as an operating
expense in the consolidated statement of operations and comprehensive income (loss) and continues post waste acceptance. 

        The
assumptions included in the determination of closure and post-closure cost obligations are significant and numerous. Accordingly, it is not practical to disclose the
sensitivity of each estimate in isolation or in aggregate or to provide a probable range of possible outcomes which may differ from recorded or disclosed amounts. Changes in estimated costs, the
estimated closure and post-closure spending sequence, discount rates, and capacities may have a significant impact on future closure and post-closure cost obligations, the
related landfill assets, and the results of operations. Changes to assumptions while a landfill is accepting waste is accounted for prospectively and reflected as a revision in estimated cash flows in
the year of change. In subsequent periods, the impact of the change is recognized over the landfills estimated remaining useful life. Changes in assumptions that affect landfills which are no longer
accepting waste are charged to operations when known. 

        The
following tables outline key assumptions used to determine the fair value of landfill closure and post-closure costs, the expected timing of landfill closure and
post-closure expenditures, and reconcile beginning and ending landfill closure and post-closure costs: 

					
	 
	 	June 30, 2008 	 
	 Fair value of legally restricted assets
	 	$	6,751	 
	 Undiscounted closure and post-closure costs
	 	$	380,195	 
	 Credit adjusted risk free rate — Canadian segment landfills
	 	 	5.6%	 
	 Credit adjusted risk free rate — U.S. segment landfills
	 	 	7.2%	 
	 	 	 	 
	 Expected timing of undiscounted landfill closure and post-closure expenditures
	 	 	 	 
	 2008
	 	$	2,330	 
	 2009
	 	 	9,395	 
	 2010
	 	 	9,097	 
	 2011
	 	 	5,123	 
	 2012
	 	 	9,692	 
	 Thereafter
	 	 	344,558	 
	 	 	 	 
	
	 	$	380,195	 
	 	 	 	 

 

								
	 
	 	Three months

ended

June 30, 2008 	 	Three months

ended

June 30, 2007 	 
	 Landfill closure and post-closure costs, beginning of period
	 	$	63,085	 	$	66,480	 
	 Provision for landfill closure and post-closure costs, during the period
	 	 	2,081	 	 	2,623	 
	 Accretion expense, during the period
	 	 	785	 	 	759	 
	 Landfill closure and post-closure expenditures, during the period
	 	 	(382	)	 	(768	)
	 Foreign currency translation adjustment, during the period
	 	 	(443	)	 	(4,401	)
	 	 	 	 	 	 
	 Landfill closure and post-closure costs, end of period
	 	$	65,126	 	$	64,693	 
	 	 	 	 	 	 

57

 

 

								
	 
	 	Six months

ended

June 30, 2008 	 	Six months

ended

June 30, 2007 	 
	 Landfill closure and post-closure costs, beginning of year
	 	$	58,843	 	$	64,535	 
	 Provision for landfill closure and post-closure costs, during the period
	 	 	3,853	 	 	4,903	 
	 Accretion expense, during the period
	 	 	1,566	 	 	1,561	 
	 Landfill closure and post-closure expenditures, during the period
	 	 	(627	)	 	(1,295	)
	 Foreign currency translation adjustment, during the period
	 	 	1,491	 	 	(5,011	)
	 	 	 	 	 	 
	 Landfill closure and post-closure costs, end of period
	 	$	65,126	 	$	64,693	 
	 	 	 	 	 	 

        Readers
are reminded that the Fund reports its financial results in Canadian dollars. Accordingly, changes in the foreign currency exchange rate between Canada and the
U.S. impacts the translated value of the Fund's U.S. landfill assets and landfill closure and post-closure cost obligations and operating results. U.S. denominated
amounts are settled in U.S. dollars from U.S. cash flows. 

 Environmental Matters  

 Legislation and governmental regulation  

        The Fund is subject to extensive legislation and governmental regulation that may restrict or increase the cost of
its operations. 

        The
Fund's equipment, facilities and operations are subject to extensive and changing federal, provincial, state and local laws and regulations relating to environmental protection,
health, safety, training, land use, transportation and related matters. These include, among others, laws and regulations governing the use, treatment, transportation, storage and disposal of wastes
and materials, air quality, water quality, permissible or mandatory methods of processing waste and the remediation of contamination associated with the release of hazardous substances. In addition,
federal, provincial, state and local governments may change the rights they grant to, and the restrictions they impose on, waste management companies, and those changes could restrict the operations
and growth of the Fund. 

        The
Fund's compliance with regulatory requirements is costly. The Fund may be required to enhance, supplement or replace its equipment and facilities and to modify landfill operations
and, if it is unable to comply with applicable regulatory requirements, it could be required to close certain landfills. The Fund may not be able to offset the cost of complying with these
requirements. In addition, environmental regulatory changes or an inability to obtain extensions to the life of a landfill could accelerate or increase accruals or expenditures for closure and
post-closure monitoring and obligate the Fund to spend monies in addition to those currently accrued. 

        Extensive
regulations govern the design, operation, and closure of landfills. For example, in October 1991, the U.S. Environmental Protection Agency ("EPA") established
minimum federal requirements for solid waste landfills under Subtitle D of The Federal Resource Conservation and Recovery Act of 1976, as amended. If
IESI fails to comply with the Subtitle D regulations, it could be required to undertake investigatory or remedial activities, curtail operations or close a landfill temporarily or permanently, or be
subject to monetary penalties. Moreover, if regulatory agencies fail to enforce the Subtitle D regulations vigorously or consistently, competitors whose facilities do not comply with the
Subtitle D regulations or their state counterparts may obtain an advantage over IESI. The financial obligations of the Fund arising from any failure to comply with the Subtitle D regulations could
harm its business and operating results. 

        Certain
of Fund's state, provincial, county and the Canada/U.S. national boundaries. In the future, the Fund's collection, transfer, and landfill operations may be affected by the
proposed U.S. federal legislation governing interstate shipments of waste. Such proposed federal legislation could prohibit or limit the disposal of out-of-state waste
(including waste from Canada) and may require states, under certain circumstances, to reduce the amount of waste exported to other states. If this or similar legislation is enacted in states in which
IESI operates, it could have an adverse effect on the Fund's operating results, including IESI landfills that receive a significant portion of waste originating from
out-of-state. In addition, management believes that several states 

58

 

have
proposed or have considered adopting legislation that would regulate the interstate transportation and disposal of waste in the states' landfills. 

        Collection,
transfer, and landfill operations for IESI may also be affected by "flow control" legislation. Some states and local governments may enact laws or ordinances directing waste
generated within their jurisdiction to a specific facility for disposal or processing. If this or similar legislation is enacted, state or local governments could limit or prohibit disposal or
processing of waste in transfer stations or landfills or in third party landfills used by IESI. 

        In
1996, the New York City Council enacted Local Law 42, which prohibits the collection, disposal or transfer of commercial and industrial waste without a license issued by the
New York City Business Integrity Commission, formerly known as the Trade Waste Commission (the "Business Integrity Commission"), and requires Business Integrity Commission approval of
all acquisitions or other business combinations in New York City proposed by all licensees. The need for review by the Business Integrity Commission could delay the Fund's consummation of
acquisitions in New York City, which could limit its ability to expand its business in this region. 

        From
time to time, provincial, state or local authorities consider and sometimes enact laws or regulations imposing fees or other charges on waste disposed of at landfills. If additional
fees are imposed in jurisdictions in which the Fund operates and it is not able to pass the fees through to its customers, the Fund's operating results would be negatively affected. 

        The
Fund and its senior representatives, managers and other employees must comply with the requirements of federal, provincial, and state legislation related to worker health and safety.
These requirements can be onerous and include, in Canada, a requirement that any person that directs (or has the authority to direct) how another person does work or performs a task must take
reasonable steps to prevent bodily harm to any person arising from that work or task. Failure to comply with these requirements may result in criminal or quasi-criminal proceedings and related
penalties. 

        The
operational and financial effects discussed above associated with compliance with the laws and regulations and changes thereto to which the Fund will be subject, could require it to
make significant expenditures or otherwise affect the way it operates its business, and could affect the Fund's financial condition and results of operations. 

 Environmental regulation and litigation  

        The Fund may be subject to legal action relating to compliance with environmental laws, and to civil claims from parties alleging some
harm as a consequence of migrating contamination, odours, and other releases to the environment or other environmental matters (including the acts or omissions of its predecessors) for which the
business may be responsible. It may also be subject to court challenges of its operating permits. 

        Solid
waste management companies are often subject to close scrutiny by federal, provincial, state, and local regulators, as well as private citizens, and may be subject to judicial and
administrative proceedings, including proceedings relating to their compliance with environmental and local land use laws. 

        In
general, environmental laws authorize federal, provincial, state or local environmental regulatory agencies and attorneys general (and in some cases, private citizens) to bring
administrative or judicial actions for
violations of environmental laws or to revoke or deny the renewal of a permit. Potential penalties for such violations may include, among other things, civil and criminal monetary penalties,
imprisonment, permit suspension or revocation, and injunctive relief. These agencies and attorneys general may also attempt to revoke or deny renewal of the Fund's permits, franchises or licenses for
violations or alleged violations of environmental laws or regulations. Under certain circumstances, citizens are also authorized to file lawsuits to compel compliance with environmental laws,
regulations or permits under which the Fund will operate and to impose monetary penalties. Surrounding landowners or community groups may also assert claims alleging environmental damage, personal
injury or property damage in connection with Fund's operations. 

        From
time to time, the Fund has received, and may in the ordinary course of business in the future receive, citations or notices from governmental authorities alleging that its
operations are not in compliance with its permits or certain applicable environmental or land use laws or regulations. The Fund will generally seek to 

59

 

work
with the relevant authorities and citizens and citizen groups to resolve the issues raised by these citations or notices. However, the Fund may not always be successful in resolving these types
of issues without resorting to litigation or other formal proceedings. Any adverse outcome in these proceedings, whether formal or informal, could result in negative publicity, reduce the demand for
Fund's results from operations. A significant judgment against the Fund, the loss of a significant permit or license or the imposition of a significant fine could also affect the Fund's financial
condition and results of operations. 

        IESI's
future compliance with landfill gas management requirements under the Clean Air Act of 1970, as amended, may require installation
of costly equipment, as well as incurring additional operating and maintenance costs. 

 Environmental contamination  

        The Fund may have liability for environmental contamination associated with its own current and former facilities as well as third
party facilities. The Fund may also be susceptible to negative publicity if it is identified as the source of potential environmental contamination. 

        The
Fund could be liable to federal, provincial or state governments or other parties if hazardous (or other regulated or potentially harmful) substances contaminate or have
contaminated its properties, including soil or water under its properties, or if such substances from its properties contaminate or have contaminated the properties of others. The Fund could be liable
for this type of contamination even if the contamination did not result from its activities or occurred before the Fund owned or operated the properties. The Fund could also be liable for such
contamination at properties to which it transported such substances or arranged to have hazardous substances transported, treated or disposed. Certain environmental laws impose joint and several and
strict liability in connection with environmental contamination, which means that the Fund could have to pay all recoverable damages, even if the Fund did not cause or permit the event, circumstance
or condition giving rise to the damages. Moreover, many substances are defined as "hazardous" under various
environmental laws and their presence, even in minute amounts, can result in substantial liability. While the Fund may seek contribution for these expenses from others, it may not be able to identify
who the other responsible parties are and it may not be able to compel them to contribute to these expenses or they may be insolvent or unable to afford contribution. If the Fund incurs liability and
if it cannot identify other parties whom it can compel to contribute to its expenses and who are financially able to do so, it could impact the Fund's financial condition and results
of operations. 

        In
addition, the Fund has previously acquired, and may in the future acquire, businesses that may have handled and stored, or will handle and store, hazardous substances, including
petroleum products, at their facilities. These businesses may have released substances into the soil or groundwater. They may also have transported or disposed of substances or arranged to have
transported, disposed of or treated substances to or at other properties where substances were released into soil or groundwater. Depending on the nature of Fund's acquisition of these businesses, and
other factors, the Fund could be liable for the cost of cleaning up any contamination, and other damages, for which the acquired businesses are liable. Any indemnities or warranties the Fund obtained
or obtains in connection with the purchases of these businesses may not suffice to cover these liabilities, due to limited scope, amount or duration, the financial limitations of the party who gave or
gives the indemnity or warranty or other reasons. Moreover, available insurance does not cover liabilities associated with some environmental issues that may have existed prior to attachment
of coverage. 

        The
Fund could be subject to legal actions brought by governmental or private parties in connection with environmental contamination or discharges. Any substantial liabilities associated
with environmental contamination, whether to federal, provincial or state environmental authorities or other parties, could affect the Fund's financial condition and results of operations. 

        The
currently inactive Tantalo landfill, which is located on the Seneca Meadows landfill, has been identified by the State of New York as an "Inactive Hazardous Waste Disposal
Site". In September 2003, the Department of Environmental Conservation ("DEC") issued a consent order which requires the Seneca Meadows landfill to develop a hazardous waste disposal site
remedial program for the landfill. Because the remediation effort is ongoing, the total cost of the remediation is subject to change. In October 2003, IESI purchased a 10 year
"Clean-up Cost Cap Insurance Policy" which provides an additional U.S. $25,000 of coverage (with 10% co-pay) 

60

 

in
excess of a self-insured retention for the estimated remediation costs. If the total cost of expected compliance costs or any remediation substantially exceeds the Fund's applicable
reserves and insurance coverage, it could affect the Fund's financial condition and results of operations. 

 Other  

        Other estimates include, but are not limited to, the following: estimates of the Fund's allowance for doubtful accounts receivable;
realization of future income tax assets; future earnings, income tax and other estimates used in the determination of the fair value of goodwill for the Fund's annual
test of impairment; deferred cost recoverability assumptions; the useful life of capital and intangible assets; estimates and assumptions used in the determination of the fair value of contingent
acquisition payments; accrued accident claims reserves; projected landfill construction and development costs and estimated permitted airspace capacity consumed in the determination of landfill asset
amortization; estimated landfill remediation costs; various economic estimates used in the development of fair value estimates; and future income tax assets and liabilities. 

 New Accounting Policies Adopted  

 Financial instruments  

        Effective January 1, 2008, the Fund adopted Canadian Institute of Chartered Accountants ("CICA") accounting standards, Financial
Instruments — Disclosures (section 3862), Financial Instruments — Presentation (section 3863), and Capital
Disclosures (section 1535), which collectively required additional disclosures pertaining to the significance, risk, and management of financial instruments, and capital disclosures as they
relate to the Fund's objectives, policies, and process for managing capital. 

 New Accounting Policies Requiring Adoption  

 Goodwill and intangible assets  

        CICA accounting standard, Goodwill and Intangibles (section 3064), replaces Goodwill and Other Intangibles (section 3062)
and Research and Development Costs (section 3450). The primary changes to CICA 3064 establish standards for the recognition, measurement, presentation, and disclosure of
internally generated goodwill and intangible assets. This section applies to annual and interim financial statements relating to fiscal years beginning on or after October 1, 2008, with early
adoption encouraged. Adopting this section is not expected to have any impact on the Fund's consolidated financial statements. 

 International Financial Reporting Standards ("IFRS")  

        On February 13, 2008, the Canadian Accounting Standards Board ("AcSB") confirmed that the use of IFRS will be effective for
interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. IFRS will replace Canadian GAAP and the Fund will be required to comply with IFRS no
later than March 31, 2011. Management of the Fund is preparing its plan for transition and to assess the implications for financial reporting, information systems, internal control, and
contractual arrangements. Management of the Fund expects the transition to IFRS will have significant effect on the Fund's consolidated financial statements and accompanying disclosures. 

 Definitions of EBITDA and free cash flow available for distribution  

	(A)
	All
references to "EBITDA" in Management's Discussion and Analysis are to "income before the following" on the consolidated statement of
operations and comprehensive income (loss). "Income before the following" excludes some or all of the following: "amortization, interest on long-term debt, financing costs, net gain or
loss on sale of capital and landfill assets, net gain or loss on financial instruments, net foreign exchange gain or loss, write-off of deferred financing costs, other expenses, income
taxes, and non-controlling interest". EBITDA is a term used by the Fund that does not have a standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP")
and is therefore unlikely to be comparable to similar measures used by other issuers. EBITDA is a measure of the Fund's operating profitability, and by definition, excludes certain items as detailed
above. These items are viewed by 

61

 

management
as either non-cash (in the case of amortization, certain financing costs, write-off of deferred financing costs, net gain or loss on financial instruments,
net foreign exchange gain or loss, and future income taxes) or non-operating (in the case of interest on long-term debt, net gain or loss on sale of capital and landfill
assets, certain financing costs, other expenses, current income taxes, and non-controlling interest). EBITDA is a useful financial and operating metric for management, the Fund's Trustees,
and its lenders, as it represents a starting point in the determination of free cash flow available for distribution(B). The underlying reasons for exclusion of each item are
as follows: 

Amortization — as a non-cash item amortization has no impact on the determination of free cash flow
available for distribution(B). 

Interest on long-term debt — interest on long-term debt is a function of the Fund's
debt/equity mix and interest rates; as such it reflects the treasury/financing activities of the Fund and represents a different class of expense than those included in EBITDA. 

Financing costs — financing costs are a function of the Fund's treasury/financing activities and represents a
different class of expense than those included in EBITDA. 

Net gain or loss on sale of capital and landfill assets — the gain or loss on sale of capital and landfill assets
has no impact on the determination of free cash flow available for distribution(B), because proceeds from the sale were either reinvested in other capital or landfill assets or used to
repay the Fund's revolving credit facility. 

Net gain or loss on financial instruments — as non-cash items, gains or losses on financial
instruments have no impact on the determination of free cash flow available for distribution(B). 

Net foreign exchange gain or loss — as non-cash items, foreign exchange gains or losses have no impact
on the determination of free cash flow available for distribution(B). 

Write-off of deferred financing costs — as a non-cash item, write-off of
deferred financing costs has no impact on the determination of free cash flow available for distribution(B). 

Other expenses — other expenses represent amounts paid to management of the Fund on account of certain
acquisitions and are not considered an expense indicative of continuing operations. Accordingly, other expenses represent a different class of expense than those included in EBITDA. 

Income taxes — income taxes are a function of tax laws and rates and are affected by matters which are separate
from the daily operations of the Fund. 

Non-controlling interest — non-controlling interest represents a direct
non-controlling equity interest in IESI through PPS holdings. Accordingly, non-controlling interest represents a different class of expense than those included
in EBITDA. 

EBITDA
should not be construed as a measure of income or of cash flows. The reconciling items between EBITDA and net income (loss) are detailed in the consolidated statement of operations and
comprehensive income (loss) beginning with "income before the following" and ending with "net income (loss)".  

	(B)
	The
Fund has adopted a measurement called "free cash flow available for distribution" to supplement net income (loss) as a measure of
operating performance. Free cash flow available for distribution is a term which does not have a standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures
used by other issuers. The objective of presenting this non-GAAP measure is to calculate the amount which is available for distribution to unitholders and non-controlling
interest. PPS holdings are presented as non-controlling interest in the consolidated financial statements; however, management of the Fund has elected to include the shareholdings of the
non-controlling interest in the calculation of free cash flow available for distribution as PPSs are entitled to dividends that are economically equivalent to the distributions received by
unitholders and PPSs are exchangeable on a one-to-one basis for trust units of the Fund. Details of the calculation are included in the "Other Performance
Measures — Free cash flow available for distribution(B)" section of this MD&A. Free cash flow
available for distribution is not necessarily indicative of cash available to fund cash needs and should not be 

62

 

considered
an alternative to cash flow as a measure of liquidity. All references to "free cash flow available for distribution" in this MD&A have the meaning set out in this note. 

	(C)
	Excess
free cash flow available for distribution represents the result of free cash flow available for distribution(B) less
distributions and dividends declared. 

63

QuickLinks

Exhibit 4.5

BFI Canada Income Fund — MD&A for the three and six months ended June 30, 2008

Highlights — For the three and six months ended June 30, 2008 (all amounts are in thousands of Canadian dollars, except per trust unit and participating preferred share ("PPS"), unless otherwise
stated)

Review of Operations — For the three and six months ended June 30, 2008 (all amounts are in thousands of Canadian dollars, except foreign currency exchange rate amounts, unless otherwise stated)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}]]