Ronald J. Mittelstaedt has been Chief Executive Officer and a director of Waste Connections since the company was formed, and was elected Chairman in January 1998. Mr. Mittelstaedt also served as President from Waste Connections' formation through August 2004. Mr. Mittelstaedt has more than 17 years of experience in the solid waste industry. He holds a B.S. degree in Finance from the University of California at Santa Barbara.

Steven F. Bouck has been President of Waste Connections since September 1, 2004. From February 1998 to that date, he served as Executive Vice President and Chief Financial Officer. Mr. Bouck held various positions with First Analysis Corporation from 1986 to 1998 focusing on financial services to the environmental industry. Mr. Bouck holds B.S. and M.S. degrees in Mechanical Engineering from Rensselaer Polytechnic Institute and an M.B.A. in Finance from the Wharton School. He has been a Chartered Financial Analyst since 1990.

Darrell W. Chambliss has been Executive Vice President and Chief Operating Officer of Waste Connections since October 2003. From October 1, 1997 to that date, he served as Executive Vice President - Operations. Mr. Chambliss has more than 16 years of experience in the solid waste industry. Mr. Chambliss holds a B.S. degree in Business Administration from the University of Arkansas.

Robert D. Evans has been Executive Vice President, General Counsel and Secretary of Waste Connections since June 2002. From 1978 to that date, Mr. Evans was a partner in the San Francisco law firm of Shartsis Friese LLP. Prior to joining us, Mr. Evans had been Waste Connections' primary outside counsel since our formation. Mr. Evans holds a B.A. degree in Economics and a J.D. degree from the University of California at Berkeley.

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

David M. Hall has been Senior Vice President - Sales and Marketing of Waste Connections since October 2005. From August 1998 to September 2005, Mr. Hall served as Vice President - Business Development. Mr. Hall has more than 18 years of experience in the solid waste industry with extensive operating and marketing experience in the Western U.S. Mr. Hall received a B.S. degree in Management and Marketing from Missouri State University.

Kenneth O. Rose has been Senior Vice President - Administration of Waste Connections since May 2002. He served as a consultant to Waste Connections in March and April 2002. From May 2000 to March 2002, he provided consulting services to WorldOil.Com, Inc. and Gulf Publishing Company. As Vice President - Administration for Coach USA, Inc., from October 1996 to April 2000, Mr. Rose was responsible for all corporate administrative activities in the United States, Canada and Mexico. Mr. Rose has 11 years experience in the solid waste industry. Prior to joining the waste industry, Mr. Rose held various administrative positions in the oil and offshore drilling industries from 1971 to 1989 with Standard Oil Company-Indiana, Gulf Oil Corporation and Chevron Corporation. Mr. Rose holds a B.S. degree in Accounting from the University of Wyoming.

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

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

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

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

AVAILABLE INFORMATION

Our internet website address is http://www.wasteconnections.com. The information on our website is not incorporated by reference in this annual report on Form 10-K. We make our reports on Forms 10-K, 10-Q and 8-K available on our website free of charge after we file them with the Securities and Exchange Commission.

ITEM 1A. RISK FACTORS

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

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

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

We also compete with counties, municipalities and solid waste districts that maintain their own waste collection and disposal operations. These operators may have financial advantages over us because of their access to user fees and similar charges, tax revenues and tax-exempt financing.

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

Although fuel and energy costs account for a relatively small portion of our total revenues, the price of fuel is volatile and rose substantially in 2004 and 2005. During that period, we were party to a fixed- price fuel purchase contract that expired on December 31, 2005, pursuant to which we purchased approximately 13 million gallons of diesel fuel per annum, accounting for an estimated 75% of our annual fuel consumption. We estimate that the contract provided a benefit of approximately $14 million in 2005 compared to average market prices. The market price of diesel fuel is unpredictable and can fluctuate significantly. Due to the expiration of our fixed-price fuel purchase contract, we expect a significant increase in our fuel cost in 2006, which could adversely affect our business and reduce our operating margins.

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

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

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

From time to time, labor unions attempt to organize our employees. Some groups of our employees are represented by unions, and we have negotiated collective bargaining agreements with all of these groups. Additional groups of employees may seek union representation in the future, and negotiating collective bargaining agreements with these groups could divert management attention and adversely affect operating results. If we are unable to negotiate acceptable collective bargaining agreements, we might have to wait through "cooling off" periods, which are often followed by union-initiated work stoppages, including strikes. Additionally, any significant work stoppage or slowdown at ports or by railroad workers could reduce or interrupt the flow of cargo containers through our intermodal facilities. Depending on the type and duration of any labor disruptions, our operating expenses could increase significantly, which could adversely affect our financial condition, results of operations and cash flows.

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

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

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

We derive approximately 50% of our revenues from market areas where we have exclusive arrangements, including franchise agreements, municipal contracts and G Certificates. Many of these arrangements are for a specified term and will be subject to competitive bidding in the future. For example, we have approximately 200 contracts, representing approximately 5% of our annual revenues that are set for expiration or automatic renewal in the next 12 months. Although we intend to bid on additional municipal contracts and franchise agreements, we may not be the successful bidder. In addition, some of our customers may terminate their contracts with us before the end of the contract term.

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

The geographic concentration of our business makes our results vulnerable to economic and seasonal factors affecting the regions in which we operate.

Our business and financial results would be harmed by downturns in the general economy of the regions in which we operate and other factors affecting those regions, such as state regulations affecting the solid waste services industry and severe weather conditions. Based on historic trends experienced by the businesses we have acquired, we expect our operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters, and lower in the fourth quarter than in the second and third quarters. We expect the fluctuation in our revenues between our highest and lowest quarters to be in the range of approximately 10% to 12%. This seasonality reflects the lower volume of solid waste generated during the late fall, winter and early spring because of decreased construction and demolition activities during the winter months. In addition, some of our operating costs may be higher in the winter months. Adverse winter weather conditions slow waste collection activities, resulting in higher labor and operational costs. Greater precipitation in the winter increases the weight of collected waste, resulting in higher disposal costs, which are calculated on a per ton basis. Because of these factors, we expect operating income to be generally lower in the winter months, and our stock price may be negatively affected by these variations.

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

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

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

Our growth and future financial performance depend significantly on our ability to integrate acquired businesses into our organization and operations.

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

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

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

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

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

Our intermodal business could be adversely affected by steamship lines diverting business to ports other than those we service, or by heightened security measures or actual or threatened terrorist attacks.

A substantial portion of our intermodal business involves transportation of shipping containers between the Seattle/Tacoma, Washington, and Portland, Oregon, markets. Decisions by steamship companies to increase container service to the Portland market or decrease container service to the Seattle/Tacoma market could decrease the number of containers that we handle which would adversely affect the results of our intermodal operations. In addition, heightened port security measures, actual or threatened terrorist attacks at U.S. ports or similar events are likely to slow the movement of freight through U.S. ports or on U.S. railroads or highways, and could adversely affect our intermodal business and the results of its operations.

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

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

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

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

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

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

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

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

As a successor owner, we may be legally responsible for liabilities that arise from businesses that we acquire. Even if we obtain legally enforceable representations, warranties and indemnities from the sellers of such businesses, they may not cover the liabilities fully. Some environmental liabilities, even if we do not expressly assume them, may be imposed on us under various regulatory schemes and legal theories. Our insurance program does not cover liabilities associated with some environmental issues that may exist prior to attachment of coverage. A successful uninsured claim against us could harm our financial condition.

Our implementation of and compliance with changes in accounting rules and interpretations could adversely affect our operating results or cause unanticipated fluctuations in our results in future periods. The accounting rules and regulations that we must comply with are complex and continually changing. Recent actions and public comments from the Securities and Exchange Commission have focused on the integrity of financial reporting generally. The Financial Accounting Standards Board, or FASB, has recently introduced several new or proposed accounting standards, or is developing new proposed standards, which would represent a significant change from current industry practices. For example in December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based Payment," which requires publicly traded companies to expense stock options, among other equity instruments, in the reporting period beginning January 1, 2006. Statement 123(R) requires each such company to recognize the grant-date fair-value of stock options and other equity-based compensation issued to employees in the company's income statement over the vesting period of the award rather than as a disclosure in footnotes to the financial statements. Statement 123(R) will reduce our reported financial results and could decrease our stock price. In addition, many companies' accounting policies are being subject to heightened scrutiny by regulators and the public. While we believe that our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, we cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward.

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

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

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

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

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

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

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

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

We may be subject in the normal course of business to judicial and administrative proceedings that could interrupt our operations, require expensive remediation and create negative publicity.

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

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

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

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

We provide recycling services to some of our customers. The sale prices of and demand for recyclable materials, particularly paper products, are frequently volatile and when they decline our revenues and operating results may decline. We offer rebates to certain customers based on the value realized from recycled commodities, which also may impact our operating results.

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

The U.S. Supreme Court has held that states may not regulate the flow of solid waste in interstate commerce if the effect would be to discriminate between interstate and intrastate commerce. If legislation is enacted that overturns or modifies this decision, and if one or more of the states in which we dispose of interstate waste takes action that would prohibit or increase the costs of our continued disposal of interstate waste, our operating results could be adversely affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As of December 31, 2005, we owned 114 collection operations, 25 transfer stations, 19 municipal solid waste landfills, 3 construction and demolition landfills, 26 recycling operations, and 6 intermodal operations and operated, but did not own, an additional 11 transfer stations and 11 municipal solid waste landfills. We lease certain of the sites on which these facilities are located. We also own one construction and demolition landfill site which was permitted for operation, but not constructed, as of December 31, 2005. Subsequent to December 31, 2005, operations commenced on a new municipal solid waste landfill in Kansas and a construction and demolition landfill in Colorado. We lease various office facilities, including our corporate offices in Folsom, California, where we lease approximately 31,000 square feet of space. We own various equipment, including waste collection and transportation vehicles, related support vehicles, doublestack rail cars, carts, containers, chassis, and heavy equipment used in landfill and intermodal operations. We believe that our existing facilities and equipment are generally adequate for our current operations. However, we expect to make additional investments in property and equipment for expansion and replacement of assets in connection with future acquisitions.

ITEM 3. LEGAL PROCEEDINGS

Our subsidiary, Rhino Solid Waste, Inc., owns undeveloped property in Chaparral, New Mexico, for which it sought a permit to operate a municipal solid waste landfill.  After a public hearing, the New Mexico Environment Department approved the permit for the facility on January 30, 2002.  Colonias Development Council, or CDC, a nonprofit organization, opposed the permit at the public hearing and appealed the Department's decision to the Court of Appeals of New Mexico, primarily on the grounds that the Department failed to consider the social impact of the landfill on the community of Chaparral, and failed to consider regional planning issues.  The Court of Appeals affirmed the Department's decision to grant the landfill permit.  CDC then appealed that decision to the Supreme Court of New Mexico.  On July 18, 2005, the Supreme Court in Colonias Dev. Council v. Rhino Envtl. Servs. Inc. (In re Rhino Envtl. Servs.), 2005 NMSC 24 (N.M. 2005) reversed the Court of Appeals' decision, and remanded the matter back to the Department to conduct a limited public hearing on certain evidence CDC claims was wrongfully excluded from consideration by the hearing officer, and to allow the Department to reconsider the evidence already proffered concerning the impact of the landfill on the surrounding community's quality of life.  At December 31, 2005, we had $8.1 million of capitalized expenditures related to this landfill development project.  If we are not ultimately issued a permit to operate the landfill, we will be required to expense in a future period the $8.1 million of capitalized expenditures, less the recoverable value of the undeveloped property and other amounts recovered, which would likely have a material adverse effect on our reported income for that period.

We recently opened a municipal solid waste landfill in Harper County, Kansas. This landfill has been opposed by a citizens' group calling itself "Tri-County Concerned Citizens" and others. The landfill opponents initially challenged the zoning permit for the property. The Kansas Court of Appeals upheld the zoning permit, and the landfill opponents' appeal to the Kansas Supreme Court was denied in December 2004. On September 2, 2005, the Kansas Department of Health and Environment ("KDHE") issued a final permit to operate the landfill and we began construction on the site. On October 3, 2005, landfill opponents filed a suit (Board of Commissioners of Sumner County, Kansas, Tri-County Concerned Citizens and Dalton Holland v. Roderick Bremby, Secretary of the Kansas Department of Health and Environment et. al) in the District Court of Shawnee County, Kansas (Case No. 05-C-1264), alleging that a site analysis prepared for us and submitted to the Department as part of the process leading to the issuance of the permit was deficient in several respects. The action seeks to stay the effectiveness of the permit and to nullify it. We have intervened in this case. On November 26, 2005, counsel for Tri-County Concerned Citizens, Inc. and Dalton Holland filed a notice of intent to sue under the Clean Water Act with respect to the landfill, alleging that the U.S. Army Corps of Engineers' determination that no jurisdictional wetlands would be impacted by the landfill was erroneous, arbitrary, capricious and unsupported by substantial evidence. The letter also alleges that we are in violation of our general permit under the National Pollutant Discharge Elimination System program for storm water. The letter is a pre-requisite to the complaining parties' filing a suit against us under the Clean Water Act. On December 23, 2005, counsel for these same parties wrote a letter to the Secretary of the KDHE alleging that we are in violation of our permit for allegedly not having submitted to the KDHE certain information contained in the report of a consultant commissioned by the landfill opponents. At December 31, 2005, we had $8.9 million of capitalized expenditures related to this landfill development project. While we believe that we will prevail with respect to all the matters described, if the final permit is nullified for any reason, we would likely appeal the decision or take steps to have the permit re-instated. If we are not successful in doing so, however, we will be required to expense in a future period the $8.9 million of capitalized expenditures, less the recoverable value of the undeveloped property and other amounts recovered, which would likely have a material adverse effect on our reported income for that period.

Resourceful Environmental Services, Inc. ("RES") filed a complaint alleging that Waste Connections, Inc. and Waste Connections of Mississippi, LLC misrepresented their intentions concerning the potential purchase of RES (Resourceful Environmental Services, Inc. v. Waste Connections et al, Circuit Court of Tippah County, Mississippi, filed December 31, 2002, Case No. T-02-308).  We acquired Liberty Waste in October 2001.  We considered acquiring RES, a company Liberty Waste had considered purchasing and ultimately, we decided not to buy the company.  RES's complaint alleges misrepresentation and conspiracy based on alleged oral assurances that the acquisition would go forward. A trial is scheduled for May 15, 2006.  Plaintiff is seeking compensatory damages of $400,000, and punitive damages of $50 million.  We believe that this case is without merit.  We have not established a reserve for this case, and we have no insurance coverage in the event of recovery by the plaintiff.  An adverse determination in this case, coupled with a significant damage award to the plaintiff, could have an adverse effect on our reported income in the period incurred. 

We are a party to various claims and suits pending for alleged damages to persons and property and alleged liabilities occurring during the normal operations of our business. In the case of Karen Colleran, Conservator of the Estate of Robert Rooney v. Waste Connections of Nebraska, Inc., which was filed in the District Court of Valley County, Nebraska, on October 31, 2003 (Case No. CI 03-57), the plaintiff sought recovery for damages allegedly suffered by Father Robert Rooney when the bicycle he was riding collided with one of our garbage trucks. The case was tried before a jury and a verdict finding no liability on our part was rendered on February 10, 2006.

In the case of Cristobal Lozoya v. Waste Connections of Oklahoma, Inc. et al (District Court of Oklahoma County, Oklahoma; case no. C- 2004-7933; filed on September 27, 2004), the plaintiff seeks recovery for injuries he suffered in an accident at our Oklahoma City landfill. The defendants are Waste Connections of Oklahoma, the individual operator of our equipment involved in the accident, and a personnel agency that employed the operator. The plaintiff has alleged that the defendants' actions and/or omissions constituted gross negligence and a reckless disregard for the rights and safety of others, thereby entitling plaintiff to punitive damages in an unspecified amount. The case is in discovery. We intend to defend this action vigorously and to seek contribution for any damage award from the personnel agency. If the case proceeds to trial and punitive damages are awarded, they likely would not be covered by insurance. We have not accrued any potential loss for punitive damages as of December 31, 2005; however, an adverse outcome in this case coupled with a punitive damage award to the plaintiff could have a material adverse effect on our reported income in the period incurred.

Additionally, we are a party to various legal and administrative proceedings resulting from the ordinary course of business and the extensive governmental regulation of the solid waste industry. Our management does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on our business, financial condition, operating results or cash flows.

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

There were no matters submitted to a vote of security holders during the fourth quarter of 2005.

PART II

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

Our common stock trades on the New York Stock Exchange under the symbol "WCN". The following table sets forth, for the periods indicated, the high and low prices per share of our common stock, as reported on the New York Stock Exchange. Prices have been adjusted to reflect our three- for-two stock split, effected as a 50% stock dividend, effective as of June 24, 2004.

                                                         HIGH        LOW
2004                                                   ---------  ---------
First Quarter                                         $   27.17  $   24.27
Second Quarter                                            29.66      25.56
Third Quarter                                             31.80      27.32
Fourth Quarter                                            35.83      29.05

2005                                                                       
First Quarter                                         $   35.39  $   30.50
Second Quarter                                            38.35      32.86
Third Quarter                                             38.15      33.33
Fourth Quarter                                            35.69      31.50

2006                                                                       
First Quarter (through January 31, 2006)              $   35.31  $   34.10

As of January 31, 2006, there were 81 record holders of our common stock.

We have never paid cash dividends on our common stock and do not currently anticipate paying any cash dividends on our common stock. We currently intend to retain all earnings to fund the operation and expansion of our business. In addition, our existing credit facility limits the amount of cash dividends we can pay.

On May 3, 2004, we announced that our Board of Directors had authorized a common stock repurchase program for the repurchase of up to $200 million of our common stock over a two-year period. On July 25, 2005, we announced that our Board of Directors authorized a $100 million increase to the existing $200 million common stock repurchase program. The Board also extended the program's term through March 31, 2007 from its existing term end of May 2, 2006. Under the program, we may repurchase stock in the open market or in privately negotiated transactions from time to time at management's discretion. The timing and amounts of any repurchases will depend on many factors, including our capital structure, the market price of our common stock and overall market conditions. As of December 31, 2005, we held 106,600 shares of treasury stock at a cost of $3.7 million. These shares were retired in January 2006. As of December 31, 2005, we had repurchased 5.8 million shares of our common stock at a cost of $186.7 million, $177.8 million of which was under the program. The table below reflects repurchases we have made for the three months ended December 31, 2005.

(In thousands, except share and per share amounts)

                                                      Total Number             Maximum
                                                        of Shares        Approximate Dollar
                    Total Number      Average         Purchased as       Value of Shares that
                      of Shares      Price Paid     Part of Publicly     May Yet Be Purchased
Period                Purchased    Per Share (1)    Announced Program     Under the Program
------------------- -------------  -------------- ---------------------  -------------------
10/1/05 - 10/31/05        85,000  $        33.19                85,000  $           141,323
11/1/05 - 11/30/05       325,300           33.73               325,300              130,350
12/1/05 - 12/31/05       238,900           34.17               238,900              122,186
                    -------------                 ---------------------
Total                    649,200  $        33.82               649,200
                    =============                 =====================

(1) This amount represents the weighted average price paid per common share. This price includes a per share commission paid for all repurchases.

This table sets forth selected financial data of Waste Connections, in thousands, except share and per share amounts, for the periods indicated. This data should be read in conjunction with and is qualified by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of this Annual Report on Form 10-K and our audited consolidated financial statements, including the notes thereto and our independent registered public accounting firms' reports thereon and the other financial information included in Item 8 of this Form 10-K. The selected data in this section are not intended to replace the consolidated financial statements included in this report.

                                                                              YEARS ENDED DECEMBER 31,
                                                         -----------------------------------------------------------------
                                                            2001 (a)       2002       2003 (b)     2004 (b)     2005 (b)
                                                           -----------  -----------  -----------  ------------------------
                                                                   (in thousands, except share and per share data)
STATEMENT OF OPERATIONS DATA:
  Revenues                                                $   371,429  $   477,848  $   541,797  $   624,544      721,899
  Operating expenses:
    Cost of operations                                        206,166      266,424      299,901      354,901      416,883
    Selling, general and administrative                        31,576       45,046       51,244       61,223       72,395
    Depreciation and amortization                              35,313       37,125       45,071       54,630       64,788
    Loss (gain) on disposal of assets                           4,846          290          186        2,120         (216)
                                                           -----------  -----------  -----------  -----------  -----------
  Income from operations                                       93,528      128,963      145,395      151,670      168,049

  Interest expense                                            (29,597)     (31,372)     (31,666)     (21,724)     (23,489)
  Other income (expense), net                                  (6,208)        (524)         160       (2,817)         450
                                                           -----------  -----------  -----------  -----------  -----------
  Income before income tax provision
    and minority interests                                     57,723       97,067      113,889      127,129      145,010

  Minority interests                                           (7,338)      (9,367)     (10,549)     (11,520)     (12,422)
                                                           -----------  -----------  -----------  -----------  -----------
  Income from continuing operations before income taxes        50,385       87,700      103,340      115,609      132,588

  Income tax provision                                        (19,830)     (32,784)     (37,527)     (42,251)     (48,066)
                                                           -----------  -----------  -----------  -----------  -----------
  Income from continuing operations                            30,555       54,916       65,813       73,358       84,522

  Income (loss) on discontinued operations, net of tax            (27)         550         (499)      (1,087)        (579)
  Cumulative effect of change in accounting
    principle, net of tax expense of $166                          --           --          282           --           --
                                                           -----------  -----------  -----------  -----------  -----------
  Net income                                              $    30,528  $    55,466  $    65,596  $    72,271  $    83,943
                                                           ===========  ===========  ===========  ===========  ===========

  Basic earnings per common share:
    Income from continuing operations                     $      0.75  $      1.32  $      1.55  $      1.57  $      1.81
    Discontinued operations                                        --         0.01        (0.01)       (0.02)       (0.01)
    Cumulative effect of change in accounting principle            --           --           --           --           --
                                                           -----------  -----------  -----------  -----------  -----------
    Net income per common share                           $      0.75  $      1.33  $      1.54  $      1.55  $      1.80
                                                           ===========  ===========  ===========  ===========  ===========

  Diluted earnings per common share:
    Income from continuing operations                     $      0.74  $      1.25  $      1.45  $      1.52  $      1.75
    Discontinued operations                                        --         0.01        (0.01)       (0.02)       (0.01)
    Cumulative effect of change in accounting principle            --           --         0.01           --           --
                                                           -----------  -----------  -----------  -----------  -----------
    Net income per common share                           $      0.74  $      1.26  $      1.45  $      1.50  $      1.74
                                                           ===========  ===========  ===========  ===========  ===========


  Shares used in calculating basic income per share (c)    40,604,528   41,625,963   42,490,944   46,581,441   46,700,649
                                                           ===========  ===========  ===========  ===========  ===========
  Shares used in calculating diluted income per share (c)  41,513,459   48,488,436   49,307,478   49,470,217   48,211,301
                                                           ===========  ===========  ===========  ===========  ===========

                                                                                     DECEMBER 31,
                                                         ----------------------------------------------------  -----------
                                                            2001 (a)       2002       2003 (b)     2004 (b)     2005 (b)
                                                           -----------  -----------  -----------  -----------  -----------
                                                                  (in thousands, except share and per share data)
BALANCE SHEET DATA:
  Cash and equivalents                                    $     7,279  $     4,067  $     5,276  $     3,610        7,514
  Working capital (deficit)                                    (4,825)     (23,048)     (15,060)     (12,824)     (25,625)
  Property and equipment, net                                 465,806      578,040      613,225      640,730      700,508
  Total assets                                                979,353    1,261,882    1,395,952    1,491,483    1,676,307
  Long-term debt                                              416,171      578,481      601,891      489,343      586,104
  Total stockholders' equity                                  379,805      451,712      537,494      707,522      718,200

1. Loss on disposal of operations in 2001 related to a pre- tax loss recognized on the sale of our Utah operations. The primary component of other expense for 2001 was $6.3 million of expenses resulting from cash payments for the early termination of an interest rate swap.
2. For more information regarding this financial data, see the Management's Discussion and Analysis of Financial Condition and Results of Operations section included in this report. For disclosures associated with the impact of the adoption of new accounting pronouncements and the comparability of this information, see Note 1 of the consolidated financial statements.
3. Shares have been adjusted to reflect our three-for-two stock split, paid as a 50% stock dividend, effective as of June 24, 2004.

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

The following discussion should be read in conjunction with the "Selected Financial Data," our Consolidated Financial Statements and the notes thereto included elsewhere herein.

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

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

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

Operating Results

In a press release and subsequent Form 8-K filed with the Securities and Exchange Commission on February 23, 2005, we provided investors a financial outlook for 2005 which excluded the impact of any acquisitions that were completed during the year. Revenue in 2005 exceeded the high end of our initial expectations as internal growth for operations owned at least twelve months averaged approximately 4.7% during the year, and acquisitions closed during the year contributed an additional 10.9% growth in revenue. Both price and volume growth exceeded initial expectations. Our operating income margin for the year came in lower than initially expected due to the benefits from operational improvements, risk management initiatives and customer price increases being more than offset by rising truck and equipment operating costs (primarily fuel and maintenance), increased transportation costs for transfer disposal volumes to landfills (again, primarily due to rising fuel costs), the dilutive impact of acquisitions closed in late 2004 and during 2005 that had margins lower than our existing business, and a non-cash charge related to the accelerated vesting late in the year of outstanding stock options.

In 2005, we benefited from a fixed-price fuel supply contract which we entered into in late 2003 that locked-in diesel prices on approximately 13 million gallons purchased during the year. This amount represented about 75% of our fuel consumption in 2005. We estimate that this contract saved us approximately $14 million on a pre-tax basis compared to market prices paid during the period. The expiration of this contract at the end of 2005 is expected to result in a significant increase in the cost of fuel beginning in 2006. In preparation for this, both in 2005 and into 2006, we initiated broad- based pricing initiatives in our competitive markets and implemented surcharges where contractual or market dynamics permitted. Higher indexed pricing in many of our exclusive markets should also help us offset or recover increasing costs in 2006.

Free Cash Flow

Free cash flow, a non-GAAP financial measure, exceeded our initial expectations (refer to page 38 for reconciliation of free cash flow). We had expected net cash provided from operating activities to be between 25% and 26% of revenue for the year and free cash flow, defined as net cash provided from operating activities, plus or minus any changes in book overdraft, plus cash proceeds from disposal of assets, less capital expenditures and distributions to minority interests holders, to be between 11.5% and 12.5% of revenue. In 2005, actual net cash provided from operating activities and free cash flow were 27.7% and 13.5% of revenues, respectively. Capital expenditures were approximately $13 million above the high end of our initial expectations due primarily to items that should benefit us in future periods: the construction of three new landfills and purchase of equipment related to acquisitions completed during the year. On a net basis, this increase in capital expenditures over initial expectations was offset by proceeds from the sale of assets and the tax benefits from the exercise of stock options.

Acquisitions

We acquired approximately $55 million of annualized revenue in 2005. To be attractive to us, acquisition candidates must be located in markets consistent with our growth strategy and satisfy our targeted financial returns. While there remain a large number of acquisition candidates, our disciplined approach is somewhat opportunistic depending on when these more attractive candidates are available for sale. In 2005, we acquired 18 solid waste companies in California, Idaho, Kansas, Kentucky, Mississippi, Oklahoma, South Dakota, Tennessee, Washington and Wyoming.

The two largest acquisitions, Mountain Jack Environmental Services and Waste Management's Vancouver, Washington operations, were both completed in the third quarter. Mountain Jack was the largest privately-held solid waste company in Idaho and Wyoming. It is an example of the type of acquisition candidates we target: secondary markets, Western U.S., high market share, and a competitive asset position. This acquisition brought us back into Idaho and provides us the platform to complete additional follow-on acquisitions. In the fourth quarter, we completed two additional acquisitions in Idaho and Wyoming.

In Vancouver, Washington, we acquired Waste Management's low margin franchise collection operation, which covers the balance of the city not served under our existing contract. Margins on this incremental revenue will remain low given the pricing structure inherent in the contract. While we do expect this acquisition on its own to meet our targeted return criteria, its attractiveness is much more strategic over the long-term. Operationally, this transaction allows us to leverage our existing operations serving Vancouver and the surrounding Clark County area. More importantly, we have already strengthened our long-term position in that market by securing an additional five years on the term of the combined city collection contract to 2013, and we are in the final stages of negotiating a 15-year extension of our disposal contract with Clark County to 2028. Though this acquisition compresses our reported margins, it already has proven beneficial for our long-term positioning in that market.

Stock Buyback

We maintain targeted total debt ratios between 50% and 55% of total capitalization and around 3.0x EBITDA as defined in the terms of our credit facility. As a result of the significant changes in our capital structure during 2004, our Board of Directors in May 2004 authorized a $200 million common stock repurchase program over two years in an effort to rebalance our capital structure. In July 2005, our Board of Directors authorized a $100 million increase to the existing $200 million common stock repurchase program. The Board also extended the program's term through March 2007 from its existing term end of May 2006. We believe our strong financial profile and operating performance provide us the flexibility to fund our acquisition program and repurchase stock while remaining under our targeted debt ratios. During 2005, we repurchased $113.9 million of common stock and, depending on acquisition activity in the year, expect to repurchase approximately $100 million of additional stock under the program in 2006, representing approximately 6% of outstanding shares based on our stock price as of January 31, 2006.

Capital Structure

Due primarily to stock repurchases and completed acquisitions, total stockholders' equity increased $10.7 million and total debt increased $98.4 million during 2005. From year-end 2004 to year-end 2005, debt as a percentage of total capitalization increased from 41.3% to 45.4%, respectively, and debt-to-EBITDA, as defined in our credit facility and considered a non-GAAP financial measure, increased from approximately 2.3x to 2.5x, respectively. These year-end debt ratios remained below our targets. We believe these ratios will approach our targets during 2006 due to continued acquisition activity and stock repurchases.

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

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

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

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

Final capping, closure and post-closure obligations. We accrue for estimated final capping, closure and post-closure maintenance obligations at the landfills we own, and certain landfills that we operate, but do not own, under life-of-site operating contracts. We could have additional material financial obligations relating to final capping, closure and post- closure costs at other disposal facilities that we currently own or operate or that we may own or operate in the future. In 2005, we calculated the net present value of our final capping, closure and post closure commitments assuming a 2.5% inflation rate and a 7.5% discount rate. The resulting final capping, closure and post-closure obligation is recorded on the balance sheet as an addition to site costs and amortized as depletion expense as the landfill's total airspace is consumed. Significant reductions in our estimates of the remaining lives of our landfills or significant increases in our estimates of the landfill final capping, closure and post-closure maintenance costs could have a material adverse effect on our financial condition and results of operations. Additionally, changes in regulatory or legislative requirements could increase our costs related to our landfills, resulting in a material adverse effect on our financial condition and results of operations.

We own two landfills for which the prior owners are obligated to reimburse us for certain costs we incur for final capping, closure and post- closure activities on the portion of the landfill utilized by the prior owners. Prior to January 1, 2005, we netted the expected reimbursement from the prior owner within its final capping, closure and post-closure obligation. In 2005, we began accruing the prior owner's portion of the final capping, closure and post-closure obligation within the balance sheet classification of other long- term liabilities, and a corresponding receivable from the prior owner in long- term other assets.

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

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

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

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

Impairment of intangible assets. We periodically evaluate acquired assets for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions, anticipated cash flows and operational performance of our acquired assets. Future events could cause us to conclude that impairment indicators exist and that goodwill or other intangibles associated with our acquired businesses are impaired. Any resulting impairment loss could reduce our net worth and have a material adverse effect on our financial condition and results of operations. Additionally, our credit agreement contains a covenant requiring us to maintain a minimum net worth. A substantial reduction in net worth could limit the amount that we can borrow under our credit agreement and any failure to comply with the agreement could result in an event of default under the credit agreement. As of December 31, 2005, goodwill and intangible assets represented 48.4% of our total assets.

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

From time to time, we consummate acquisitions in which we exchange operations we own for operations owned by another solid waste company. These exchange transactions require us to estimate the fair market value of either the operations we receive or the operations we dispose of, whichever is more clearly evident. To the extent that the fair market value of the operations we dispose of differs from the fair market value of the operations we obtain, cash is either remitted or received to offset the difference in fair market values. One method we use to estimate the fair value of solid waste companies is based on a multiple of earnings before interest, taxes, depreciation and amortization ("EBITDA"). We determine the appropriate EBITDA multiple to be used in the valuation of exchange transactions based on factors such as the size of the transaction, the type and location of markets serviced, the existence of long-term contracts and the EBITDA multiples we have paid in other similar cash-based transactions. In 2004, we completed an exchange transaction in which we acquired operations of another solid waste company in Tennessee and Mississippi for our operations in Georgia. Based on the EBITDA multiple used to value the operations we disposed of, the pre-tax gain on the disposal was $5,700. A 10% change in the EBITDA multiple used to value the operations we disposed of would have resulted in a pre-tax gain or loss of approximately $2.0 million.

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

Approximately 50% of our revenues for the year ended December 31, 2005 were derived from market areas where we are the exclusive service provider in a specified market. Contracts with counties and municipalities and G Certificates provide relatively consistent cash flow during the terms of the contracts. Since we bill most residential customers quarterly, subscription agreements also provide a stable source of revenues for us. No single contract or customer accounted for more than 5% of our revenues for the years ended December 31, 2003, 2004 or 2005.

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

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

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

The table below shows for the periods indicated our total reported revenues attributable to services provided.

                                            Years Ended December 31,
                             -------------------------------------------------------
                                  2003               2004               2005
                             ----------------   ----------------   ---------------- 
Collection                  $ 410,378   65.9 % $ 467,310   65.4 % $ 517,536   62.9 %
Disposal and transfer         188,677   30.3     208,429   29.1     227,715   27.7
Recycling and other            23,670    3.8      39,230    5.5      77,594    9.4
                             ----------------   ----------------   ----------------
                            $ 622,725  100.0 % $ 714,969  100.0 % $ 822,845  100.0 %
                             ================   ================   ================

Intercompany elimination    $  80,928          $  90,425          $ 100,946

Cost of operations includes labor and benefits, tipping fees paid to third-party disposal facilities, vehicle and equipment maintenance, workers' compensation, vehicle and equipment insurance, insurance and employee group health claims expense, third-party transportation expense, fuel, the cost of materials we purchase for recycling, district and state taxes and host community fees and royalties. Our significant costs of operations in 2005 were labor, third-party disposal and transportation, cost of vehicle and equipment maintenance, taxes and fees and fuel. We use a number of programs to reduce overall cost of operations, including increasing the use of automated routes to reduce labor and workers' compensation exposure, utilizing comprehensive maintenance and health and safety programs, and increasing the use of transfer stations to further enhance internalization rates. We carry high-deductible insurance for automobile liability, property, general liability, workers' compensation, and employer's liability claims. If we experience insurance claims or costs above or below our historically evaluated levels, our estimates could be materially affected.

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

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

We capitalize some third-party expenditures related to pending acquisitions or development projects, such as legal, engineering and interest expenses. We expense indirect acquisition costs, such as executive and corporate overhead, public relations and other corporate services, as we incur them. We charge against net income any unamortized capitalized expenditures and advances (net of any portion that we believe we may recover, through sale or otherwise) that may become impaired, such as those that relate to any operation that is permanently shut down and any pending acquisition or landfill development project that we believe will not be completed. We routinely evaluate all capitalized costs, and expense those related to projects that we believe are not likely to succeed. At December 31, 2005, we had $0.4 million of capitalized interest related to landfill and facility development projects and less than $0.1 million in capitalized expenditures relating to pending acquisitions.

At December 31, 2005, we had $8.9 million in capitalized expenditures for a landfill project in Harper County, Kansas, and $8.1 million in capitalized expenditures for a landfill project in Chaparral, New Mexico. We recently opened the Harper County landfill, but landfill opponents have filed a suit seeking to stay the effectiveness of the permit and to nullify it, and have threatened additional litigation on other grounds. With respect to the undeveloped property in Chaparral, New Mexico, we had obtained a permit to operate the landfill, but on July 18, 2005, the Supreme Court of New Mexico ordered the New Mexico Environment Department to conduct an additional limited hearing to consider evidence that landfill opponents claim was wrongfully excluded. If the final Kansas permit is nullified for any reason and we are not successful in having it reinstated, or if we are not ultimately issued a permit to operate the New Mexico landfill, we will be required to expense in a future period the capitalized expenditures for the project in question, less the recoverable value of the applicable property and any other amounts recovered, which would likely have a material adverse effect on our financial position and results of operations for that period.

We periodically evaluate our intangible assets for potential impairment indicators. If any impairment indicators are present, a test of recoverability is performed by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If the carrying values are in excess of undiscounted expected future cash flows, impairment is measured by comparing the fair value of the asset to its carrying value. If the fair value of an asset is determined to be less than the carrying amount of the asset or asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs. As of December 31, 2004 and 2005, there have been no material adjustments to the carrying amounts of intangibles resulting from these evaluations. Additionally, we test goodwill and indefinite-lived intangible assets for impairment annually using the process prescribed in SFAS No. 142. As a result of performing the tests for potential impairment, we determined that no impairment existed as of December 31, 2004 and 2005 and therefore, there were no write-downs to goodwill or indefinite-lived intangible assets. As of December 31, 2004 and 2005, goodwill and other intangible assets represented 47.7% and 48.4% of total assets, respectively, and 100.6% and 112.9% of stockholders' equity, respectively.

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

                                                             Years Ended December 31,
                                      ------------------------------------------------------------------
                                                  As a %                 As a %                 As a %
                                                  of 2003                of 2004                of 2005
                                        2003     Revenues      2004     Revenues      2005     Revenues
                                      ---------  ---------   ---------  ---------   ---------  --------- 
Revenues                             $ 541,797      100.0 % $ 624,544      100.0 % $ 721,899      100.0 %
Cost of operations                     299,901       55.4     354,901       56.8     416,883       57.7
Selling, general and administrative     51,244        9.5      61,223        9.8      72,395       10.0
Depreciation and amortization           45,071        8.3      54,630        8.8      64,788        9.0
Loss (gain) on disposal of assets          186         --       2,120        0.3        (216)        --
                                      ---------  ---------   ---------  ---------   ---------  ---------
Operating income                       145,395       26.8     151,670       24.3     168,049       23.3

Interest expense, net                  (31,666)      (5.8)    (21,724)      (3.5)    (23,489)      (3.3)
Other income (expense), net                160         --      (2,817)      (0.4)        450         --
Minority interests                     (10,549)      (1.9)    (11,520)      (1.8)    (12,422)      (1.7)
Income tax provision                   (37,527)      (6.9)    (42,251)      (6.8)    (48,066)      (6.7)
Loss on discontinued operations,
  net of tax                              (499)      (0.1)     (1,087)      (0.2)       (579)        --
Cumulative effect of change in
  accounting principle, net of tax         282         --          --         --          --         --
                                      ---------  ---------   ---------  ---------   ---------  ---------
Net income                           $  65,596       12.1 % $  72,271       11.6 % $  83,943       11.6 %
                                      =========  =========   =========  =========   =========  =========

Years Ended December 31, 2005 and 2004

Revenues. Total revenues for the year ended December 31, 2005, increased $97.4 million, or 15.6%, to $721.9 million from $624.5 million for the year ended December 31, 2004. Acquisitions closed subsequent to December 31, 2004, and the full-period inclusion of revenues from acquisitions closed during the year ended December 31, 2004, increased revenues approximately $68.4 million. Increased prices charged to our customers and volume changes in our existing business resulted in a net revenue increase of $28.6 million.

Cost of Operations. Total cost of operations for the year ended December 31, 2005, increased $62.0 million, or 17.5%, to $416.9 million from $354.9 million for the year ended December 31, 2004. The increase for the year ended December 31, 2005, was primarily attributable to operating costs associated with acquisitions closed in the second half of 2004 and subsequent to December 31, 2004, higher fuel costs, increased third party trucking costs associated with bringing waste to our owned or operated landfills, labor expenses and equipment maintenance costs associated with higher collection volumes, higher surety bond expenses associated with increased bonding requirements at our facilities, partially offset by an overall decrease in workers' compensation and auto liability expenses resulting from the unusual severity of prior year claims and increased incurred but not reported accruals in the prior year.

Cost of operations as a percentage of revenues for the year ended December 31, 2005, increased 0.9 percentage points to 57.7% from 56.8% for the year ended December 31, 2004. The increase as a percentage of revenues for the year ended December 31, 2005, was primarily attributable to companies acquired in the latter half of 2004 and subsequent to December 31, 2004, having operating margins below our company average, increased fuel costs and increased insurance costs, partially offset by a decrease in labor and disposal expenses associated with improved internalization and leveraging existing labor to service volume increases.

SG&A. SG&A expenses for the year ended December 31, 2005, increased $11.2 million, or 18.2%, to $72.4 million from $61.2 million for the year ended December 31, 2004. SG&A expenses as a percentage of revenues for the year ended December 31, 2005, increased 0.2 percentage points to 10.0% from 9.8% for the year ended December 31, 2004. Our SG&A expenses for the year ended December 31, 2005, increased in amount and as a percentage of revenues from the prior year due to additional personnel employed as a result of acquisitions that closed subsequent to December 31, 2004, and increased stock compensation expense primarily from the acceleration of all unvested stock options.

Depreciation and Amortization. Depreciation and amortization expense for the year ended December 31, 2005, increased $10.2 million, or 18.6%, to $64.8 million from $54.6 million for the year ended December 31, 2004. The increase was primarily attributable to depreciation and depletion associated with acquisitions closed in the latter half of 2004, and subsequent to December 31, 2004, increased depreciation expense resulting from new equipment acquired to support our base operations, increased amortization expense associated with intangible assets acquired in acquisitions closed in the latter half of 2004 and subsequent to December 31, 2004, and increased depletion expense resulting from higher volumes at our landfill operations.

Depreciation and amortization expense as a percentage of revenues for the year ended December 31, 2005, increased 0.2 percentage points to 9.0% from 8.8% for the year ended December 31, 2004. The increase in depreciation and amortization expense as a percentage of revenues was the result of depreciation expense associated with new equipment acquired subsequent to December 31, 2004, and the full-period inclusion of depreciation expense associated with new equipment acquired during the year ended December 31, 2004, which replaced older equipment with lower depreciation costs, and increased amortization expense associated with intangible assets acquired in acquisitions closed in the latter half of 2004 and subsequent to December 31, 2004.

Loss (Gain) on Disposal of Assets. Loss (gain) on disposal of assets changed to a gain total of $0.2 million for the year ended December 31, 2005, from a loss total of $2.1 million for the year ended December 31, 2004, primarily due to the loss realized on the sale of a corporate aircraft in 2004, which was not repeated in 2005.

Operating Income. Operating income increased $16.3 million, or 10.8%, to $168.0 million for the year ended December 31, 2005, from $151.7 million for the year ended December 31, 2004. The increase was primarily attributable to the growth in revenues and a decrease in losses on the sale of assets, partially offset by increased operating costs, recurring SG&A expenses to support the revenue growth, increases in stock compensation expense and increased depreciation and amortization expenses.

Operating income as a percentage of revenues for the year ended December 31, 2005, decreased 1.0 percentage points to 23.3% from 24.3% for the year ended December 31, 2004. The decrease in operating income as a percentage of revenue for the year ended December 31, 2005, was due to the aforementioned percentage of revenue increases in cost of operations, SG&A expenses and depreciation and amortization expenses, partially offset by decreased losses on the sale of assets.

Interest Expense. Interest expense for the year ended December 31, 2005, increased $1.8 million, or 8.1%, to $23.5 million from $21.7 million for the year ended December 31, 2004. The increase was attributable to increases in our total outstanding debt balances and higher interest rates on floating rate debt not fixed under our swap agreements. In 2004, our total outstanding debt balance decreased primarily due to the redemption of our $150 million aggregate principal amount, 5.5% Convertible Subordinated Notes due 2006, which resulted in the conversion of $123.6 million of the outstanding notes' principal into our common stock.

Other Income (Expense). Other income and expense increased to an income total of $0.5 million for the year ended December 31, 2005, from an expense total of $2.8 million for the year ended December 31, 2004. Other expense in the year ended December 31, 2004 primarily includes $1.5 million of early redemption premium payments, the write-off of a portion of the unamortized debt issuance costs associated with the redemption of our $150 million aggregate principal amount, 5.5% Convertible Subordinated Notes due 2006 and the write-off of $1.6 million of unamortized debt issuance costs associated with the redemption of our $200 million term loan prior to its maturity date.

Minority Interests. Minority interests increased $0.9 million, or 7.8%, to $12.4 million for the year ended December 31, 2005, from $11.5 million for the year ended December 31, 2004. The increase in minority interests was due to increased earnings by our majority-owned subsidiaries.

Income Tax Provision. Income taxes increased $5.8 million, or 13.8%, to $48.1 million for the year ended December 31, 2005, from $42.3 million for the year ended December 31, 2004. This increase was due to increased pre-tax earnings. Our effective tax rate for the year ended December 31, 2005, was 36.2%, a decrease from 36.7% for the year ended December 31, 2004. The decrease in our effective tax rate was due to the reversal of certain tax contingencies that expired in 2005. We analyze our tax contingency reserves quarterly and adjustments are made as events occur to warrant adjustments to the reserve.

Loss on Discontinued Operations. During the year ended December 31, 2004, we sold all of our operations in Georgia and one of our hauling operations in the state of Washington. In the second quarter of 2005, we disposed of a hauling operation in Utah and exited a landfill operating contract with a finite term in California. The amounts recorded as losses on discontinued operations for the years ended December 31, 2005 and 2004 of $0.6 million and $1.1 million, respectively, consist of the net earnings for these operations. The income tax expense allocated to discontinued operations for the year ended December 31, 2004, includes $0.2 million resulting from differences between the basis for tax and financial reporting of the net assets sold.

Net Income. Net income increased $11.6 million, or 16.2%, to $83.9 million for the year ended December 31, 2005, from $72.3 million for the year ended December 31, 2004. The increase was primarily attributable to increased operating income and other income, partially offset by increased interest expense, minority interests expense, and income tax expense.

Years Ended December 31, 2004 and 2003

Revenues. Total revenues for the year ended December 31, 2004 increased $82.7 million, or 15.3%, to $624.5 million from $541.8 million for the year ended December 31, 2003. Acquisitions closed subsequent to December 31, 2003, and the full-period inclusion of revenues from acquisitions closed during the year ended December 31, 2003, increased revenues approximately $58.2 million. Increases in recyclable commodity prices increased revenues by $4.3 million, and increased prices charged to our customers and volume changes in our existing business resulted in a net revenue increase of $19.8 million. The volume increase was partially offset by the loss of certain municipal contracts that expired subsequent to December 31, 2003, and were not renewed.

Cost of Operations. Total cost of operations for the year ended December 31, 2004, increased $55.0 million, or 18.3%, to $354.9 million from $299.9 million for the year ended December 31, 2003. The increase for the year ended December 31, 2004 was primarily attributable to operating costs associated with acquisitions closed in the latter half of 2003 and subsequent to December 31, 2003, higher fuel costs, increased third party trucking costs associated with bringing waste to our owned or operated landfills, labor expenses and equipment maintenance costs associated with higher collection volumes, higher surety bond expenses associated with increased bonding requirements at our facilities and higher workers' compensation and auto liability expenses due to an increase in claims volume, claim development and severity, partially offset by decreased landfill disposal costs resulting from increased waste internalization.

Cost of operations as a percentage of revenues for the year ended December 31, 2004, increased 1.4 percentage point to 56.8% from 55.4% for the year ended December 31, 2003. The increase as a percentage of revenues for the year ended December 31, 2004 was primarily attributable to companies acquired in the latter half of 2003 and subsequent to December 31, 2003 having operating margins below our company average, increased fuel costs and increased insurance costs, partially offset by a decrease in labor and disposal expenses associated with improved internalization and leveraging existing labor to service volume increases.

SG&A. SG&A expenses for the year ended December 31, 2004 increased $10.0 million, or 19.5%, to $61.2 million from $51.2 million for the year ended December 31, 2003. SG&A expenses as a percentage of revenues for the year ended December 31, 2004, increased 0.3 percentage points to 9.8% from 9.5% for the year ended December 31, 2003. Our SG&A expenses for the year ended December 31, 2004, increased in amount and as a percentage of revenues from the prior year periods due to additional personnel employed as a result of acquisitions that closed subsequent to December 31, 2003, increased employee bonus and stock compensation expense, increased professional fees and related costs associated with Section 404 of the Sarbanes- Oxley Act, increased bad debt expense and increased payroll tax expenses resulting from an increase in exercises of stock options.

Depreciation and Amortization. Depreciation and amortization expense for the year ended December 31, 2004, increased $9.5 million, or 21.2%, to $54.6 million from $45.1 million for the year ended December 31, 2003. The increase was primarily attributable to depreciation and depletion associated with acquisitions closed in the latter half of 2003 and subsequent to December 31, 2003, increased depreciation expense resulting from new equipment acquired to support our base operations, increased amortization expense associated with intangible assets acquired in acquisitions closed in the latter half of 2003 and subsequent to December 31, 2003, and increased depletion expense resulting from higher volumes at our landfill operations.

Depreciation and amortization expense as a percentage of revenues for the year ended December 31, 2004, increased 0.5 percentage points to 8.8% from 8.3% for the year ended December 31, 2003. The increase in depreciation and amortization expense as a percentage of revenues was the result of depreciation expense associated with new equipment acquired subsequent to December 31, 2003, and the full-period inclusion of depreciation expense associated with new equipment acquired during the year ended December 31, 2003, which replaced older equipment with lower depreciation costs, and increased amortization expense associated with intangible assets acquired in acquisitions closed in the latter half of 2003 and subsequent to December 31, 2003.

Loss (Gain) on Disposal of Assets. Loss (gain) on disposal of assets for the year ended December 31, 2004, increased $1.9 million to $2.1 million from $0.2 million for the year ended December 31, 2003. The increase resulted from a $2.1 million loss we realized on the sale of a corporate aircraft in 2004.

Operating Income. Operating income increased $6.3 million, or 4.3%, to $151.7 million for the year ended December 31, 2004, from $145.4 million for the year ended December 31, 2003. The increase was primarily attributable to the growth in revenues, partially offset by increased operating costs, recurring SG&A expenses to support the revenue growth, increases in employee bonus and stock compensation expense, increased depreciation and amortization expenses and increased losses on the sale of assets.

Operating income as a percentage of revenues for the year ended December 31, 2004, decreased 2.5 percentage points to 24.3% from 26.8% for the year ended December 31, 2003. The decrease in operating income as a percentage of revenue for the year ended December 31, 2004, was due to the aforementioned percentage of revenue increases in cost of operations, SG&A expenses and depreciation and amortization expenses and the increased losses on the sale of assets.

Interest Expense. Interest expense for the year ended December 31, 2004, decreased $10.0 million, or 31.4%, to $21.7 million from $31.7 million for the year ended December 31, 2003. The decrease was attributable to declines in our total outstanding debt balances and a decrease in the effective interest rate of our aggregate debt balance primarily due to the expiration of two interest rate swap agreements in late 2003 that required fixed interest payments in excess of our variable rate borrowing cost. The decrease in our total outstanding debt balance was primarily due to the redemption of our $150 million aggregate principal amount, 5.5% Convertible Subordinated Notes due 2006, which resulted in the conversion of $123.6 million of the outstanding note principal into our common stock, generation of free cash flow, and proceeds from the exercise of stock options, partially offset by additional borrowings to fund acquisitions and repurchases of our common stock.

Other Income (Expense). Other income and expense increased to an expense total of $2.8 million for the year ended December 31, 2004, from an income total of $0.2 million for the year ended December 31, 2003. Other expense in the year ended December 31, 2004, primarily includes $1.5 million of early redemption premium payments, the write-off of a portion of the unamortized debt issuance costs associated with the redemption of our $150 million aggregate principal amount, 5.5% Convertible Subordinated Notes due 2006 and the write-off of $1.6 million of unamortized debt issuance costs associated with the redemption of our $200 million term loan prior to its maturity date.

Minority Interests. Minority interests increased $1.0 million, or 9.2%, to $11.5 million for the year ended December 31, 2004, from $10.5 million for the year ended December 31, 2003. The increase in minority interests was due to increased earnings by our majority-owned subsidiaries.

Income Tax Provision. Income taxes increased $4.8 million, or 12.6%, to $42.3 million for the year ended December 31, 2004, from $37.5 million for the year ended December 31, 2003. These increases were due to increased pre-tax earnings and an increase in our effective tax rate. Our effective tax rate for the year ended December 31, 2004, was 36.7%, an increase from 36.3% for the year ended December 31, 2003. The increase in our effective tax rate was due to a decrease in 2004 in the dollar amount of expiring tax contingencies. We analyze our tax contingency reserves quarterly and adjustments are made as events occur to warrant adjustments to the reserve.

Loss on Discontinued Operations. During the year ended December 31, 2004, we sold all of our operations in Georgia and one of our hauling operations in the state of Washington. In the second quarter of 2005, we disposed of a hauling operation in Utah and exited a landfill operating contract with a finite term in California. The amounts recorded as losses on discontinued operations for the years ended December 31, 2004 and 2003 of $1.1 million and $0.5 million, respectively, consist of the net earnings for these operations, including a $0.1 million gain on sale recorded for the year ended December 31, 2004. The income tax expense allocated to discontinued operations for the year ended December 31, 2004, includes $0.2 million resulting from differences between the basis for tax and financial reporting of the net assets sold.

Cumulative Effect of Change in Accounting Principle. Cumulative effect of change in accounting principle for the year ended December 31, 2003, consisted of a $0.3 million gain, net of tax effects, resulting from our adoption of SFAS No. 143 on January 1, 2003. Our adoption of SFAS No. 143 required us to record a cumulative change in accounting for landfill closure and post-closure obligations retroactively to the date of the acquisition of each landfill.

Net Income. Net income increased $6.7 million, or 10.2%, to $72.3 million for the year ended December 31, 2004, from $65.6 million for the year ended December 31, 2003. The increase was primarily attributable to increased operating income and decreased interest expense, partially offset by increased minority interests expense, other expense and income tax expense.

Our business is capital intensive. Our capital requirements include acquisitions and fixed asset purchases. We expect that we will also make capital expenditures for landfill cell construction, landfill development, landfill closure activities and intermodal facility construction in the future. We plan to meet our capital needs through various financing sources, including internally generated funds, debt and equity financings.

As of December 31, 2005, we had a working capital deficit of $25.6 million, including cash and equivalents of $7.5 million. Our working capital deficit increased $12.8 million from $12.8 million at December 31, 2004. Our strategy in managing our working capital is generally to apply the cash generated from our operations that remains after satisfying our working capital and capital expenditure requirements to reduce our indebtedness under our credit facility and to minimize our cash balances. The increase in our working capital deficit from the prior year resulted primarily from an increase in accounts payable, accrued liabilities and deferred revenues, slightly offset by an increase in accounts receivable related to increased revenues.

For the year ended December 31, 2005, net cash provided by operating activities was approximately $199.8 million, which included $27.2 million provided by working capital for the period. The primary components of the reconciliation of net income to net cash provided by operating activities for the year ended December 31, 2005, consist of non-cash expenses, including $65.0 million of depreciation and amortization, $12.4 million of minority interests expense, $2.0 million of debt issuance cost amortization, $7.3 million of tax benefit from stock option exercises, and $2.8 million of stock compensation expense, of which $1.6 million related to non-cash charges on the accelerated vesting of stock options.

For the year ended December 31, 2004, net cash provided by operating activities was approximately $180.8 million, which included $1.8 million used to fund working capital for the period. The primary components of the reconciliation of net income to net cash provided by operating activities for the year ended December 31, 2004, consist of non-cash expenses including $56.9 million of depreciation and amortization, $11.5 million of minority interests expense, $3.7 million of debt issuance cost amortization, $8.2 million of tax benefit from stock option exercises, $2.4 million from loss on sale of assets, and the deferral of $26.6 million of income tax expense resulting from temporary differences between the recognition of income and expenses for financial reporting and income tax purposes.

For the year ended December 31, 2005, net cash used in investing activities was $173.3 million. Of this, $80.8 million was used to fund the cash portion of acquisitions and to pay a portion of acquisition costs that were included as a component of accrued liabilities at December 31, 2004. Cash used for capital expenditures was $97.5 million, which was primarily for investments in fixed assets, consisting of trucks, containers, other equipment and landfill development. Other cash inflows from investing activities include $5.3 million received from the disposal of assets and $0.7 million from restricted assets in 2005.

For the year ended December 31, 2004, net cash used in investing activities was $112.5 million. Of this, $46.8 million was used to fund the cash portion of acquisitions and to pay a portion of acquisition costs that were included as a component of accrued liabilities at December 31, 2003. Cash used for capital expenditures was $71.2 million, which was primarily for investments in fixed assets, consisting of trucks, containers, other equipment and landfill development. Other cash inflows from investing activities include $2.1 million received from the disposal of assets and $3.4 million from restricted assets in 2004.

For the year ended December 31, 2005, net cash used in financing activities was $22.6 million, which included $72.9 million of net borrowings under our various debt arrangements for the funding of capital expenditures and acquisitions and $28.7 million of proceeds from stock option and warrant exercises, less $10.5 million of cash distributions to minority interests holders, and $113.9 million of repurchases of our common stock.

For the year ended December 31, 2004, net cash used in financing activities was $70.0 million, which included $37.0 million of proceeds from stock option and warrant exercises, less $20.3 million of net payments under our various debt arrangements, $72.9 million of repurchases of our common stock, $11.0 million of cash distributions to minority interests holders, $1.2 million in change in book overdraft and $1.5 million of debt issuance costs, primarily related to our amended credit facility.

We made $97.5 million in capital expenditures during the year ended December 31, 2005. We expect to make capital expenditures of between $90 and $95 million in 2006 in connection with our existing business. We intend to fund our planned 2006 capital expenditures principally through existing cash, internally generated funds, and borrowings under our existing credit facility. In addition, we may make substantial additional capital expenditures in acquiring solid waste collection and disposal businesses. If we acquire additional landfill disposal facilities, we may also have to make significant expenditures to bring them into compliance with applicable regulatory requirements, obtain permits or expand our available disposal capacity. We cannot currently determine the amount of these expenditures because they will depend on the number, nature, condition and permitted status of any acquired landfill disposal facilities. We believe that our credit facility and the funds we expect to generate from operations will provide adequate cash to fund our working capital and other cash needs for the foreseeable future.

As of December 31, 2004, we had a $650 million senior secured revolving credit facility - the November 2004 credit facility - with a syndicate of banks for which Bank of America, N.A. (formerly Fleet National Bank) acts as agent. As of December 31, 2004, $261.0 million was outstanding under the November 2004 credit facility, exclusive of outstanding stand-by letters of credit of $47.7 million. The $33.0 million increase in outstanding borrowings under our credit facility in 2004 was primarily due to funding new acquisitions, capital expenditures, redemption of a portion of our $150 million aggregate principal amount of 5.5% Convertible Subordinated Notes due April 2006 and stock repurchases, partially offset by using cash generated from operations and the proceeds from stock option exercises to repay borrowings. As of December 31, 2005, $367.0 million was outstanding under the November 2004 credit facility, exclusive of outstanding stand-by letters of credit of $55.7 million. The $106.0 million increase in outstanding borrowings under our credit facility in 2005 was primarily due to funding new acquisitions, capital expenditures, and stock repurchases, partially offset by using cash generated from operations and the proceeds from stock option exercises to repay borrowings.

The November 2004 credit facility requires interest payments as outlined in the credit agreement and matures in October 2009. Under the November 2004 credit facility, there is no maximum amount of stand-by letters of credit that can be issued; however, the issuance of stand-by letters of credit reduces the amount of total borrowings available. The November 2004 credit facility requires us to pay a commitment fee ranging from 0.20% to 0.50% of the unused portion of the November 2004 credit facility. We are able to increase the maximum borrowings under the November 2004 credit facility to $800 million, provided that no event of default, as defined in the credit agreement, has occurred, but none of the existing lenders has any obligation to increase its commitment. The borrowings under the November 2004 credit facility bear interest, at our option, at either the base rate plus the applicable base rate margin on base rate loans, or the Eurodollar rate plus the applicable Eurodollar margin on Eurodollar loans. The base rate for any day is a fluctuating rate per annum equal to the higher of (a) the federal funds rate plus one half of one percent (0.5%) and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate." The Eurodollar rate is determined by the administrative agent pursuant to a formula in the credit agreement governing the November 2004 credit facility. The applicable margins under the November 2004 credit facility vary depending on our leverage ratio, as defined in the credit agreement, and range from 0.875% to 2.00% for Eurodollar loans and up to 0.50% for base rate loans. Virtually all of our assets, including our interest in the equity securities of our subsidiaries, secure our obligations under the November 2004 credit facility. The credit agreement governing the November 2004 credit facility contains customary representations and warranties and places certain business, financial and operating restrictions on us relating to, among other things, indebtedness, liens and other encumbrances, investments, mergers and acquisitions, asset sales, sale and leaseback transactions, and dividends, distributions and redemptions of capital stock. The November 2004 credit facility requires that we maintain specified financial ratios and balances and obtain the lenders' approval of acquisitions in certain circumstances. As of December 31, 2004 and 2005, we were in compliance with all applicable covenants in our November 2004 credit facility. We use the credit facility for acquisitions, capital expenditures, working capital, standby letters of credit and general corporate purposes.

On January 12, 2006, we amended and restated the November 2004 credit facility in its entirety increasing the maximum borrowings to $850 million and extending the maturity date to January 2011. The applicable margins under the revolving credit facility vary depending on our leverage ratio, as defined in the new credit agreement, and range from 0.875% to 1.50% for Eurodollar loans and 0.00% for base rate loans. Under the new credit agreement, there is no maximum amount of standby letters of credit that can be issued; however, the issuance of standby letters of credit reduces the amount of total borrowings available. We are able to increase the maximum borrowings under the new credit agreement to $1.05 billion, provided that no event of default, as defined, has occurred, although no existing lender has any obligation to increase its commitment. No other material terms of the 2004 November credit facility were changed.

In April 2002, we sold $175 million of Floating Rate Convertible Subordinated Notes due 2022. The 2022 notes bear interest at the 3- month LIBOR rate plus 50 basis points, payable quarterly. The 2022 notes are uncollateralized and rank junior to all existing and future senior indebtedness, as defined in the indenture governing the notes. Upon the incurrence of certain conditions, the 2022 notes, when originally issued, were convertible into common stock at 30.9981 shares per $1,000 principal amount of notes, or $32.26 per share. In the third quarter of 2004, we completed an exchange offer with respect to all of our 2022 notes. Through the exchange offer, we updated certain features of the old 2022 notes with terms that are now prevalent in the convertible note market. These features include required (subject to certain exceptions) payment of the principal value in cash and net share settle of the conversion value in excess of the principal value of the notes upon conversion, and dividend protection provisions. The dividend protection provisions provide a lowering of the conversion price if a dividend is issued while the notes are still outstanding. The initial conversion price of the new 2022 notes remained the same as in the original notes at $32.26 per share, which is equal to approximately 30.9981 shares per $1,000 in principal amount of new 2022 notes. No other material terms of the 2022 notes, including maturity date and interest rate, were changed.

In April 2001, we sold $150 million of 5.5% Convertible Subordinated Notes due April 2006. In April 2004, we redeemed the 2006 notes. Holders of the notes chose to convert a total of $123.6 million principal amount of the notes into 4,876,968 shares of our common stock at a price of approximately $25.35 per share, or approximately 39.443 shares per $1,000 principal amount of notes, plus cash in lieu of fractional shares. We redeemed the balance of $26.4 million principal amount of the notes with proceeds from our credit facility at a redemption price of $1,022 per $1,000 principal amount of the notes. All holders of the notes also received accrued interest of $27.50 per $1,000 principal amount of notes. As a result of the redemption, we recognized $1.5 million of pre-tax expense ($1.1 million net of taxes) in April 2004.

As of December 31, 2005, we had the following contractual obligations (in thousands):

                                                          Payments Due by Period
                                     ---------------------------------------------------------------
                                                  Less Than 1
       Recorded Obligations             Total         Year     1 to 3 Years 4 to 5 Years Over 5 Years
-----------------------------------  -----------  -----------  -----------  -----------  -----------
Long-term debt (1), (2), (3)        $   596,962  $    10,858  $    19,451  $     7,276  $   559,377
                                     -----------  -----------  -----------  -----------  -----------
Total recorded obligations          $   596,962  $    10,858  $    19,451  $     7,276  $   559,377
                                     ===========  ===========  ===========  ===========  ===========

(1) Long-term debt payments include $367.0 million in principal payments due 2011 related to our senior secured revolving credit facility. As of December 31, 2005, our credit facility allowed us to borrow up to $650 million. In January 2006, the credit facility was amended and restated to extend the maturity date from 2009 to 2011 and increased our maximum borrowings to $850 million.

(2) Holders of the Floating Rate Convertible Subordinated Notes due 2022 may require the Company to purchase their notes in cash at a price of par plus accrued interest, if any, upon a change in control of the Company, as defined in the indenture, or, for the first time, on May 1, 2009.

(3) Excludes future payments of interest expense, as the majority of our recorded contractual obligations are in the form of variable rate loans.

                                               Amount of Commitment Expiration Per Period
                                     ---------------------------------------------------------------
                                                  Less Than 1
      Unrecorded Obligations            Total         Year     1 to 3 Years 4 to 5 Years Over 5 Years
-----------------------------------  -----------  -----------  -----------  -----------  -----------
Operating leases (4)                $    50,427  $     6,626  $    10,270  $     8,070  $    25,461
                                     -----------  -----------  -----------  -----------  -----------
Total unrecorded obligations        $    50,427  $     6,626  $    10,270  $     8,070  $    25,461
                                     ===========  ===========  ===========  ===========  ===========

(4) We are party to operating lease agreements as discussed in Note 10 to the consolidated financial statements. These lease agreements are established in the ordinary course of our business and are designed to provide us with access to facilities at competitive, market-driven prices. These arrangements have not materially affected our financial position, results of operations or liquidity during the year ended December 31, 2005 nor are they expected to have a material impact on our future financial position, results of operations or liquidity.

We have obtained stand-by letters of credit as discussed in Note 9 to the consolidated financial statements and financial surety bonds as discussed in Note 10 to the consolidated financial statements. These stand-by letters of credit and financial surety bonds are generally obtained to support our financial assurance needs and landfill operations. These arrangements have not materially affected our financial position, results of operations or liquidity during the year ended December 31, 2005, nor are they expected to have a material impact on our future financial position, results of operations or liquidity.

The minority interests holders of a majority-owned subsidiary of Waste Connections have a currently exercisable put option to require Waste Connections to complete the acquisition of this majority-owned subsidiary by purchasing their minority ownership interests for fair market value. The put option calculates the fair market value of the subsidiary based on its current operating income before depreciation and amortization, as defined in the put option agreement. The put option does not have a stated termination date. At December 31, 2005, the minority interests holders' pro rata share of the subsidiary's fair market value is estimated to be worth between $77 million and $92 million. Because the put is calculated at fair market value, no amounts have been accrued relative to the put option. In the event the minority interests holders elect to exercise the put option, we intend to fund the transaction using borrowings from our credit facility.

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

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

FREE CASH FLOW

We are providing free cash flow, a non-GAAP financial measure, because it is widely used by investors as a valuation and liquidity measure in the solid waste industry. This measure should be used in conjunction with GAAP financial measures. Management uses free cash flow as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations. We define free cash flow as net cash provided by operating activities plus cash proceeds from disposal of assets, plus or minus change in book overdraft, less capital expenditures and distributions to minority interests holders. Other companies may calculate free cash flow differently. Our free cash flow for the year ended December 31, 2004 and 2005 is calculated as follows (amounts in thousands):

                                                 For the years ended
                                                   December 31,
                                               ---------------------
                                                  2004       2005
                                                ---------  ---------
Net cash provided by operating activities      $ 180,790  $ 199,812
Change in book overdraft                          (1,165)       208
Plus: Cash proceeds from disposal of assets        2,088      5,254
Less: Capital expenditures                       (71,201)   (97,482)
Less: Distributions to minority interest
  holders                                        (11,025)   (10,486)
                                                ---------  ---------
Free cash flow                                 $  99,487  $  97,306
                                                =========  =========

INFLATION

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

SEASONALITY

Based on historic trends, we expect our operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters and lower in the fourth quarter than in the second and third quarters. We expect the fluctuation in our revenues between our highest and lowest quarters to be approximately 10% to 12%. This seasonality reflects the lower volume of solid waste generated during the late fall, winter and early spring because of decreased construction and demolition activities during winter months in the U.S. In addition, some of our operating costs may be higher in the winter months. Adverse winter weather conditions slow waste collection activities, resulting in higher labor and operational costs. Greater precipitation in the winter increases the weight of collected waste, resulting in higher disposal costs, which are calculated on a per ton basis.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

In May 2003, we entered into two forward-starting interest rate swap agreements. Each interest rate swap agreement has a notional amount of $87.5 million and effectively fixed the interest rate on the notional amount at interest rates ranging from 2.67% to 2.68%, plus applicable margin. The effective date of the swap agreements was February 2004 and each swap agreement expires in February 2007. These interest rate swap agreements are effective as cash flow hedges for a portion of our variable rate debt and we apply hedge accounting pursuant to SFAS No. 133 to account for these instruments. The notional amounts and all other significant terms of the swap agreements are matched to the provisions and terms of the variable rate debt being hedged.

In March 2004, we entered into two three-year interest rate swap agreements. Each interest rate swap agreement has a notional amount of $37.5 million and effectively fixed the interest rate on the notional amount at an interest rate of 2.25%, plus applicable margin. The effective date of the swap agreements was March 2004 and each swap agreement expires in March 2007. These interest rate swap agreements are effective as cash flow hedges for a portion of our variable rate debt and we apply hedge accounting pursuant to SFAS No. 133 to account for these instruments. The notional amounts and all other significant terms of the swap agreements are matched to the provisions and terms of the variable rate debt being hedged.

In September 2005, we entered into two forward-starting interest rate swap agreements. One interest rate swap agreement has a notional amount of $175.0 million and the other $75.0 million; they effectively fixed the interest rate on the notional amount at an interest rate of 4.33% and 4.34%, respectively, plus applicable margins. The effective dates of the $175.0 million and $75.0 million swap agreements are February 2007 and March 2007, respectively and have expiration dates of February 2009 and March 2009, respectively. These interest rate swap agreements are effective as cash flow hedges for a portion of our variable rate debt and we apply hedge accounting pursuant to SFAS No. 133 to account for these instruments. The notional amounts and all other significant terms of the swap agreements are matched to the provisions and terms of the variable rate debt being hedged.

In December 2005, we entered into a forward-starting interest rate swap agreement with a notional amount of $150.0 million that effectively fixed the interest rate on the notional amount at an interest rate of 4.76%, plus applicable margin. The effective date of the $150.0 million interest rate swap agreement is June 2006 and expires in June 2009. This interest rate swap agreement is effective as a cash flow hedge for a portion of our variable rate debt and we apply hedge accounting pursuant to SFAS No. 133 to account for this instrument. The notional amount and all other significant terms of the swap agreement are matched to the provisions and terms of the variable rate debt being hedged.

We have performed sensitivity analyses to determine how market rate changes will affect the fair value of our market risk sensitive hedge positions and all other debt. Such an analysis is inherently limited in that it reflects a singular, hypothetical set of assumptions. Actual market movements may vary significantly from our assumptions. Fair value sensitivity is not necessarily indicative of the ultimate cash flow or earnings effect we would recognize from the assumed market rate movements. We are exposed to cash flow risk due to changes in interest rates with respect to the net floating rate balances owed at December 31, 2004 and 2005 of $218.2 million and $321.4 million, respectively, including floating rate debt under our credit facility, our 2022 Notes, various floating rate notes payable to third parties and floating rate municipal bond obligations, offset by our debt effectively fixed under interest rate swap agreements. A one percent increase in interest rates on our variable-rate debt as of December 31, 2004 and 2005 would decrease our annual pre-tax income by approximately $2.2 million and $3.2 million, respectively. All of our remaining debt instruments are at fixed rates, or effectively fixed under the interest rate swap agreements described above; therefore, changes in market interest rates under these instruments would not significantly impact our cash flows or results of operations.

We market a variety of recyclable materials, including cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals. We own and operate 26 recycling processing operations and sell other collected recyclable materials to third parties for processing before resale. Certain of our municipal recycling contracts in Washington specify benchmark resale prices for recycled commodities. If the prices we actually receive for the processed recycled commodities collected under the contract exceed the prices specified in the contract, we share the excess with the municipality, after recovering any previous shortfalls resulting from actual market prices falling below the prices specified in the contract. To reduce our exposure to commodity price risk with respect to recycled materials, we have adopted a pricing strategy of charging collection and processing fees for recycling volume collected from third parties. Although there can be no assurance of market recoveries, in the event of a decline in recycled commodity prices, a 10% decrease in average recycled commodity prices from the prices that were in effect at December 31, 2004 and 2005 would have had a $2.5 million and $2.4 million impact on revenues as of December 31, 2004 and 2005, respectively.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

WASTE CONNECTIONS, INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have completed an integrated audit of Waste Connections, Inc.'s 2005 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audit, are presented below.

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

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

As described in Management's Report on Internal Control over Financial Reporting, management has excluded Mountain Jack Environmental Services, Inc. from its assessment of internal control over financial reporting as of December 31, 2005 because it was acquired by the Company in a purchase business combination during 2005. We have also excluded Mountain Jack Environmental Services, Inc. from our audit of internal control over financial reporting. Mountain Jack Environmental Services, Inc. is a wholly-owned subsidiary whose total assets and total revenues represent 4.3% and less than one percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2005.

/s/ PricewaterhouseCoopers LLP
Sacramento, California
February 28, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Waste Connections, Inc.

We have audited the accompanying consolidated balance sheet of Waste Connections, Inc. as of December 31, 2004, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for the years ended December 31, 2003 and 2004. Our audits also included the related financial statement schedule listed in Item 15.(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Waste Connections, Inc. at December 31, 2004, and the consolidated results of its operations and its cash flows for the years ended December 31, 2003 and 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2003 the Company adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations".

Sacramento, California
February 21, 2005, except for Note 3
and the first paragraph of Note 13, as to
which the date is October 21, 2005

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

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

WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

                                                                                           Years Ended December 31,
                                                                                      -------------------------------
                                                                                        2003       2004       2005
                                                                                      ---------  ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                
Net income                                                                           $  65,596  $  72,271  $  83,943
Adjustments to reconcile net income to net cash provided by operating activities:

  Loss (gain) on disposal of assets                                                        371      2,398       (413)
  Gain on disposal of operations                                                            --        (68)        --
  Depreciation                                                                          45,670     54,470     61,968
  Amortization of intangibles                                                            1,677      2,477      3,070
  Deferred income taxes, net of acquisitions                                            27,931     26,566       (792)
  Minority interests                                                                    10,549     11,520     12,422
  Cumulative effect of change in accounting principle                                     (448)        --         --
  Amortization of debt issuance costs                                                    2,403      3,685      2,001
  Stock-based compensation                                                                 345        972      2,826
  Interest income on restricted assets                                                    (302)      (275)      (390)
  Closure and post-closure accretion                                                       437        421        681
  Tax benefit on the exercise of stock options                                           3,078      8,195      7,338
  Changes in operating assets and liabilities, net of effects from acquisitions:
      Accounts receivable, net                                                          (2,909)    (3,357)    (9,933)
      Prepaid expenses and other current assets                                         (1,570)    (4,953)     5,291
      Accounts payable                                                                   4,190      2,733     18,060
      Deferred revenue                                                                   3,658      1,372      4,818
      Accrued liabilities                                                               (4,911)     2,124      7,898
      Other long-term liabilities                                                         (143)       239      1,024
                                                                                      ---------  ---------  ---------
Net cash provided by operating activities                                              155,622    180,790    199,812
                                                                                      ---------  ---------  ---------
                                                                                                                     
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                
  Payments for acquisitions, net of cash acquired                                      (84,855)   (46,784)   (80,849)
  Capital expenditures for property and equipment                                      (70,213)   (71,201)   (97,482)
  Investment in unconsolidated entity                                                   (5,300)        --         --
  Proceeds from disposal of assets                                                       1,496      2,088      5,254
  (Increase) decrease in restricted assets, net of interest income                      (2,093)     3,405        661
  (Increase) decrease in other assets                                                      (24)        27       (856)
                                                                                      ---------  ---------  ---------
Net cash used in investing activities                                                 (160,989)  (112,465)  (173,272)
                                                                                      ---------  ---------  ---------
                                                                                                                     
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                
  Proceeds from long-term debt                                                         108,940    368,500    232,631
  Principal payments on notes payable and long-term debt                              (102,469)  (388,825)  (159,688)
  Change in book overdraft                                                               1,631     (1,165)       208
  Proceeds from option and warrant exercises                                            12,271     36,959     28,716
  Distributions to minority interest holders                                            (9,702)   (11,025)   (10,486)
  Payments for repurchase of common stock                                                   --    (72,889)  (113,874)
  Debt issuance costs                                                                   (4,095)    (1,546)      (143)
                                                                                      ---------  ---------  ---------
Net cash provided by (used in) financing activities                                      6,576    (69,991)   (22,636)
                                                                                      ---------  ---------  ---------

Net increase (decrease) in cash and equivalents                                          1,209     (1,666)     3,904
Cash and equivalents at beginning of year                                                4,067      5,276      3,610
                                                                                      ---------  ---------  ---------
Cash and equivalents at end of year                                                  $   5,276  $   3,610  $   7,514
                                                                                      =========  =========  =========

WASTE CONNECTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

                                                                                                                     
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
  INFORMATION AND NON-CASH TRANSACTIONS:
                                                                                           Years Ended December 31,
                                                                                      -------------------------------
                                                                                        2003       2004       2005
                                                                                      ---------  ---------  ---------

    Cash paid for income taxes                                                       $  12,877  $  17,164  $  32,369
                                                                                      =========  =========  =========
    Cash paid for interest                                                           $  29,452  $  22,379  $  22,314
                                                                                      =========  =========  =========
    Conversion of 2006 Convertible Subordinated Notes to equity                      $      --  $ 123,648  $      --
                                                                                      =========  =========  =========
    Fair value of warrants issued to third party consultants in exchange
        for services performed in connection with landfill development               $      --  $      --  $      54
                                                                                      =========  =========  =========
    Transfer from long-term other assets to property, plant and equipment            $      --  $      --  $   2,478
                                                                                      =========  =========  =========
    In connection with its acquisitions, the Company assumed liabilities as follows:
        Fair value of assets acquired                                                $ 110,264  $ 116,378  $ 112,802
        Cash paid and warrants issued for current year acquisitions                    (84,855)   (44,089)   (78,971)
        Net assets used as consideration for acquisitions                                   --    (31,440)        --
                                                                                      ---------  ---------  ---------
        Liabilities assumed, stock and notes payable
           issued to sellers of businesses acquired                                  $  25,409  $  40,849  $  33,831
                                                                                      =========  =========  =========

WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Final capping, closure and post-closure liability at December 31, 2003      $    5,479
Decrease in closure and post-closure liability from changes in
   annual engineering cost estimates                                              (880)
Assumption of closure liabilities from acquisition                                 345
Disposition of liabilities from discontinued operations                            (62)
Liabilities incurred                                                               557
Accretion expense                                                                  421
                                                                             ----------
Final capping, closure and post-closure liability at December 31, 2004           5,860
Increase in closure and post-closure liability from changes in
   annual engineering cost estimates                                             1,558
Liabilities incurred                                                             1,033
Accretion expense                                                                  681
Change in third party closure and post-closure liability                         6,774
                                                                             ----------
Final capping, closure and post-closure liability at December 31, 2005      $   15,906
                                                                             ==========

                      Notional  Interest    Effective      Expiration
   Date Entered        Amount     Rate*        Date           Date
-------------------  -------------------- -------------- ---------------
May 2003            $    87,500     2.67% February 2004  February 2007
May 2003            $    87,500     2.68% February 2004  February 2007
March 2004          $    37,500     2.25% March 2004     March 2007
March 2004          $    37,500     2.25% March 2004     March 2007
September 2005      $   175,000     4.33% February 2007  February 2009
September 2005      $    75,000     4.34% March 2007     March 2009
December 2005       $   150,000     4.76% June 2006      June 2009

                                                                              2003       2004       2005
                                                                            ---------  ---------  ---------
Exercise prices equal to market price of stock                             $    5.17  $    6.06  $    6.74
Exercise prices less than market price of stock                                   --         --      17.67

                                                                                Years Ended December 31,
                                                                            -------------------------------
                                                                              2003       2004       2005
                                                                            ---------  ---------  ---------
Net income, as reported                                                    $  65,596  $  72,271  $  83,943
Add: stock-based employee compensation expense
  included in reported net income, net of related tax effects                    196        611      1,779
Deduct: total stock-based employee compensation expense determined
    under the fair value method for all awards, net of related tax effects    (7,105)    (8,414)   (16,495)
                                                                            ---------  ---------  ---------
Pro forma net income                                                       $  58,687  $  64,468  $  69,227
                                                                            =========  =========  =========

Earnings per share:
  Basic - as reported                                                      $    1.54  $    1.55  $    1.80
  Basic - pro forma                                                             1.38       1.38       1.48

  Diluted - as reported                                                         1.45       1.50       1.74
  Diluted - pro forma                                                           1.31       1.34       1.44

                                                                Years Ended December 31,
                                                           -------------------------------
                                                             2003       2004       2005
                                                           ---------  ---------  ---------
Revenues                                                  $  21,712  $  16,098  $   1,367
Operating expenses:
    Cost of operations                                       16,940     13,009      2,041
    Selling, general and administrative                       3,123      2,000        195
    Depreciation and amortization                             2,276      2,317        250
    Loss (gain) on disposal of assets and operations (a)        185        210       (197)
                                                           ---------  ---------  ---------
Operating loss                                                 (812)    (1,438)      (922)

Other income, net                                                19         --         --
                                                           ---------  ---------  ---------
Loss from operations of discontinued operations                (793)    (1,438)      (922)

Income tax benefit                                              294        351        343
                                                           ---------  ---------  ---------
Loss on discontinued operations                           $    (499)    (1,087) $    (579)
                                                           =========  =========  =========

                                                       2004
                                                     Disposals
                                                     ---------
Disposed assets:
    Accounts receivable                             $   1,271
    Prepaid expenses and other current assets             106
    Other long-term assets                                452
    Property and equipment, net                        18,254
    Goodwill, net                                      14,262
    Intangible assets, net                                108
Disposed liabilities:
    Deferred revenue                                     (972)
    Other liabilities                                     (39)
                                                     ---------
                                                    $  33,442
                                                     =========

                                                     2004          2005
                                                 Acquisitions  Acquisitions
                                                 ------------  ------------
Assets:
  Accounts receivable                           $      5,866  $      3,641
  Prepaid expenses and other current assets            1,021           439
  Property and equipment                              33,824        23,910
  Goodwill                                            66,982        62,628
  Long-term franchise agreements and contracts         5,226         5,170
  Indefinite-lived intangibles                            --         6,646
  Other intangibles                                    1,115         9,575
  Non-competition agreements                             211           793
  Other assets                                         2,133            --
Liabilities:
  Deferred revenue                                       (18)       (1,984)
  Accounts payable                                    (2,608)       (2,455)
  Accrued liabilities                                 (6,786)       (2,432)
  Notes issued to sellers                             (6,686)         (254)
  Debt and long-term liabilities assumed             (24,608)      (25,481)
  Deferred income taxes                                 (143)       (1,225)
                                                 ------------  ------------
Total consideration, net                        $     75,529  $     78,971
                                                 ============  ============

                                                   Years Ended December 31,
                                                 --------------------------
                                                     2004          2005
                                                 ------------  ------------
Total revenue                                   $    690,072  $    742,017
Income from continuing operations                     74,757        84,887
Net income                                            73,670        84,308
Basic income per share                                  1.58          1.81
Diluted income per share                                1.52          1.75

                                                   Years Ended December 31,
                                                 --------------------------
                                                     2003          2004
                                                 ------------  ------------
Total revenue                                   $    613,314  $    656,019
Income from continuing operations                     65,908        73,288
Net income                                            65,691        72,201
Basic income per share                                  1.55          1.55
Diluted income per share                                1.45          1.49

                                           Gross Carrying Accumulated   Net Carrying
                                              Amount      Amortization     Amount
                                           -------------  ------------  ------------
Amortizable intangible assets:
  Long-term franchise agreements
   and contracts                          $      56,617  $     (5,351) $     51,266
  Non-competition agreements                      4,783        (3,460)        1,323
  Other, net                                     13,106        (1,892)       11,214
                                           -------------  ------------  ------------
                                                 74,506       (10,703)       63,803
Nonamortized intangible assets:
  Indefinite-lived intangible assets             23,848            --        23,848
                                           -------------  ------------  ------------
Intangible assets, exclusive of goodwill  $      98,354  $    (10,703) $     87,651
                                           =============  ============  ============

                                           Gross Carrying Accumulated   Net Carrying
                                              Amount      Amortization     Amount
                                           -------------  ------------  ------------
Amortizable intangible assets:
  Long-term franchise agreements
   and contracts                          $      51,799  $     (3,684) $     48,115
  Non-competition agreements                      3,990        (2,967)        1,023
  Other, net                                      3,531        (1,130)        2,401
                                           -------------  ------------  ------------
                                                 59,320        (7,781)       51,539
Nonamortized intangible assets:
  Indefinite-lived intangible assets             17,202            --        17,202
                                           -------------  ------------  ------------
Intangible assets, exclusive of goodwill  $      76,522  $     (7,781) $     68,741
                                           =============  ============  ============

For the year ended December 31, 2006             $3,891
For the year ended December 31, 2007              3,720
For the year ended December 31, 2008              3,577
For the year ended December 31, 2009              3,337
For the year ended December 31, 2010              3,265

                                                              Years Ended December 31,
                                                               ----------------------
                                                                  2004        2005
                                                               ----------  ----------
Landfill site costs                                           $  447,239  $  486,303
Rolling stock                                                    159,785     194,199
Land, buildings and improvements                                  76,447      83,852
Containers                                                        76,736      95,210
Machinery and equipment                                           75,816      89,365
Construction in process                                            1,140       3,784
                                                               ----------  ----------
                                                                 837,163     952,713
Less accumulated depreciation and depletion                     (196,433)   (252,205)
                                                               ----------  ----------
                                                              $  640,730  $  700,508
                                                               ==========  ==========

                                                               Years Ended December 31,
                                                               ----------------------
                                                                  2004        2005
                                                               ----------  ----------
Deferred financing costs                                      $   10,093  $    8,654
Investment in unconsolidated entity                                5,300       5,300
Landfill closure receivable                                           --       6,774
Deposits                                                           2,874         927
Unrealized interest-rate swap gains                                2,875       2,328
Other                                                              2,456       2,781
                                                               ----------  ----------
                                                              $   23,598  $   26,764
                                                               ==========  ==========

                                                               Years Ended December 31,
                                                               ----------------------
                                                                  2004        2005
                                                               ----------  ----------
Insurance claims                                                  16,859      21,086
Payroll and payroll-related                                        9,337      10,620
Interest payable                                                   2,665       2,615
Acquisition-related                                                4,600       1,613
Income taxes payable                                                  --       3,873
Other                                                              4,483       4,715
                                                               ----------  ----------
                                                              $   37,944  $   44,522
                                                               ==========  ==========

                                                               Years Ended December 31,
                                                               ----------------------
                                                                  2004        2005
                                                               ----------  ----------
Revolver under Credit Facility                                $  261,000  $  367,000
2022 Floating Rate Convertible Subordinated Notes                175,000     175,000
2001 Wasco Bonds                                                  12,560      12,165
California Tax-Exempt Bonds                                       25,685      24,045
Notes payable to sellers in connection with acquisitions,
  unsecured, bearing interest at 5.2% to 7.5%, principal
  and interest payments due periodically with due dates
  ranging from 2006 to 2036                                        9,214       7,849
Notes payable to third parties, secured by substantially all
  assets of certain subsidiaries of the Company, bearing
  interest at 5.1% to 11.0%, principal and interest payments
  due periodically with due dates ranging from 2006 to 2010       15,150      10,903
                                                               ----------  ----------
                                                                 498,609     596,962
Less - current portion                                            (9,266)    (10,858)
                                                               ----------  ----------
                                                              $  489,343  $  586,104
                                                               ==========  ==========

2006                                                    $     10,858
2007                                                           6,783
2008                                                          12,668
2009                                                           5,396
2010                                                           1,880
Thereafter                                                   559,377
                                                         ------------
                                                        $    596,962
                                                         ============

2006                                                    $      6,626
2007                                                           5,436
2008                                                           4,834
2009                                                           4,169
2010                                                           3,901
Thereafter                                                    25,461
                                                         ------------
                                                        $     50,427
                                                         ============

     Stock option plans                                    8,546,677
     2022 Floating Rate Convertible Subordinated Notes     5,424,668
     Consultant Incentive Plan                               233,915
     Stock purchase warrants                                  10,749
     2002 Restricted stock plan                               81,479
                                                         ------------
                                                          14,297,488
                                                         ============

During 2002, the Company's Board of Directors adopted the 2002 Restricted Stock Plan in which selected employees, other than officers and directors, may participate. Restricted stock awards under the 2002 Restricted Stock Plan may or may not require a cash payment from a participant to whom an award is made. The awards become free of the stated restrictions over periods determined at the date of the grant, subject to continuing employment, the achievement of particular performance goals and/or the satisfaction of certain vesting provisions applicable to each award of shares. The Board of Directors currently administers the 2002 Restricted Stock Plan. The Board of Directors authorizes the grant of any stock awards and determines the employees to whom shares are awarded, number of shares to be awarded, award period and other terms and conditions of the awards. Unvested shares of restricted stock may be forfeited and revert to the Company if a plan participant resigns from Waste Connections and its subsidiaries, is terminated for cause or violates the terms of any noncompetition or nonsolicitation agreements to which that plan participant is bound (if such plan participant has been terminated without cause). A total of 142,500 shares were reserved for issuance under the 2002 Restricted Stock Plan. During the years ended December 31, 2003, 2004 and 2005, the Company issued 1,950, 89,927 and 10,750 shares of restricted stock, with grant-date fair values of $24.42, $24.93 and $33.01 per share, respectively, to selected employees under the 2002 Restricted Stock Plan. The total fair value of the issued restricted stock under the 2002 Restricted Stock Plan was $48, $2,242 and $355 for the years ended December 31, 2003, 2004 and 2005, respectively, and is being amortized ratably to expense over the three-year restriction period. During 2003, 7,463 shares of the restricted stock granted in 2002 became free of restrictions. During 2004, 7,394 shares of restricted stock granted in 2002 and 2003 became free of restrictions. During 2005, 29,923 shares of the restricted stock granted in 2002, 2003, and 2004 became free of restrictions.

                                                              Weighted
                                              Number of        Average
                                           Shares (Options) Exercise Price
                                           ---------------  -------------
Outstanding as of December 31, 2002             4,055,441  $       15.86
Granted                                         2,465,625          21.80
Forfeited                                        (169,599)         19.20
Exercised                                        (915,875)         13.40
                                           ---------------
Outstanding as of December 31, 2003             5,435,592          18.86
Granted                                         2,351,454          25.06
Forfeited                                        (215,129)         21.55
Exercised                                      (2,112,621)         17.37
                                           ---------------
Outstanding as of December 31, 2004             5,459,296          22.01
Granted                                         1,670,125          33.11
Forfeited                                        (254,500)         24.58
Exercised                                      (1,391,987)         20.63
                                           ---------------
Outstanding as of December 31, 2005             5,482,934          25.62
                                           ===============

                           Options Outstanding           Options Exercisable
                    ---------------------------------- -----------------------
                                             Weighted
                                             Average
                                  Weighted  Remaining                Weighted
                                  Average   Contractual              Average
                                  Exercise     Life                  Exercise
Exercise Price        Shares       Price    (in years)   Shares       Price
------------------- -----------  ---------- ---------- -----------  ----------
$7.00 to 14.00          19,374  $     8.07        3.9      19,374  $     8.07
$14.01 to 22.00      1,870,324       20.04        6.7   1,870,324       20.04
$22.01 to 30.00      1,952,015       24.84        8.0   1,952,015       24.84
$30.01 to 39.00      1,641,221       33.12        9.2   1,641,221       33.12
                    -----------                        -----------
                     5,482,934       25.62        7.9   5,482,934       25.62
                    ===========                        ===========

                                       Grant       Warrants      Exercise     Fair Value  Outstanding at December 31,
                                        Date        Issued        Price       of Warrants    2004         2005
                                   --------------  ---------  --------------  ----------  -----------  -----------
Warrants issued in connection
  with an acquisition              February 1998    300,000  $         2.67  $      954        9,999        9,999
Warrants issued to third-party
  consultants                      Throughout 2002   96,915   17.35 to 24.67        577       76,350          750
Warrants issued to third-party
  consultants                      Throughout 2003   61,500   19.47 to 24.55        173       55,500          750
Warrants issued to employees       Throughout 2003      900   22.44 to 23.33         17          900           --
Warrants issued to third-party
  consultants                      Throughout 2004   43,050   23.25 to 27.37        223       43,050       34,800
Warrants issued to employees       Throughout 2004    5,635   22.23 to 29.35         27        5,635           --
Warrants issued to third-party
  consultants                      Throughout 2005   14,800   29.62 to 37.87        136           --       14,800
                                                                                          -----------  -----------
                                                                                             191,434       61,099
                                                                                          ===========  ===========

                                                      Year Ended December 31, 2003
                                                    -------------------------------
                                                      Gross    Tax effect Net of tax
                                                    ---------  ---------  ---------
Amounts reclassified into earnings                 $   6,667  $  (2,467) $   4,200
Changes in fair value of interest rate swaps             366       (167)       199
                                                    ---------  ---------  ---------
                                                   $   7,033  $  (2,634) $   4,399
                                                    =========  =========  =========

                                                      Year Ended December 31, 2004
                                                    -------------------------------
                                                      Gross    Tax effect Net of tax
                                                    ---------  ---------  ---------
Amounts reclassified into earnings                 $     649  $    (240) $     409
Changes in fair value of interest rate swaps           3,289     (1,226)     2,063
                                                    ---------  ---------  ---------
                                                   $   3,938  $  (1,466) $   2,472
                                                    =========  =========  =========

                                                      Year Ended December 31, 2005
                                                    -------------------------------
                                                      Gross    Tax effect Net of tax
                                                    ---------  ---------  ---------
Amounts reclassified into earnings                 $  (1,904) $     708  $  (1,196)
Changes in fair value of interest rate swaps           5,194     (1,916)     3,278
                                                    ---------  ---------  ---------
                                                   $   3,290  $  (1,208) $   2,082
                                                    =========  =========  =========

                                                            Years Ended December 31,
                                                         -------------------------------
                                                           2003       2004       2005
                                                         ---------  ---------  ---------
Current:
    Federal                                             $   8,334  $  13,886  $  45,333
    State                                                   1,112      1,448      3,182
Deferred:
    Federal                                                26,844     25,484       (761)
    State                                                   1,109      1,082        (31)
                                                         ---------  ---------  ---------
Provision before discontinued operations and
  cumulative effect of change in accounting principle   $  37,399  $  41,900  $  47,723

Discontinued operations                                       294        351        343
Cumulative effect of change in accounting principle          (166)        --         --
                                                         ---------  ---------  ---------
                                                        $  37,527  $  42,251  $  48,066
                                                         =========  =========  =========

                                                      2004       2005
                                                    ---------  ---------
Deferred income tax assets:
    Accounts receivable reserves                   $     919  $   1,046
    Accrued expenses                                     936      6,132
    Self insurance reserve                                --      3,471
    Net operating losses from acquired subsidiaries    1,961        946
    Stock options                                         --        493
    Other                                              1,617      1,384
                                                    ---------  ---------
Gross deferred income tax assets:                      5,433     13,472
Less: Valuation allowance                                 --         --
                                                    ---------  ---------
Net deferred income tax assets                         5,433     13,472

Deferred income tax liabilities:
    Amortization                                     (41,930)   (54,835)
    Depreciation                                    (104,913)  (119,853)
    Other                                             (1,153)    (1,509)
    Interest rate swap                                    --     (2,911)
    Prepaid expenses                                  (4,308)    (4,386)
                                                    ---------  ---------
Total deferred income tax liabilities               (152,304)  (183,494)
                                                    ---------  ---------
Net deferred income tax liability                  $(146,871) $(170,022)
                                                    =========  =========

                                                Years Ended December 31,
                                             -------------------------------
                                               2003       2004       2005
                                             ---------  ---------  ---------
Income tax provision at the statutory rate       35.0 %     35.0 %     35.0 %
State taxes, net of federal benefit               1.1        1.2        1.3
Other                                             0.2        0.5       (0.1)
                                             ---------  ---------  ---------
                                                 36.3 %     36.7 %     36.2 %
                                             =========  =========  =========

                                                                        Years Ended December 31,
                                                                  -------------------------------------
                                                                     2003         2004         2005
                                                                  -----------  -----------  -----------
Numerator:
Net income for basic earnings per share                          $    65,596  $    72,271  $    83,943
Interest expense on 2006 Convertible Subordinated Notes,
   net of tax effects                                                  5,902        1,706           --
                                                                  -----------  -----------  -----------
Net income for diluted earnings per share                        $    71,498  $    73,977  $    83,943
                                                                  ===========  ===========  ===========
Denominator:
Basic shares outstanding                                          42,490,944   46,581,441   46,700,649
Dilutive effect of 2006 Convertible Subordinated Notes             5,917,163    1,706,874           --
Dilutive effect of 2022 Convertible Subordinated Notes                    --       20,525      389,754
Dilutive effect of stock options and warrants                        893,832    1,133,374    1,091,993
Dilutive effect of restricted stock                                    5,539       28,003       28,905
                                                                  -----------  -----------  -----------
Diluted shares outstanding                                        49,307,478   49,470,217   48,211,301
                                                                  ===========  ===========  ===========

                              December 31, 2004              December 31, 2005
                         -----------------------------  ---------------------------
                         Number of       Exercise       Number of      Exercise
                          Shares       Price Range       Shares      Price Range
                         ---------  ------------------  ---------  ----------------
Outstanding options        32,750   $29.02 to $33.93      67,500   $34.87 to $38.06
Outstanding warrants          235             $29.35       3,500   $37.17 to $37.87
                         ---------                      ---------
                           32,985                         71,000
                         =========                      =========

                                                          First      Second      Third      Fourth
                                                         Quarter     Quarter    Quarter     Quarter
                                                        ---------   ---------  ---------   ---------
Revenues:
    2004 as reported                                  $  145,964  $  157,322  $ 162,420  $  163,657
    2004 as restated                                  $  144,824  $  156,050  $ 161,175  $  162,495
Gross profit:
    2004 as reported                                  $   63,371  $   68,714  $  72,592  $   65,144
    2004 as restated                                  $   63,282  $   68,581  $  72,492  $   65,288
Income from continuing operations:
    2004 as reported                                  $   16,238  $   19,099  $  22,561  $   14,612
    2004 as restated                                  $   16,399  $   19,292  $  22,696  $   14,971
Income (loss) on discontinued operations, net of tax:
    2004 as reported                                  $      (36) $       72  $    (110) $     (165)
    2004 as restated                                  $     (197) $     (121) $    (245) $     (524)
Net income:
    2004 as reported                                  $   16,202  $   19,171  $  22,451  $   14,447
    2004 as restated                                  $   16,202  $   19,171  $  22,451  $   14,447
Basic income per common share:
    Before discontinued operations
    2004 as reported                                  $     0.38  $     0.40  $    0.47  $     0.31
    2004 as restated                                  $     0.38  $     0.41  $    0.48  $     0.31
    Net income per common share:
    2004 as reported                                  $     0.37  $     0.40  $    0.47  $     0.30
    2004 as restated                                  $     0.37  $     0.40  $    0.47  $     0.30
Diluted income per common share:
    Before discontinued operations
    2004 as reported                                  $     0.35  $     0.39  $    0.46  $     0.30
    2004 as restated                                  $     0.36  $     0.39  $    0.46  $     0.31
    Net income per common share:
    2004 as reported                                  $     0.35  $     0.39  $    0.46  $     0.30
    2004 as restated                                  $     0.35  $     0.39  $    0.46  $     0.29

                                                          First      Second      Third      Fourth
                                                         Quarter     Quarter    Quarter     Quarter
                                                        ---------   ---------  ---------   ---------
Revenues:
    2005 as reported                                  $  165,517  $  180,265  $ 188,745  $  188,445
    2005 as restated                                  $  164,444  $    N/A    $   N/A    $    N/A
Gross profit:
    2005 as reported                                  $   70,232  $   76,649  $  80,696  $   77,377
    2005 as restated                                  $   70,294  $    N/A    $   N/A    $    N/A
Income from continuing operations:
    2005 as reported                                  $   19,359  $   21,786  $  24,475  $   18,701
    2005 as restated                                  $   19,560  $    N/A    $   N/A    $    N/A
Income (loss) on discontinued operations, net of tax:
    2005 as reported                                  $       --  $     (378) $      --  $       --
    2005 as restated                                  $     (201) $    N/A    $   N/A    $    N/A
Net income:
    2005 as reported                                  $   19,359  $   21,408  $  24,475  $   18,701
    2005 as restated                                  $   19,359  $    N/A    $   N/A    $    N/A
Basic income per common share:
    Before discontinued operations
    2005 as reported                                  $     0.41  $     0.47  $    0.53  $     0.41
    2005 as restated                                  $     0.41  $    N/A    $   N/A    $    N/A
    Net income per common share:
    2005 as reported                                  $     0.41  $     0.46  $    0.53  $     0.41
    2005 as restated                                  $     0.41  $    N/A    $   N/A    $    N/A
Diluted income per common share:
    Before discontinued operations
    2005 as reported                                  $     0.40  $     0.45  $    0.51  $     0.40
    2005 as restated                                  $     0.40  $    N/A    $   N/A    $    N/A
    Net income per common share:
    2005 as reported                                  $     0.40  $     0.44  $    0.51  $     0.40
    2005 as restated                                  $     0.40  $    N/A    $   N/A    $    N/A

                                                           Additions
                                                     ------------------------   Deductions
                                        Balance at   Charged to   Charged to   (Write-offs,  Balance at
                                       Beginning of   Costs and      Other        Net of       End of
             Description                   Year       Expenses     Accounts    Collections)     Year
-------------------------------------  ------------  -----------  -----------  ------------  ----------
Deducted from asset accounts:
Allowance for Doubtful Accounts:
    Year Ended December 31, 2003      $      2,509  $     2,792   $       --  $     (2,731) $    2,570
    Year Ended December 31, 2004             2,570        2,930           --        (3,086)      2,414
    Year Ended December 31, 2005             2,414        3,220           --        (2,808)      2,826