Landfill Accounting

On January 1, 2003, the Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which provides standards for accounting for obligations associated with the retirement of long-lived assets. The adoption of SFAS No. 143 impacted the calculation and accounting for landfill retirement obligations, which the Company has historically referred to as closure and post-closure obligations. The impact of SFAS No. 143 is discussed in the closure and post-closure obligations section below.

The Company utilizes the life cycle method of accounting for landfill costs and the units of consumption method to amortize landfill development costs over the estimated remaining capacity of a landfill. Under this method the Company includes future estimated construction costs using current dollars, as well as costs incurred to date, in the amortization base. Additionally, the Company includes expansion airspace, which has not been permitted, in the calculation of the total remaining capacity of the landfill.

Closure and post-closure liability at December 31, 2002                     $   13,749
Decrease in closure and post-closure liability from adopting
   SFAS No. 143                                                                 (9,142)
Liabilities incurred                                                               435
Accretion expense                                                                  437
                                                                             ----------
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
                                                                             ----------
Closure and post-closure liability at December 31, 2004                     $    5,860
                                                                             ==========
 

                                                          Year Ended
                                                         December 31,
                                                         ------------
                                                             2002
                                                         ------------
Net income as reported                                  $     55,466
Pro forma impact of applying SFAS No. 143, net of tax            318
                                                         ------------
Pro forma net income                                    $     55,784
                                                         ============
 
 
Basic earnings per share as reported                    $       1.32
Pro forma impact of applying SFAS No. 143, net of tax           0.01
                                                         ------------
Pro forma basic earnings per share                      $       1.33
                                                         ============
 
Diluted earnings per share as reported                  $       1.25
Pro forma impact of applying SFAS No. 143, net of tax           0.01
                                                         ------------
Pro forma diluted earnings per share                    $       1.26
                                                         ============
 

At December 31, 2004, $12,323 of the Company's restricted cash balance was for purposes of settling future closure and post-closure liabilities.

1. The land where the expansion is being sought is contiguous to the current disposal site, which is either owned by the Company or the property is under 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. Obtaining the expansion is considered probable. For a pursued expansion to be considered probable, there must be no significant known technical, legal, community, business, or political restrictions or similar issues existing that could impair the success of the expansion; and
6. The land where the expansion is being sought has the proper zoning or proper zoning can readily be obtained.

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

Allocation of Acquisition Purchase Price

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

• The purchase price of acquisitions that do not include a landfill is allocated to identified intangible assets and tangible assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition, with any residual amounts allocated to goodwill. For acquired landfills, the Company allocates the purchase price to identified intangible and tangible assets acquired, excluding landfill airspace, and liabilities assumed based on their estimated fair values at the date of acquisition. Any residual amount is allocated to landfill costs.

• The Company often consummates single acquisitions that include a combination of collection operations and landfills. For each separately identified collection operation and landfill acquired in a single acquisition, the Company performs an initial allocation of total purchase price to the identified collection operations and landfills based on their relative fair values. Following this initial allocation of total purchase price to the identified collection operations and landfills, the Company further allocates the identified intangible assets and tangible assets acquired and liabilities assumed for each collection operation and landfill based on their estimated fair values at the dates of acquisition, with any residual amounts allocated to either goodwill or landfill site costs, as discussed above.

• The Company accrues the payment of contingent purchase price if the events surrounding the contingency are deemed assured beyond a reasonable doubt. Contingent purchase price related to landfills is allocated to landfill site costs and contingent purchase price for acquisitions other than landfills is allocated to goodwill.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and intangible assets of the acquired entities. Goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", ("SFAS No. 142"). Other intangible assets, including those meeting new recognition criteria under SFAS No. 142, continue to be amortized over their estimated useful lives.

The Company fully adopted the new rules on accounting for goodwill and other intangible assets beginning on January 1, 2002. The Company tests goodwill for impairment annually using the two-step process prescribed in SFAS No. 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. At least annually in the fourth quarter of the year, the Company performs impairment tests of goodwill and indefinite-lived intangible assets based on the carrying values. As a result of performing the tests for potential impairment, the Company determined that no impairment existed as of December 31, 2004 and therefore, there were no write-downs to any of its goodwill or indefinite-lived intangible assets.

The Company acquired indefinite-lived intangible assets, long-term franchise agreements, contracts and non-competition agreements in connection with certain of its acquisitions. The amounts assigned to indefinite-lived intangible assets consist of the value of certain perpetual rights to provide solid waste collection and transportation services in specified territories. The estimated fair value of the acquired indefinite-lived intangible assets, long-term franchise agreements and contracts was determined by management based on the discounted net cash flows associated with the rights, agreements and contracts. The estimated fair value of the non-competition agreements reflects management's estimates based on the amount of revenue protected under such agreements. The amounts assigned to the franchise agreements, contracts, and non-competition agreements are being amortized on a straight-line basis over the expected term of the related agreements (ranging from 3 to 56 years). In accordance with the provisions of SFAS No. 142, indefinite-lived intangible assets resulting from acquisitions completed subsequent to June 30, 2001 are not amortized; however, they are required to be classified separately from goodwill.

Restricted Cash

Restricted cash held by trustees consists principally of funds held in trust for the construction of various facilities, and funds deposited in connection with landfill closure and post-closure obligations. Proceeds from these financing arrangements are directly deposited into trust funds, and the Company does not have the ability to utilize the funds in regular operating activities. Accordingly, these amounts are reported as an investing activity when the cash is released from the trust funds and as a financing activity when the industrial revenue bonds are repaid out of the Company's cash balances.

Asset Impairments

Long-lived assets consist primarily of property, plant and equipment, goodwill and other intangible assets. Property, plant, equipment and other intangible assets are carried on the Company's financial statements based on their cost less accumulated depreciation or amortization. The recoverability of these assets is tested whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

Typical indicators that an asset may be impaired include:

• A significant decrease in the market price of an asset or asset group;
• A significant adverse change in the extent or manner in which an asset or asset group is being used or in its physical condition;
• A significant adverse change in legal factors or in the business climate that could affect the value of an asset or asset group, including an adverse action or assessment by a regulator;
• An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset;
• Current period operating or cash flow losses combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or
• A current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

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

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

Goodwill - The Company assesses whether goodwill is impaired on an annual basis in the fourth quarter of the year. This assessment is performed on each of the Company's four operating regions. If the Company determined the existence of goodwill impairment, the Company would measure that impairment based on the amount by which the book value of goodwill exceeds its implied fair value. The implied fair value of goodwill is determined by deducting the fair value of a reporting unit's identifiable assets and liabilities from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the purchase price were being initially allocated. Additional impairment assessments may be performed on an interim basis if the Company encounters events or changes in circumstances, such as those listed above, that would indicate that, more likely than not, the book value of goodwill has been impaired.

Fair Value of Financial Instruments

The Company's financial instruments consist primarily of cash, trade receivables, restricted cash, trade payables, debt instruments and interest rate swaps. As of December 31, 2003 and 2004, the carrying values of cash, trade receivables, restricted cash, and trade payables are considered to be representative of their respective fair values. The carrying values of the Company's debt instruments, excluding the 2006 Convertible Subordinated Notes and 2022 Floating Rate Convertible Subordinated Notes, approximate their fair values as of December 31, 2003 and 2004, based on current incremental borrowing rates for similar types of borrowing arrangements. The Company's 2006 Convertible Subordinated Notes, redeemed in April 2004, had a carrying value of $150,000 and had a fair value of approximately $160,770 at December 31, 2003, based on the publicly quoted trading price of these notes. The Company's 2022 Floating Rate Convertible Subordinated Notes have a carrying value of $175,000 and had a fair value of approximately $178,798 at December 31, 2003 and $203,333 at December 31, 2004, based on the publicly quoted trading price of these notes. The Company's interest rate swaps are recorded at their estimated fair values based on estimated cash flows calculated using interest rate yield curves as of December 31, 2003 and 2004.

Derivative Financial Instruments

The Company recognizes all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income (Note 11) until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings.

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

At December 31, 2004, the Company's derivative instruments consist of two forward-starting interest rate swap agreements, entered into in May 2003 and two additional three-year interest rate swap agreements, entered into in March 2004. Each forward-starting interest rate swap agreement has a notional amount of $87,500 and effectively fixes 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. The interest rate swaps entered into in 2004 each have a notional amount of $37,500 and effectively fix the interest rate on the notional amount at an interest rate of 2.25%, plus applicable margin. The effective date of the swap agreements is March 2004 and each swap agreement expires in March 2007. The interest rate swaps are included in other assets on the balance sheet. All the interest rate swap agreements are considered highly effective as cash flow hedges for a portion of the Company's variable rate debt, and the Company applies hedge accounting to account for these instruments. The notional amounts and all other significant terms of the swap agreements are matched to the provisions and terms of the variable rate debt being hedged.

Income Taxes

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

The Company has accrued income tax reserves for contingencies identified in the preparation of previously filed tax returns. The Company establishes the reserves based upon management's assessment of exposure associated with permanent differences, tax credits and interest expense. The tax reserves are analyzed quarterly and adjustments are made as events occur to warrant adjustments to the reserve. For example, if the statutory period for assessing tax on a given tax return or period lapses, the reserve associated with that period will be reduced.

Stock-Based Compensation

As permitted under the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company has elected to account for stock-based compensation using the intrinsic value method prescribed by APB 25, "Accounting for Stock Issued to Employees." Under the intrinsic value method, compensation cost is the excess, if any, of the quoted market price or fair value of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock.

The weighted average grant date fair values per share for options granted during 2002, 2003 and 2004 are as follows:

                                                                              2002       2003       2004
                                                                            ---------  ---------  ---------
Exercise prices equal to market price of stock                             $    6.27  $    5.17  $    6.06
Exercise prices less than market price of stock                                10.78         --         --
 

Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the years ended December 31, 2002, 2003 and 2004: risk-free interest rate of 3.5%, 2.4%, and 3.1%, respectively; dividend yield of zero; volatility factor of the expected market price of the Company's common stock of 40%, 25%, and 24%, respectively; and a weighted-average expected life of the option of 4 years.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company's employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The following table summarizes the Company's pro forma net income and pro forma basic net income per share for the years ended December 31, 2002, 2003 and 2004:

                                                                                Year Ended December 31,
                                                                            -------------------------------
                                                                              2002       2003       2004
                                                                            ---------  ---------  ---------
Net income, as reported                                                    $  55,466  $  65,596  $  72,271
Add: stock-based employee compensation expense
  included in reported net income, net of related tax effects                    533        196        611
Deduct: total stock-based employee compensation expense determined
    under the fair value method for all awards, net of related tax effects    (5,771)    (7,105)    (8,414)
                                                                            ---------  ---------  ---------
Pro forma net income                                                       $  50,228  $  58,687  $  64,468
                                                                            =========  =========  =========
 
Earnings per share:
  Basic - as reported                                                      $    1.33  $    1.54  $    1.55
  Basic - pro forma                                                             1.21       1.38       1.38
 
  Diluted - as reported                                                         1.26       1.45       1.50
  Diluted - pro forma                                                           1.17       1.32       1.34
 

Per Share Information

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

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2002, 2003 and 2004 was $1,403, $1,842, and $2,075, respectively.

Insurance Liabilities

During 2002, the Company increased its scope of high-deductible insurance, adding automobile liability, general liability and workers' compensation claims. Previously, the Company's high-deductible insurance program covered only automobile collision and employee group health claims. The Company's insurance accruals are based on claims filed and estimates of claims incurred but not reported and are developed by the Company's management with assistance from its third-party actuary and its third-party claims administrator. The insurance accruals are influenced by the Company's past claims experience factors, which have a limited history, and by published industry development factors. At December 31, 2003 and 2004, the Company's total accrual for self-insured liabilities was $8,611 and $16,859, respectively.

Segment Information

The Company identifies its operating segments based on management responsibility and geographic location. The Company considers its intermodal operations and each of its four operating regions that report stand-alone financial information and have segment managers that report to the Company's chief operating decision maker to be operating segments. The Company has assessed and determined that it has met all of the aggregation criteria required under SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"), to aggregate its multiple operating segments into two reportable segments. Therefore, all four operating regions have been aggregated together and are reported as a single segment consisting of the collection, transfer, recycling and disposal of non-hazardous solid waste primarily in the Western and Southern United States. Intermodal operations is reported as a separate segment; however, as the intermodal operations were acquired in the fourth quarter of 2004 and were not material to the financial condition or results of operations for the year ended December 31, 2004, this segment has not been separately disclosed.

Reclassifications

Certain amounts reported in the Company's prior years' financial statements have been reclassified to conform with the 2004 presentation.

New Accounting Pronouncements

FIN 46

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46") which was subsequently amended in December 2003. FIN 46 requires that unconsolidated variable interest entities be consolidated by their primary beneficiaries. A primary beneficiary is the party that absorbs a majority of the entity's expected losses or residual benefits. FIN 46 applies to variable interest entities created after January 31, 2003 and to existing variable interest entities beginning after June 15, 2003. The Company fully adopted FIN 46 on March 31, 2004 and this adoption did not have a material impact on the Company's financial statements.

EITF 04-8

In October 2004, the FASB reached a consensus on EITF Issue 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share" ("EITF 04-8") which requires contingently convertible debt instruments and other contingently convertible instruments to be included in diluted earnings per share calculations (if dilutive). EITF 04-8 requires restatement of all periods during which the instrument was outstanding; however, if the instrument was modified prior to the end of the adoption period, the issuer is required to retroactively apply the earnings per share treatment described in EITF Issue 90-19, "Convertible Bonds with Issuer Option to Settle for Cash upon Conversion" ("EITF 90-19"). For instruments where the principal value is settled in cash and the conversion value in excess of the principal value (conversion spread) is net share settled, EITF 90-19 requires the dilutive effect of the conversion spread to be included in the earnings per share calculation. EITF 04-8 is effective for periods ending after December 15, 2004. EITF 04-8 is applicable to the Company's 5.5% Convertible Subordinated Notes due April 2006 and the Floating Rate Convertible Subordinated Notes due 2022. As the 5.5% Convertible Subordinated Notes due April 2006 were dilutive to the calculation of earnings per share for all years presented in the statements of income, until the notes were redeemed in April 2004, no restatement for the impact of these notes is required under EITF 04-8. As described further in Note 9, the Floating Rate Convertible Subordinated Notes due 2022 were exchanged in 2004 and now require, subject to certain exceptions, payment of the principal value in cash and net share settlement of the conversion spread. Additionally, applying ETIF 90-19, the Floating Rate Convertible Subordinated Notes due 2022 were not dilutive to the calculation of earnings per share for the years ended December 31, 2002 or 2003, and, therefore, no restatement is required for these years under EITF 04-8. In accordance with EITF 04-8, the Company evaluates the dilutive effect of the conversion spread in the earnings per share calculation. The Company adopted EITF 04-8 on December 31, 2004 and this adoption did not have a material impact on the Company's financial statements.

SFAS 123(R)

On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which is a revision of SFAS 123. SFAS 123(R) supersedes APB 25, "Accounting for Stock Issued to Employees" and amends FASB Statement No. 95, "Statement of Cash Flows." Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

SFAS 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt SFAS 123(R) on July 1, 2005.

SFAS 123(R) permits public companies to adopt its requirements using one of two methods:

The Company is currently evaluating the adoption alternatives and expects to complete its evaluation during the third quarter of 2005.

As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using APB 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123(R)'s fair value method will have a significant impact on our results of operations, although it will have no impact on our overall cash flows or financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share included within this note to our consolidated financial statements.

SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $3,572, $3,078, and $8,195 for the years ended December 31, 2002, 2003, and 2004, respectively.

2. USE OF ESTIMATES AND ASSUMPTIONS

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

3. DISCONTINUED OPERATIONS

In 2004, the Company disposed of all of its operations in the state of Georgia and a hauling operation in Washington. The operations in Georgia were exchanged for hauling, transfer and disposal operations in Tennessee and Mississippi. All periods presented have been restated to present the results for these operations as discontinued operations. The table below reflects the discontinued operations as of December 31, 2002, 2003, and 2004 as follows:

                                                                Years Ended December 31,
                                                           -------------------------------
                                                             2002       2003       2004
                                                           ---------  ---------  ---------
Revenues                                                  $  15,526  $  16,474  $  11,278
Operating expenses:
    Cost of operations                                       11,628     12,730      8,367
    Selling, general and administrative                       1,844      2,595      1,461
    Depreciation and amortization                             1,234      1,630      1,524
    Loss on disposal of assets and operations (a)                --        178         13
                                                           ---------  ---------  ---------
Operating income (loss)                                         820       (659)       (87)
 
Other income, net                                                --         19         --
                                                           ---------  ---------  ---------
Income (loss) from operations of discontinued operations        820       (640)       (87)
 
Income tax provision (benefit)                                 (307)       237       (152)
                                                           ---------  ---------  ---------
Income (loss) on discontinued operations                  $     513       (403) $    (239)
                                                           =========  =========  =========
 

(a) Loss on disposal of assets and operations for the year end December 31, 2004 includes $62 of gain on the sale of the operations in Washington and $6 of gain on the disposal of the Company's Georgia operations.

Additionally, the table below reflects the disposed assets and liabilities related to these operations.

                                                       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
                                                     =========
 

4. ACQUISITIONS

2003 and 2004 Acquisitions

During 2003, the Company acquired 16 non-hazardous solid waste businesses that were accounted for as purchases. Aggregate consideration for the acquisitions consisted of $76,471 in cash (net of cash acquired), common stock warrants valued at $173 and the assumption of debt totaling $23,033.

During 2004, the Company acquired Northwest Container Services, Inc. and 13 non-hazardous solid waste businesses that were accounted for as purchases. Aggregate consideration for the acquisitions consisted of $43,865 in cash (net of cash acquired), $31,440 of net assets exchanged for new operations, $6,686 in notes payable to sellers, common stock warrants valued at $224 and the assumption of debt and long-term liabilities totaling $24,608.

The results of operations of the acquired businesses have been included in the Company's consolidated financial statements from their respective acquisition dates.

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

As of December 31, 2004, the Company had six acquisitions for which purchase price allocations were preliminary, mainly as a result of pending working capital valuations. The Company believes the potential changes to its preliminary purchase price allocations will not have a material impact on its financial condition, results of operations or cash flows.

A summary of the purchase price allocations for acquisitions consummated in 2003 and preliminary purchase price allocations for the acquisitions consummated in 2004 is as follows:

                                                     2003          2004
                                                 Acquisitions  Acquisitions
                                                 ------------  ------------
Acquired assets:
  Accounts receivable                           $      6,076  $      5,866
  Prepaid expenses and other current assets              918         1,021
  Property and equipment                              20,768        33,824
  Goodwill                                            41,078        66,982
  Long-term franchise agreements and contracts        32,583         5,226
  Other intangibles                                       14         1,115
  Non-competition agreements                             364           211
  Deferred tax asset                                   4,436            --
  Other assets                                         4,026         2,133
Assumed liabilities:
  Deferred revenue                                    (1,064)          (18)
  Accounts payable                                    (2,172)       (2,608)
  Accrued liabilities                                 (5,226)       (6,786)
  Debt and long-term liabilities assumed             (23,033)      (31,294)
  Deferred income taxes                               (2,124)         (143)
                                                 ------------  ------------
                                                $     76,644  $     75,529
                                                 ============  ============
 

During the year ended December 31, 2003, the Company paid $8,384 of acquisition-related liabilities accrued at December 31, 2002. During the year ended December 31, 2004, the Company paid $2,919 of acquisition-related liabilities accrued at December 31, 2003.

Goodwill and long-term franchise agreements, contracts, and other intangibles acquired in 2003 totaling $38,615 and $30,307, respectively, are expected to be deductible for tax purposes. Goodwill and long-term franchise agreements, contracts, and other intangibles acquired in 2004 totaling $40,594 and $5,134, respectively, are expected to be deductible for tax purposes.

In connection with an acquisition consummated in 2002, the Company is required to pay $2,000 of contingent consideration in cash to the former shareholders which is triggered by the Company obtaining an expansion permit for a landfill acquired. The Company has accrued the $2,000 contingent cash payment because it considers it beyond a reasonable doubt that the expansion permit for the landfill acquired in 2002 will be obtained. Additionally, at December 31, 2003, the Company accrued an $850 liability to former owners of a company acquired in 2003 that was payable in cash based upon the acquired company meeting or exceeding certain revenue targets during the 90 day period following the close of the acquisition. The acquired company met the required revenue targets and the $850 was paid in full in January 2004.

The following pro forma results of operations assume that the Company's significant acquisitions occurring in 2003 and 2004, accounted for using the purchase method of accounting, were acquired as of January 1, 2003 (unaudited):

                                                   Year Ended December 31,
                                                 --------------------------
                                                     2003          2004
                                                 ------------  ------------
Total revenue                                   $    618,553  $    660,839
Income from continuing operations                     65,812        72,440
Net income                                            65,691        72,201
Basic income per share                                  1.55          1.55
Diluted income per share                                1.45          1.49
 

The unaudited pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on January 1, 2003, nor are they necessarily indicative of future operating results.

5. INTANGIBLE ASSETS

Intangible assets, exclusive of goodwill, consisted of the following at December 31, 2004:

                                           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
                                           =============  ============  ============
 

The weighted-average amortization periods of long-term franchise agreements, non-competition agreements and other intangibles acquired during the year ended December 31, 2004 are 21 years, 5 years and 10 years, respectively.

Intangible assets, exclusive of goodwill, consisted of the following at December 31, 2003:

                                           Gross Carrying Accumulated   Net Carrying
                                              Amount      Amortization     Amount
                                           -------------  ------------  ------------
Amortizable intangible assets:
  Long-term franchise agreements
   and contracts                          $      46,810  $     (1,994) $     44,816
  Non-competition agreements                      3,986        (2,551)        1,435
  Other, net                                      2,415          (917)        1,498
                                           -------------  ------------  ------------
                                                 53,211        (5,462)       47,749
Nonamortized intangible assets:
  Indefinite-lived intangible assets             17,035            --        17,035
                                           -------------  ------------  ------------
Intangible assets, exclusive of goodwill  $      70,246  $     (5,462) $     64,784
                                           =============  ============  ============
 

The weighted-average amortization periods of long-term franchise agreements and non-competition agreements acquired during the year ended December 31, 2003 are 37.5 and 5 years, respectively.

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

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

For the year ended December 31, 2005          $   2,449
For the year ended December 31, 2006              2,268
For the year ended December 31, 2007              2,083
For the year ended December 31, 2008              1,892
For the year ended December 31, 2009              1,792
 

Total amortization expense for intangible assets was $1,351, $1,677 and $2,477 for the years ended December 31, 2002, 2003 and 2004, respectively.

6. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

                                                               Year Ended December 31,
                                                               ----------------------
                                                                  2003        2004
                                                               ----------  ----------
Landfill site costs                                           $  429,838  $  447,239
Rolling stock                                                    126,748     159,785
Land, buildings and improvements                                  72,463      76,447
Containers                                                        66,711      76,736
Machinery and equipment                                           69,668      75,816
Construction in process                                               --       1,140
                                                               ----------  ----------
                                                                 765,428     837,163
Less accumulated depreciation and depletion                     (152,203)   (196,433)
                                                               ----------  ----------
                                                              $  613,225  $  640,730
                                                               ==========  ==========
 

The Company's landfill depletion expense for the years ended December 31, 2002, 2003 and 2004 was $12,123, $13,618 and $15,300, respectively.

7. OTHER ASSETS, NET

Other assets, net, consist of the following:

                                                                Year Ended December 31,
                                                               ----------------------
                                                                  2003        2004
                                                               ----------  ----------
Deferred financing costs                                      $   13,961  $   10,093
Investment in unconsolidated entity                                5,300       5,300
Deposits                                                             828       2,874
Unrealized swap gains                                                272       2,875
Other                                                                774       2,456
                                                               ----------  ----------
                                                              $   21,135  $   23,598
                                                               ==========  ==========
 

8. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

                                                               Year Ended December 31,
                                                               ----------------------
                                                                  2003        2004
                                                               ----------  ----------
Insurance claims                                                   8,611      16,859
Payroll and payroll-related                                        5,783       9,337
Interest payable                                                   4,422       2,665
Acquisition-related                                                3,232       4,600
Income taxes                                                       4,784          --
Other                                                              5,088       4,483
                                                               ----------  ----------
                                                              $   31,920  $   37,944
                                                               ==========  ==========
 

9. LONG-TERM DEBT

Long-term debt consists of the following:

                                                               Year Ended December 31,
                                                               ----------------------
                                                                  2003        2004
                                                               ----------  ----------
Revolver under Credit Facility                                $   53,000  $  261,000
Term Loan under Credit Facility                                  175,000          --
2006 Convertible Subordinated Notes                              150,000          --
2022 Floating Rate Convertible Subordinated Notes                175,000     175,000
2001 Wasco Bonds                                                  13,600      12,560
California Tax-Exempt Bonds                                       28,970      25,685
Notes payable to sellers in connection with acquisitions,
  unsecured, bearing interest at 5.0% to 8.0%, principal
  and interest payments due periodically with due dates
  ranging from 2005 to 2036                                        5,356       9,214
Notes payable to third parties, secured by substantially all
  assets of certain subsidiaries of the Company, bearing
  interest at 4.0% to 11.0%, principal and interest payments
  due periodically with due dates ranging from 2005 to 2010       10,705      15,150
                                                               ----------  ----------
                                                                 611,631     498,609
Less - current portion                                            (9,740)     (9,266)
                                                               ----------  ----------
                                                              $  601,891  $  489,343
                                                               ==========  ==========
 

Credit Facility

In 2000, the Company entered into a revolving credit facility under which the Company could borrow up to $435,000. In October 2003, the Company amended this credit facility to increase the maximum borrowings to $575,000 consisting of a $400,000 senior secured revolving credit facility with a syndicate of banks for which Fleet National Bank acts as agent, and a $175,000 senior secured term loan. In March 2004, the senior secured term loan was refinanced to increase the total borrowing to $200,000. In November 2004, the Company refinanced its credit facility. The new credit agreement amends and restates the old credit facility agreement in its entirety. The new credit facility consists of a $650,000 senior secured revolving credit facility with a syndicate of banks for which Bank of America, N.A. (formerly Fleet National Bank) acts as agent. The principal amount of the senior secured term loan under the old credit facility was repaid in full. As of December 31, 2003, $228,000 was outstanding under the credit facility as follows: $175,000 was outstanding under the senior secured term loan and $53,000 was outstanding under the senior secured revolving credit facility, exclusive of outstanding stand-by letters of credit of $45,905. As of December 31, 2004, $261,000 was outstanding under our senior secured revolving credit facility, exclusive of outstanding stand-by letters of credit of $47,738.

The new senior secured revolving credit facility requires monthly interest payments and matures in October 2009. Under the new 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 new credit facility requires the Company to pay a commitment fee ranging from 0.20% to 0.50% of the unused portion of the new credit facility. The Company is able to increase the maximum borrowings under the new credit facility to $800,000, provided that no event of default, as defined, has occurred, although no existing lender will have any obligation to increase its commitment. The borrowings under the new credit facility bear interest, at our option, at either the base rate plus the applicable base rate margin (4.5% and 5.3% as of December 31, 2003 and 2004, respectively) on base rate loans, or the Eurodollar rate plus the applicable Eurodollar margin (approximately 3.2% and 3.3% as of December 31, 2003 and 2004, respectively) on Eurodollar loans. The applicable margin under the revolving credit facility varies depending on the Company's leverage ratio, as defined in the new 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 the Company's assets, including its interest in the equity securities of its subsidiaries, secure its obligations under the new credit facility. The new credit facility contains customary representations and warranties and places certain business, financial and operating restrictions on the Company relating to, among other things, indebtedness, liens and other encumbrances, investments, mergers and acquisitions, asset sales, sale and leaseback transactions, and dividends, distributions and redemptions of capital stock, which restrictions are substantially the same as those contained in the old credit facility. Consistent with the old credit facility, the new credit agreement requires that the Company maintains specified financial ratios and balances, and obtains the lenders' approval of acquisitions in certain circumstances. As of December 31, 2003 and 2004, the Company was in compliance with all applicable covenants in its then outstanding credit facility. The credit facility also requires the lenders' approval of acquisitions in certain circumstances.

5.5% Convertible Subordinated Notes Due 2006

In April 2001, the Company issued 5.5% Convertible Subordinated Notes due April 2006 (the "2006 Convertible Subordinated Notes") with an aggregate principal amount of $150,000 in a Rule 144A offering. The 2006 Convertible Subordinated Notes were unsecured, ranked junior to existing and future Senior Indebtedness, as defined in the indenture governing the notes, and were convertible at any time at the option of the holder into common stock at a conversion price of $25.35 per share. The notes were callable by the Company beginning April 2004 at an early call premium of 102.2%. In April 2004, the Company redeemed its 2006 Convertible Subordinated Notes. Holders of the notes chose to convert a total of $123,648 principal amount of the notes into 4,876,968 shares of Waste Connections common stock at a price of approximately $25.35 per share, or approximately 39.443 shares per $1 principal amount of notes, plus cash in lieu of fractional shares. The Company redeemed the balance of $26,352 principal amount of the notes with proceeds from its credit facility at a redemption price of $1.022 per $1 principal amount of the notes. All holders of the notes also received accrued interest of $0.0275 per $1 principal amount of notes. As a result of the redemption, the Company recognized $1,478 of pre-tax expense ($1,125 net of taxes) in April 2004.

Floating Rate Convertible Subordinated Notes due 2022

In April 2002, Waste Connections issued Floating Rate Convertible Subordinated Notes due 2022 (the "2022 Floating Rate Convertible Subordinated Notes") with an aggregate principal amount of $175,000 in a Rule 144A offering. The 2022 Floating Rate Convertible Subordinated Notes are unsecured and rank junior to all existing and future senior indebtedness, as defined in the indenture governing the 2022 Floating Rate Convertible Subordinated Notes. The 2022 Floating Rate Convertible Subordinated Notes bear interest at the 3-month LIBOR rate plus 50 basis points, payable quarterly. The net proceeds from the sale of the 2022 Floating Rate Convertible Subordinated Notes were used to repay a portion of the outstanding indebtedness under the Company's credit facility.

In the third quarter of 2004, the Company completed an exchange offer with respect to all of its 2022 Floating Rate Convertible Subordinated Notes. The Company offered to exchange $1 in principal amount of new 2022 Floating Rate Convertible Subordinated Notes for each $1 in principal amount of its old 2022 Floating Rate Convertible Subordinated Notes accepted for exchange. Through the exchange offer, the Company updated certain features of the old 2022 Floating Rate Convertible Subordinated 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. No other material terms of the 2022 notes, including maturity date and interest rate, were changed.

The holders may surrender notes for conversion into common stock at a conversion price of $32.26 per share at any time prior to the maturity date, only if any of the following conditions are satisfied:

1. the closing sale price per share of the Company's common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter preceding the calendar quarter in which the conversion occurs is more than 110% of the conversion price per share on that thirtieth trading day;
2. during such period, if any, that the credit ratings assigned to the 2022 Floating Rate Convertible Subordinated Notes by Moody's Investors Service, Inc. and Standard & Poor's Rating Group (the "Rating Agencies") are reduced below B3 or B-, respectively;
3. if neither Rating Agency is rating the 2022 Floating Rate Convertible Subordinated Notes;
4. during the five business day immediately following any nine consecutive trading day period in which the trading price of the 2022 Floating Rate Convertible Subordinated Notes (per $1 principal amount) for each day of such period is less than 95% of the product of the closing sale price of the Company's common stock on that day multiplied by the number of shares issuable upon conversion of $1 principal amount of the 2022 Floating Rate Convertible Subordinated Notes;
5. upon the occurrence of specified corporate transactions; or
6. if the 2022 Floating Rate Convertible Subordinated Notes have been called for redemption and the redemption has not yet occurred. The dividend protection provisions provide a lowering of the conversion price if a dividend is issued while the notes are still outstanding.

The Company may redeem all or a portion of the 2022 Floating Rate Convertible Subordinated Notes for cash at any time on or after May 7, 2006. Holders of the 2022 Floating Rate Convertible Subordinated Notes may require the Company to purchase their notes in cash at a price of par plus accrued and unpaid interest, if any, upon a change in control of the Company, as defined in the indenture, or on any of the following dates: May 1, 2009, May 1, 2012 and May 1, 2017.

Wasco Bond

In December 1999, the Company completed a $13,600 tax-exempt bond financing for its Wasco subsidiary (the "Wasco Bond"). These funds were used for the acquisition, construction, furnishing, equipping and improving of a landfill located in Wasco County, Oregon (the "Landfill Project"). In March 2001, the Company refinanced the Wasco Bond by completing $13,600 of tax-exempt revenue bond financing through the issuance of three bonds (the "2001 Wasco Bonds"). The Company incurred debt extinguishment costs of $144, net of tax, related to this refinancing. The 2001 Wasco Bonds consist of $1,040 of 6.5% term bonds which were paid March 1, 2004, $4,085 of 7.0% term bonds due March 1, 2012 and $8,475 of 7.25% term bonds due March 1, 2021. On an annual basis, the Company is required to remit principal payments. The principal payment requirements in 2003 and 2004 were $345 and $370, respectively. The total future principal payment requirements are as follows: $395 in 2005, $425 in 2006, $455 in 2007, $485 in 2008, $525 in 2009 and $10,275 thereafter.

California Tax-Exempt Bonds

In June 1998, the Company completed a $1,800 tax-exempt bond financing for its Madera subsidiary (the "Madera Bond"). These funds were used for specified capital expenditures and improvements, including installation of a landfill gas recovery system. The bonds mature on May 1, 2016 and bear interest at variable rates based on market conditions for California tax-exempt bonds (approximately 1.3% and 2.1% at December 31, 2003 and 2004, respectively). The bonds are backed by a letter of credit issued by Fleet Boston Financial Corporation under the Credit Facility for $1,829.

In July 1998 and May 1999, Cold Canyon Landfill, Inc. and South County Sanitary Service, Inc., wholly-owned subsidiaries of the Company acquired in 2002, received a total of $9,490 from the issuance of tax-exempt bond financing (the "Cold Canyon and South County Bonds") through the California Pollution Control Financing Authority. These funds were used for specified capital expenditures and improvements. The outstanding balance of the South County and Cold Canyon Bonds was $7,145 at December 31, 2003 and 2004 with scheduled principal maturities of $1,300 in May 2006 and $5,845 in July 2008. The Cold Canyon and South County Bonds bear interest at variable rates based on market conditions for California tax-exempt bonds (approximately 1.3% and 2.1% at December 31, 2003 and 2004, respectively) and are backed by a letter of credit issued by Fleet National Bank under the Credit Facility for $7,246.

In June 1999, GreenWaste of Tehama, a wholly-owned subsidiary of the Company acquired in 2003, received a total of $3,435 from the issuance of tax-exempt bond financing (the "Tehama Bonds") through California Pollution Control Financing Authority. These funds were used to finance improvements to and expansion of certain solid waste disposal facilities. The outstanding balance of the Tehama bonds was $2,060 and $1,630 at December 31, 2003 and 2004, respectively. The bond bears interest at variable rates based on market conditions for California tax-exempt bonds (approximately 1.3% and 2.1% at December 31, 2003 and 2004, respectively). On an annual basis, the Company is required to remit principal payments. The principal payment requirements in 2003 and 2004 were $0 and $430, respectively. The total future principal payment requirements are as follows: $455 in 2005, $475 in 2006, $60 in 2007, $60 in 2008, $65 in 2009 and $515 thereafter.

In August 1997 and October 2001, GreenTeam of San Jose, a wholly-owned subsidiary of the Company acquired in 2003, received a total of $18,040 from the issuance of tax-exempt bond financing (the "San Jose Bonds") through California Pollution Control Financing Authority. These funds are used for specified capital expenditures and improvements. The outstanding balance of the San Jose bonds was $17,965 and $15,110 at December 31, 2003 and 2004, respectively. The bonds bear interest at variable rates based on market conditions for California tax-exempt bonds (approximately 1.3% and 2.1% at December 31, 2003 and 2004, respectively) and are backed by a letter of credit issued by Fleet National Bank under the Credit Facility for $15,378. On an annual basis, the Company is required to remit principal payments. The principal payment requirements in 2003 and 2004 were $0 and $2,855, respectively. The total future principal payment requirements are as follows: $1,185 in 2005, $2,180 in 2006, $2,305 in 2007, $2,420 in 2008, $2,545 in 2009 and $4,475 thereafter.

The Company has a total of $25,685 of tax-exempt bonds at December 31, 2004 that mature through 2016 that are remarketed weekly by a remarketing agent to effectively maintain a variable yield. If the remarketing agent is unable to remarket the bonds, then the remarketing agent can put the bonds to the Company. The Company has obtained stand-by letters of credit, issued under its senior secured revolving credit facility, to guarantee repayment of the bonds in this event. The Company classified these borrowings as long-term at December 31, 2004 because the borrowings are supported by stand- by letters of credit issued under the Company's senior secured revolving credit facility which is long-term.

Interest Rate Swaps

At December 31, 2004, the Company's derivative instruments consist of two forward-starting interest rate swap agreements, entered into in May 2003 and two additional three-year interest rate swap agreements, entered into in March 2004. Each forward-starting interest rate swap agreement has a notional amount of $87,500 and effectively fixes 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 forward-starting swap agreements was February 2004 and each swap agreement expires in February 2007. The interest rate swaps entered into in 2004 each have a notional amount of $37,500 and effectively fix 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. All the interest rate swap agreements are considered highly effective as cash flow hedges for a portion of the Company's variable rate debt, and the Company applies hedge accounting to account for these instruments. The notional amounts and all other significant terms of the swap agreements are matched to the provisions and terms of the variable rate debt being hedged.

As of December 31, 2004, aggregate contractual future principal payments by calendar year on long-term debt are due as follows:

2005                                                    $      9,266
2006                                                           9,513
2007                                                           6,791
2008                                                          12,675
2009                                                         266,403
Thereafter                                                   193,961
                                                         ------------
                                                        $    498,609
                                                         ============
 

10. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

Leases

The Company leases its facilities and certain equipment under non-cancelable operating leases for periods ranging from one to 20 years, with renewal options for certain leases. The Company's total rent expense under operating leases during the years ended December 31, 2002, 2003 and 2004 was $4,493, $4,687 and $5,641, respectively.

As of December 31, 2004, future minimum lease payments under these leases, by calendar year, are as follows:

2005                                                    $      6,093
2006                                                           5,477
2007                                                           4,514
2008                                                           4,099
2009                                                           3,577
Thereafter                                                    26,728
                                                         ------------
                                                        $     50,488
                                                         ============
 

Financial Surety Bonds

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

At December 31, 2003 and 2004, the Company had provided customers and various regulatory authorities with surety bonds in the aggregate amount of approximately $54,495 and $75,323, respectively, to secure its landfill closure and post-closure requirements and $37,795 and $46,052, respectively, to secure performance under collection contracts and landfill operating agreements.

In August 2003, the Company paid $5,300 to acquire a 9.9% interest in a company that, among other activities, issues financial surety bonds to secure landfill closure and post-closure obligations for companies operating in the solid waste industry. The Company accounts for this investment under the cost method of accounting. There have been no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment and, therefore, the fair value of this investment has not been estimated as it is not practicable to do so. At December 31, 2003 and 2004, this investee company had written $17,815 and $27,103, respectively, of the Company's financial surety bonds for landfill closure and post-closure obligations. The Company's reimbursement obligations under these bonds are secured by a pledge of its stock in the investee company.

Unconditional Purchase Obligation

The Company has an unconditional obligation to purchase diesel fuel under a 24-month agreement expiring on December 31, 2005. The remaining minimum amount of diesel fuel to be purchased under the agreement is $10,987, plus taxes and transportation costs upon delivery.

Put Option

The minority interest holders of a majority-owned subsidiary of Waste Connections have a currently exercisable option (the 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, 2004, the minority interest holders' pro rata share of the subsidiary's fair market value is estimated to be worth between $71 million and $85 million. Because the put is calculated at fair market value, no amounts have been accrued relative to the put option.

CONTINGENCIES

Environmental Risks

The Company is subject to liability for any environmental damage that its solid waste facilities may cause to neighboring landowners or residents, particularly as a result of the contamination of soil, groundwater or surface water, and especially drinking water, including damage resulting from conditions existing prior to the acquisition of such facilities by the Company. The Company may also be subject to liability for any off-site environmental contamination caused by pollutants or hazardous substances whose transportation, treatment or disposal was arranged by the Company or its predecessors. Any substantial liability for environmental damage incurred by the Company could have a material adverse effect on the Company's financial condition, results of operations or cash flows. As of December 31, 2004, the Company is not aware of any significant environmental liabilities.

Legal Proceedings

The Company owns undeveloped property in Harper County, Kansas, where it is seeking permits to construct and operate a municipal solid waste landfill. In 2002, the Company received a special use permit from Harper County for zoning the landfill and in 2003 it received a draft permit from the Kansas Department of Health and Environment to construct and operate the landfill. In July 2003, the District Court of Harper County invalidated the previously issued zoning permit after it was challenged by a citizens group. On August 20, 2004, the Kansas Court of Appeals reversed the District Court ruling and upheld the zoning permit. The landfill opponents appealed this decision to the Kansas Supreme Court, which denied the appeal on December 14, 2004, and ordered the District Court to re-instate the previously approved zoning permit. At December 31, 2004, the Company had $4,528 of capitalized expenditures related to this landfill development project. The Company believes it will receive the final permit. If the Company does not receive the final permit, however, the Company will be required to expense in a future period the $4,528 of capitalized expenditures, less the recoverable value of the undeveloped property and other amounts recovered, which would likely have a material adverse effect on its reported income for that period.

The Company is a party to various claims and suits pending for alleged damages to persons and property and alleged liabilities occurring during the normal operations of the solid waste management business. In the case of Karen Colleran, Conservator of the Estate of Robert Rooney v. Waste Connections of Nebraska, Inc., which was filed on October 31, 2003, the plaintiff seeks recovery for damages allegedly suffered by Father Robert Rooney when the bicycle he was riding collided with one of the Company's garbage trucks in Valley County, Nebraska. The complaint alleges that Father Rooney suffered serious bodily injury, including traumatic brain injury. The plaintiff seeks recovery of past medical expenses of approximately $430 and an unspecified amount for future medical expenses and home healthcare, past pain and suffering, future pain and suffering, lost income, loss of earning capacity, and permanent injury and disability. The Company's primary defense is that the plaintiff is not entitled to any damages under Nebraska law because the negligence of Father Rooney was equal to or greater than any negligence on the part of the driver, and the Company intends to defend this case vigorously on these and other grounds. This case is in the early stages of discovery, and the Company has not accrued any potential loss as of December 31, 2004; however, an adverse outcome in this case coupled with a significant award to the plaintiff could have an adverse effect on the Company's reported income in the period incurred.

In the case of Cristobal Lozoya v. Waste Connections of Oklahoma, Inc. et al., which was filed on September 27, 2004, the plaintiff seeks recovery for injuries he suffered in an accident at the Company's Oklahoma City landfill. The defendants are Waste Connections of Oklahoma, the individual operator of the 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 Company intends 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 would not be covered by insurance. This case is in the early stages of discovery, and the Company has not accrued any potential loss for punitive damages as of December 31, 2004; however, an adverse outcome in this case coupled with a significant award to the plaintiff could have a material adverse effect on the Company's reported income in the period incurred.

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

In addition, the Company is a party to various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of the waste management business. Except as noted in the legal cases described above, as of December 31, 2004 there is no current proceeding or litigation involving the Company that the Company believes will have a material adverse impact on its business, financial condition, results of operations or cash flows.

Guarantees

The Company has guaranteed the tax-exempt bonds for its Wasco subsidiary. If this subsidiary fails to meet its obligations associated with tax-exempt bonds as they come due, the Company will be required to perform under the related guarantee agreement. No additional liability has been recorded for these guarantees because the underlying obligations are reflected in the Company's consolidated balance sheets. See Note 9 for information on the Wasco tax-exempt bond balances and maturities.

Employees

At December 31, 2004, the Company employed 3,768 full-time employees, of which 311, or 8% of its workforce, are employed under collective bargaining agreements primarily with the Teamsters Union. These employees are subject to labor agreements that are subject to renegotiation periodically. The Company has 109 employees, or 3% of its workforce, who work under collective bargaining agreements that are set to expire in June 2005. The Company does not expect any significant disruption in its business in 2005 as a result of labor negotiations, employee strikes or organizational efforts.

11. STOCKHOLDERS' EQUITY

Stock Split

On May 26, 2004, the Company announced that its Board of Directors had declared a three-for-two stock split of its common stock, in the form of a 50% stock dividend to stockholders of record on June 10, 2004. Shares resulting from the split were distributed on June 24, 2004 (payment date). Shares, share price, per share amounts, common stock at par value and capital in excess of par value have been restated to reflect the effect of the stock split for all periods presented in this Form 10-Q. As a result of the stock split, fractional shares equal to 837 whole shares were repurchased at a price of $23.

Share Repurchase Program

On May 3, 2004, the Company announced that its Board of Directors had authorized a common stock repurchase program for the repurchase of up to $200 million of common stock over a two-year period. Under the program, stock repurchases may be made in the open market or in privately negotiated transactions from time to time at management's discretion. The timing and amounts of any repurchases will depend on many factors, including the Company's capital structure, the market price of the common stock and overall market conditions. As of December 31, 2004, the Company had repurchased 2,496,600 shares of its common stock at a cost of $72,868, of which $63,940 were purchased under the approved plan.

Common Stock

Of the 52,394,209 shares of common stock authorized but unissued as of December 31, 2004, the following shares were reserved for issuance:

     Stock option plans                                    9,944,022
     2022 Floating Rate Convertible Subordinated Notes     5,424,668
     Consultant Incentive Plan                               295,200
     Stock purchase warrants                                  94,599
     2002 Restricted stock plan                              114,894
                                                         ------------
                                                          15,873,383
                                                         ============
 

Restricted Stock

During 2002, the Company's Board of Directors adopted the 2002 Restricted Stock Plan (the "Restricted Stock Plan") in which selected employees, other than officers and directors, may participate. Restricted stock awards under the 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 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. 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 Restricted Stock Plan. During the years ended December 31, 2002, 2003 and 2004, the Company issued 34,505, 1,950 and 89,927 shares of restricted stock, with grant-date fair values of $23.52, $24.42 and $24.93 per share, respectively, to selected employees. The total fair value of the issued restricted stock was $812, $48 and $2,242 for the years ended December 31, 2002, 2003 and 2004, respectively, and is being amortized ratably to expense over the three-year restriction period. During 2003, a portion of the restricted stock granted in 2002 became free of restrictions, resulting in the issuance of 7,463 shares of common stock. During 2004, a portion of the restricted stock granted in 2002 and 2003 became free of restrictions, resulting in the issuance of 7,394 shares of common stock.

Stock Options

In 1997, the Company's Board of Directors adopted a stock option plan in which all officers, employees, directors and consultants may participate (the "1997 Option Plan"). Options granted under the 1997 Option Plan may either be incentive stock options or nonqualified stock options, generally have a term of 10 years from the date of grant, and will vest over periods determined at the date of grant. The exercise prices of the options are determined by the Company's Board of Directors and will be at least 100% or 110% of the fair market value of the Company's common stock on the date of grant as provided for in the Option Plan.

The 1997 Option Plan provides for the reservation of common stock for issuance thereunder equal to 5,250,000 shares. The amount of common stock reserved for issuance under the 1997 Option Plan is decreased for options exercised and increased for previously granted options that have been forfeited or cancelled. As of December 31, 2004, options for 30,621 shares of common stock were available for future grants under the 1997 Option Plan.

In 2002, the Company's Board of Directors authorized two additional equity-based compensation plans: the 2002 Stock Option Plan and 2002 Senior Management Equity Incentive Plan. A total of 3,750,000 shares of the Company's common stock were reserved for future issuance under the 2002 Stock Option Plan. Participation in the 2002 Stock Option Plan is limited to consultants and employees, other than officers and directors. Options granted under the 2002 Stock Option Plan are nonqualified stock options and have a term of no longer than 10 years from the date they are granted. Options generally become exercisable in installments pursuant to a vesting schedule set forth in each option agreement. The Board of Directors authorizes the granting of options and determines the employees and consultants to whom options are to be granted, the number of shares subject to each option, the exercise price, option term, vesting schedule and other terms and conditions of the options. A total of 4,500,000 shares of the Company's common stock were reserved for future issuance under the 2002 Senior Management Equity Incentive Plan. The Company's stockholders approved the 2002 Senior Management Equity Incentive Plan on May 16, 2002. Participation in the 2002 Senior Management Equity Incentive Plan is limited to officers and directors of the Company. Options granted under the 2002 Senior Management Equity Incentive Plan may be either incentive stock options or non-qualified stock options. As of December 31, 2004, options for 287,781 and 1,916,234 shares of common stock were available for future grants under the 2002 Stock Option Plan and 2002 Senior Management Equity Incentive Plan, respectively.

In 2004, the Company's Board of Directors authorized the 2004 Equity Incentive Plan. A total of 2,250,000 shares of the Company's common stock were reserved for future issuance under the 2004 Equity Incentive Plan, of which 450,000 may be used for the future issuance of restricted stock or restricted stock units. Participation in the 2004 Equity Incentive Plan is limited to consultants and employees, including officers and directors. Options granted under the 2004 Equity Incentive Plan are nonqualified stock options and have a term of no longer than five years from the date they are granted. Restricted stock, restricted stock units, and options generally become exercisable in installments pursuant to a vesting schedule set forth in each option or restricted stock agreement. The Board of Directors authorizes the granting of options, restricted stock and restricted stock units, and determines the employees and consultants to whom options, restricted stock, and restricted stock units are to be granted, the number of shares subject to each option, restricted stock, or restricted stock unit, the exercise price, term, vesting schedule and other terms and conditions of the options, restricted stock, or restricted stock units. As of December 31, 2004, there were no options, restricted stock, or restricted stock units granted under the 2004 Equity Incentive Plan.

As of December 31, 2002, 2003, and 2004, a total of 1,035,866, 1,410,551 and 1,226,284 options to purchase common stock were exercisable under all stock option plans, respectively.

A summary of the Company's stock option activity and related information for the years ended December 31, 2002, 2003 and 2004 is presented below:

                                                              Weighted
                                              Number of        Average
                                           Shares (Options) Exercise Price
                                           ---------------  -------------
Outstanding as of December 31, 2001             2,852,804  $       13.33
Granted                                         2,295,884          17.27
Forfeited                                        (168,242)         17.39
Exercised                                        (925,005)         11.41
                                           ---------------
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
                                           ===============
 

The following table summarizes information about stock options outstanding as of December 31, 2004:

                           Options Outstanding           Options Exercisable
                    ---------------------------------- -----------------------
                                             Weighted
                                             Average
                                  Weighted  Remaining                Weighted
                                  Average   Contractual              Average
                                  Exercise     Life                  Exercise
Exercise Price        Shares       Price    (in years)   Shares       Price
------------------- -----------  ---------- ---------- -----------  ----------
$2.00 TO 8.00           19,749  $     7.41        5.0      18,749  $     7.83
$11.50 TO 20.00      1,145,366       16.55        6.9     638,641       16.55
$20.00 TO 25.00      4,191,231       23.42        8.6     568,394       22.15
$25.00 TO 34.00        102,950       27.93        9.3         500       25.17
                    -----------  ---------- ---------- -----------  ----------
                     5,459,296       22.01        8.2   1,226,284       19.01
                    ===========                        ===========
 

Stock Purchase Warrants

In 2002, the Company's Board of Directors authorized the 2002 Consultant Incentive Plan (the "Consultant Incentive Plan"), under which warrants to purchase the Company's common stock may be issued to certain consultants to the Company. Warrants awarded under the Consultant Incentive Plan are subject to a vesting schedule set forth in each warrant agreement. Historically, warrants issued have been fully vested and exercisable at the date of grant. The Board of Directors authorizes the issuance of warrants and determines the consultants to whom warrants are to be issued, the number of shares subject to each warrant, the purchase price, exercise date and period, warrant term and other terms and conditions of the warrants. The Board reserved 300,000 shares of the Company's common stock for future issuance under the Consultant Incentive Plan. The Company issued 62,400 and 48,685 warrants under the Consultant Incentive Plan during the years ended December 31, 2003 and 2004, respectively.

The following table summarizes information about warrants outstanding as of December 31, 2003 and 2004:

                                       Grant       Warrants      Exercise     Fair Value  Outstanding at December 31,
                                        Date        Issued        Price       of Warrants    2003         2004
                                   --------------  ---------  --------------  ----------  -----------  -----------
Warrants issued in connection
  with an acquisition              February 1998    300,000  $         2.67  $      954      110,000        9,999
Warrants issued to third-party
  acquisition consultants          Throughout 2002   96,915   17.35 to 24.67        577       78,600       76,350
Warrants issued to third-party
  acquisition consultants          Throughout 2003   61,500   19.47 to 24.55        173       61,500       55,500
Warrants issued to employees       Throughout 2003      900   22.44 to 23.33         17          900          900
Warrants issued to third-party
  acquisition consultants          Throughout 2004   43,050   23.25 to 27.37        223           --       43,050
Warrants issued to employees       Throughout 2004    5,635   22.23 to 29.35         27           --        5,635
                                                                                          -----------  -----------
                                                                                             251,000      191,434
                                                                                          ===========  ===========
 

The warrants are exercisable when granted and expire between 2007 and 2009.

Warrants issued to employees and third-party acquisition consultants are valued using the Black-Scholes pricing model with assumed stock price volatility and risk-free interest rates similar to those used for stock options, and with an expected life of 2 to 5 years. Warrants issued to third- party acquisition consultants are recorded as an element of the related cost of acquisitions. Warrants issued to employees are charged to expense.

12. COMPREHENSIVE INCOME

Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-stockholder sources. The components of other comprehensive income (loss) and related tax effects for the years ended December 31, 2002, 2003 and 2004 are as follows:

                                                 Year Ended December 31, 2002
                                               -------------------------------
                                                 Gross    Tax effect Net of tax
                                               ---------  ---------  ---------
Amounts reclassified into earnings            $   6,404  $  (2,402) $   4,002
Changes in fair value of interest rate swaps     (4,653)     1,590     (3,063)
                                               ---------  ---------  ---------
                                              $   1,751  $    (812) $     939
                                               =========  =========  =========

                                                 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
                                               =========  =========  =========
 

The estimated net amount of the existing unrealized gains as of December 31, 2004 (based on the interest rate yield curve at that date) included in accumulated other comprehensive income expected to be reclassified into pre-tax earnings within the next 12 months is $1,499. The timing of actual amounts reclassified into earnings is dependent on future movements in interest rates.

                                                   Year Ended December 31,
                                               -------------------------------
                                                 2002       2003       2004
                                               ---------  ---------  ---------
Current:
    Federal                                   $  21,151  $   8,334  $  13,886
    State                                         1,830      1,112      1,448
Deferred:
    Federal                                       9,293     26,844     25,484
    State                                           839      1,109      1,082
                                               ---------  ---------  ---------
                                              $  33,113  $  37,399  $  41,900
                                               =========  =========  =========
 

                                                      2003       2004
                                                    ---------  ---------
Deferred income tax assets:
    Accounts receivable reserves                   $     963  $     919
    Accrued expenses                                   1,305        936
    Net operating losses from acquired subsidiaries    4,436      1,961
    Other                                              1,294      1,617
                                                    ---------  ---------
Total deferred income tax assets:                      7,998      5,433
                                                    ---------  ---------
Deferred income tax liabilities:
    Amortization                                     (27,257)   (41,930)
    Depreciation                                     (95,537)  (104,913)
    Other                                             (1,706)    (1,153)
    Prepaid expenses                                  (3,660)    (4,308)
                                                    ---------  ---------
Total deferred income tax liabilities               (128,160)  (152,304)
                                                    ---------  ---------
Net deferred income tax liability                  $(120,162) $(146,871)
                                                    =========  =========
 

                                                 Year Ended December 31,
                                             -------------------------------
                                               2002       2003       2004
                                             ---------  ---------  ---------
Income tax provision at the statutory rate       35.0 %     35.0 %     35.0 %
State taxes, net of federal benefit               2.2        1.1        1.2
Other                                             0.2        0.2        0.5
                                             ---------  ---------  ---------
                                                 37.4 %     36.3 %     36.7 %
                                             =========  =========  =========
 

                                                                          Year Ended December 31,
                                                                  -------------------------------------
                                                                     2002         2003         2004
                                                                  -----------  -----------  -----------
Numerator:
Net income for basic earnings per share                          $    55,466  $    65,596  $    72,271
Interest expense on 2006 Convertible Subordinated Notes,
   net of tax effects                                                  5,852        5,902        1,706
                                                                  -----------  -----------  -----------
Net income for diluted earnings per share                        $    61,318  $    71,498  $    73,977
                                                                  ===========  ===========  ===========
Denominator:
Basic shares outstanding                                          41,625,963   42,490,944   46,581,441
Dilutive effect of 2006 Convertible Subordinated Notes             5,917,163    5,917,163    1,706,874
Dilutive effect of 2022 Convertible Subordinated Notes                    --           --       20,525
Dilutive effect of stock options and warrants                        943,431      893,832    1,133,374
Dilutive effect of restricted stock                                    1,879        5,539       28,003
                                                                  -----------  -----------  -----------
Diluted shares outstanding                                        48,488,436   49,307,478   49,470,217
                                                                  ===========  ===========  ===========
 

                              December 31, 2003              December 31, 2004
                         -----------------------------  ---------------------------
                         Number of       Exercise       Number of      Exercise
                          Shares       Price Range       Shares      Price Range
                         ---------  ------------------  ---------  ----------------
Outstanding options        67,875    $23.25 to $25.17     32,750   $29.02 to $33.93
Outstanding warrants        4,050    $23.33 to $24.67        235             $29.35
                         ---------                      ---------
                           71,925                         32,985
                         =========                      =========
 

                                                         First     Second      Third     Fourth
                                                        Quarter    Quarter    Quarter    Quarter
                                                       ---------  ---------  ---------  ---------
Revenues:
    2003 as reported                                  $ 124,494  $ 134,517  $ 141,722  $ 146,302
Gross profit:
    2003 as reported                                     55,433     60,544     62,780     64,166
Income from continuing operations
    2003 as reported                                     14,210     16,668     17,030     17,809
Income (loss) on discontinued operations, net of tax:
    2003 as reported                                        203        (29)       (57)      (519)
Cumulative effect of change in
    accounting principle, net of tax:
    2003 as reported                                        282         --         --         --
Net income:
    2003 as reported                                  $  14,695  $  16,639  $  16,972  $  17,290
Basic income per common share:
    Before effect of change in accounting principle
    and discontinued operations:
    2003 as reported                                  $    0.34  $    0.39  $    0.40  $    0.41
    Net income per common share:
    2003 as reported                                       0.35       0.39       0.40       0.40
Diluted income per common share
    Before effect of change in accounting principle
    and discontinued operations:
    2003 as reported                                       0.32       0.37       0.37       0.39
    Net income per common share:
    2003 as reported                                  $    0.33  $    0.37  $    0.37  $    0.38
 

                                                         First     Second      Third     Fourth
                                                        Quarter    Quarter    Quarter    Quarter
                                                       ---------  ---------  ---------  ---------
Revenues:
    2004 as reported                                  $ 145,964  $ 157,322  $ 162,420  $ 163,657
Gross profit:
    2004 as reported                                     63,371     68,714     72,592     65,144
Income from continuing operations:
    2004 as reported                                     16,238     19,099     22,561     14,612
Income (loss) on discontinued operations, net of tax:
    2004 as reported                                        (36)        72       (110)      (165)
Net income:
    2004 as reported                                  $  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
    Net income per common share:
    2004 as reported                                       0.37       0.40       0.47       0.30
Diluted income per common share:
    Before discontinued operations
    2004 as reported                                       0.50       0.39       0.46       0.30
    Net income per common share:
    2004 as reported                                  $    0.50  $    0.39  $    0.46  $    0.30
 

                                                           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
-------------------------------------  ------------  -----------  -----------  ------------  ----------
Allowance for Doubtful Accounts:
    Year Ended December 31, 2002      $      2,167  $     2,809           --  $     (2,467) $    2,509
    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