Edgar Filing: WASTE CONNECTIONS, INC.

t66003_10q.htm

	UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

	FORM 10-Q
(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended June 30, 2009
	Or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

	Commission file number 1-31507
	WASTE CONNECTIONS, INC. (Exact name of registrant as specified in its charter)

	Delaware (State or other jurisdiction of incorporation or organization)

	94-3283464 (I.R.S. Employer Identification No.)

	2295 Iron Point Road, Suite 200, Folsom, CA 95630 (Address of principal executive offices) (Zip code)

	(916) 608-8200 (Registrant’s telephone number, including area code)

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

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

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

þ Large accelerated filer

¨ Accelerated filer

¨ Non-accelerated filer

¨ Smaller reporting company

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

Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock:

As of July 31, 2009: 80,106,399 shares of common stock

WASTE CONNECTIONS, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION (unaudited)

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Income	2

	Condensed Consolidated Statements of Equity and Comprehensive Income	3

	Condensed Consolidated Statements of Cash Flows	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52

Item 4.	Controls and Procedures	55

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	56

Item 4.	Submission of Matters to a Vote of Security Holders	58

Item 5.	Other Information	59

Item 6.	Exhibits	60


Signatures		61

Exhibit Index		62

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

	December 31, 2008			June 30, 2009
ASSETS
Current assets:
Cash and equivalents	$	265,264		$	16,999
Accounts receivable, net of allowance for doubtful accounts of $3,846 and $3,176 at December 31, 2008 and June 30, 2009, respectively		118,456			140,838
Deferred income taxes		22,347			20,423
Prepaid expenses and other current assets		23,144			23,063
Total current assets		429,211			201,323

Property and equipment, net		984,124			1,272,851
Goodwill		836,930			877,518
Intangible assets, net		306,444			353,066
Restricted assets		23,009			25,271
Other assets, net		20,639			19,463
	$	2,600,357		$	2,749,492
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	65,537		$	77,544
Book overdraft		4,315			6,551
Accrued liabilities		95,220			93,835
Deferred revenue		45,694			48,976
Current portion of long-term debt and notes payable		4,698			3,634
Total current liabilities		215,464			230,540

Long-term debt and notes payable		819,828			860,229
Other long-term liabilities		47,509			47,795
Deferred income taxes		255,559			282,429
Total liabilities		1,338,360			1,420,993

Commitments and contingencies (Note 15)

Equity:
Preferred stock: $0.01 par value per share; 7,500,000 shares authorized; none issued and outstanding		-			-
Common stock: $0.01 par value per share; 150,000,000 shares authorized; 79,842,239 and 80,074,924 shares issued and outstanding at December 31, 2008 and June 30, 2009, respectively		798			801
Additional paid-in capital		661,555			665,496
Accumulated other comprehensive loss		(23,937	)		(14,373	)
Retained earnings		622,913			675,329
Total Waste Connections’ equity		1,261,329			1,327,253
Noncontrolling interests		668			1,246
Total equity		1,261,997			1,328,499
	$	2,600,357		$	2,749,492

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

Page 1

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except share and per share amounts)

	Three months ended June 30,						Six months ended June 30,
	2008			2009			2008			2009
Revenues	$	267,033		$	302,830		$	517,333		$	565,506
Operating expenses:
Cost of operations		159,862			175,687			308,994			330,391
Selling, general and administrative		27,065			36,142			54,155			68,658
Depreciation		22,646			30,061			44,474			54,900
Amortization of intangibles		1,419			3,205			2,814			5,681
Loss (gain) on disposal of assets		451			(1,683	)		508			(1,176	)
Operating income		55,590			59,418			106,388			107,052

Interest expense		(10,128	)		(12,307	)		(20,740	)		(24,557	)
Interest income		138			116			362			1,141
Other income		345			171			333			177
Income before income taxes		45,945			47,398			86,343			83,813
Income tax provision		(16,568	)		(16,716	)		(31,138	)		(30,819	)
Net income		29,377			30,682			55,205			52,994
Less: Net income attributable to noncontrolling interests		(3,806	)		(244	)		(7,179	)		(578	)
Net income attributable to Waste Connections	$	25,571		$	30,438		$	48,026		$	52,416
Earnings per common share attributable to Waste Connections’ common stockholders:
Basic	$	0.38		$	0.38		$	0.72		$	0.66
Diluted	$	0.38		$	0.38		$	0.71		$	0.65
Shares used in the per share calculations:
Basic		66,468,457			80,066,643			66,628,927			80,015,325
Diluted		67,842,845			80,833,350			67,982,399			80,796,431

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

Page 2

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except share amounts)

				Waste Connections’ Equity
	Comprehensive			Common Stock						Additional Paid-In			Accumulated Other Comprehensive Income			Retained			Noncontrolling
	Income			Shares			Amount			Capital			(Loss)			Earnings			Interests			Total
Balances at December 31, 2007					67,052,135		$	670		$	254,284		$	(4,290	)	$	524,481		$	30,220		$	805,365
Cumulative change from adoption of accounting policy - FSP No. APB 14-1					-			-			13,726			-			(4,471	)		-			9,255
Vesting of restricted stock					222,863			2			(2	)		-			-			-			-
Cancellation of restricted stock and warrants					(72,082	)		(1	)		(2,192	)		-			-			-			(2,193	)
Stock-based compensation					-			-			7,854			-			-			-			7,854
Exercise of stock options and warrants					1,030,594			10			19,079			-			-			-			19,089
Issuance of common stock, net of issuance costs of $17,195					12,650,000			127			393,803			-			-			-			393,930
Excess tax benefit associated with equity-based compensation					-			-			6,441			-			-			-			6,441
Repurchase of common stock					(1,041,271	)		(10	)		(31,517	)		-			-			-			(31,527	)
Issuance of common stock warrants to consultants					-			-			79			-			-			-			79
Amounts reclassified into earnings, net of taxes					-			-			-			4,010			-			-			4,010
Changes in fair value of swaps, net of taxes					-			-			-			(23,657	)		-			-			(23,657	)
Distributions to noncontrolling interests					-			-			-			-			-			(8,232	)		(8,232	)
Changes in ownership interest in noncontrolling interests					-			-			-			-			-			(33,560	)		(33,560	)
Net income	$	115,143			-			-			-			-			102,903			12,240			115,143
Other comprehensive loss		(31,609	)		-			-			-			-			-			-			-
Income tax effect of other comprehensive loss		11,962			-			-			-			-			-			-			-
Comprehensive income		95,496			-			-			-			-			-			-			-
Comprehensive income attributable to noncontrolling interests		(12,240	)		-			-			-			-			-			-			-
Comprehensive income attributable to Waste Connections	$	83,256			-			-			-			-			-			-			-
Balances at December 31, 2008					79,842,239			798			661,555			(23,937	)		622,913			668			1,261,997
Vesting of restricted stock					254,398			3			(3	)		-			-			-			-
Cancellation of restricted stock and warrants					(86,215	)		(1	)		(2,393	)		-			-			-			(2,394	)
Stock-based compensation					-			-			4,630			-			-			-			4,630
Exercise of stock options and warrants					64,502			1			1,610			-			-			-			1,611
Excess tax benefit associated with equity-based compensation					-			-			97			-			-			-			97
Amounts reclassified into earnings, net of taxes					-			-			-			8,170			-			-			8,170
Changes in fair value of swaps, net of taxes					-			-			-			1,394			-			-			1,394
Net income	$	52,994			-			-			-			-			52,416			578			52,994
Other comprehensive income		15,500			-			-			-			-			-			-			-
Income tax effect of other comprehensive income		(5,936	)		-			-			-			-			-			-			-
Comprehensive income		62,558			-			-			-			-			-			-			-
Comprehensive income attributable to noncontrolling interests		(578	)		-			-			-			-			-			-			-
Comprehensive income attributable to Waste Connections	$	61,980			-			-			-			-			-			-			-
Balances at June 30, 2009					80,074,924		$	801		$	665,496		$	(14,373	)	$	675,329		$	1,246		$	1,328,499

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

Page 3

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six months ended June 30,
	2008			2009
Cash flows from operating activities:
Net income	$	55,205		$	52,994
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) on disposal of assets		508			(1,176	)
Depreciation		44,474			54,900
Amortization of intangibles		2,814			5,681
Deferred income taxes, net of acquisitions		12,956			22,858
Amortization of debt issuance costs		907			970
Amortization of debt discount		2,202			2,342
Stock-based compensation		3,956			4,630
Interest income on restricted assets		(287	)		(241	)
Closure and post-closure accretion		729			912
Excess tax benefit associated with equity-based compensation		(1,928	)		(97	)
Net change in operating assets and liabilities, net of acquisitions		8,391			7,275
Net cash provided by operating activities		129,927			151,048

Cash flows from investing activities:
Payments for acquisitions, net of cash acquired		(33,437	)		(387,112	)
Capital expenditures for property and equipment		(48,323	)		(52,693	)
Proceeds from disposal of assets		1,366			4,129
Increase in restricted assets, net of interest income		(900	)		(2,021	)
Decrease in other assets		112			268
Net cash used in investing activities		(81,182	)		(437,429	)

Cash flows from financing activities:
Proceeds from long-term debt		90,500			142,000
Principal payments on notes payable and long-term debt		(111,046	)		(107,787	)
Change in book overdraft		322			2,237
Proceeds from option and warrant exercises		7,543			1,611
Excess tax benefit associated with equity-based compensation		1,928			97
Distributions to noncontrolling interests		(6,027	)		-
Payments for repurchase of common stock		(31,527	)		-
Debt issuance costs		(91	)		(42	)
Net cash (used in) provided by financing activities		(48,398	)		38,116

Net increase (decrease) in cash and equivalents		347			(248,265	)
Cash and equivalents at beginning of period		10,298			265,264
Cash and equivalents at end of period	$	10,645		$	16,999

Non-cash financing activity:
Liabilities assumed and notes payable issued to sellers of businesses acquired	$	4,965		$	16,072

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

Page 4

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

1.	BASIS OF PRESENTATION AND SUMMARY

The accompanying condensed consolidated financial statements relate to Waste Connections, Inc. and its subsidiaries (“WCI” or the “Company”) for the six month periods ended June 30, 2008 and 2009. In the opinion of management, the accompanying balance sheets and related interim statements of income, cash flows and equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with U.S. generally accepted accounting principles (“GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Examples include accounting for landfills, self-insurance, income taxes, allocation of acquisition purchase price and asset impairments. An additional area that involves estimation is when the Company estimates the amount of potential exposure it may have with respect to litigation, claims and assessments in accordance with Financial Accounting Standards Board (“FASB”) Statement 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 condensed consolidated financial statements.

Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company’s 2008 Annual Report on Form 10-K.

Certain amounts reported in the Company's prior year's financial statements have been reclassified to conform with the 2009 presentation.

2.	NEW ACCOUNTING STANDARDS

SFAS 141(R) and FSP FAS 141(R)-1. In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), Business Combinations (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how the Company: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) also requires acquisition-related transaction and restructuring costs to be expensed rather than treated as part of the cost of the acquisition. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted SFAS 141(R) on January 1, 2009 (see Note 7).

In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (“FSP FAS 141(R)-1”). This pronouncement amends SFAS 141(R) to clarify the initial and subsequent recognition, subsequent accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP FAS 141(R)-1 requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, as determined in accordance with SFAS No. 157, Fair Value Measurements (“SFAS 157”), if the acquisition-date fair value can be reasonably estimated. If the acquisition-date fair value of an asset or liability cannot be reasonably estimated, the asset or liability would be measured at the amount that would be recognized in accordance with FASB Statement No. 5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss – an Interpretation of FASB Statement No. 5. FSP FAS 141(R)-1 became effective for the Company as of January 1, 2009, and the provisions of FSP FAS 141(R)-1 are applied prospectively to business combinations with an acquisition date on or after the date the guidance became effective. The adoption of FSP FAS 141(R)-1 did not have a material impact on the Company's financial position or results of operations.

Page 5

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

FSP 157-2 and FSP FAS 157-4. In February 2008, the FASB issued FSP No. 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”), which delayed the effective date of SFAS 157 for nonrecurring fair value measurements of assets and liabilities until January 1, 2009. The Company’s assets and liabilities measured at fair value on a nonrecurring basis include assets and liabilities acquired in connection with a business combination, goodwill, intangible assets and asset retirement obligations recognized in connection with final capping, closure and post-closure landfill obligations. The Company adopted SFAS 157 as it relates to these assets and liabilities on January 1, 2009. See Note 12 for further information on the Company’s adoption of SFAS 157 for nonrecurring fair value measurements in periods subsequent to initial measurement.

In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP FAS 157-4”), which provides additional guidance for applying the provisions of SFAS 157. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions. FSP FAS 157-4 requires an evaluation of whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. If there has, transactions or quoted prices may not be indicative of fair value and a significant adjustment may need to be made to those prices to estimate fair value. Additionally, an entity must consider whether the observed transaction was orderly (that is, not distressed or forced). If the transaction was orderly, the obtained price can be considered a relevant, observable input for determining fair value. If the transaction is not orderly, other valuation techniques must be used when estimating fair value. FSP FAS 157-4 must be applied prospectively for interim periods ending after June 15, 2009, and did not impact the Company’s results of operations, cash flows or financial position for the three and six month periods ended June 30, 2009 (see Note 12).

SFAS 160. In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51 (“SFAS 160”), which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary (formerly known as minority interest) and for the deconsolidation of a subsidiary. SFAS 160 requires that changes in a parent’s ownership interest in a subsidiary be reported as an equity transaction in the consolidated financial statements when it does not result in a change in control of the subsidiary. When a change in a parent’s ownership interest results in deconsolidation, a gain or loss should be recognized in the consolidated financial statements. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also requires presentation on the face of the consolidated statement of income of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company applied SFAS 160 prospectively as of January 1, 2009, except for the presentation and disclosure requirements, which were applied retrospectively for all periods presented. As a result of adoption, the Company reflects its noncontrolling interests in consolidated subsidiaries as a separate line item in the equity section of the Company’s Condensed Consolidated Balance Sheets. In the Company's 2008 Annual Report on Form 10-K, these noncontrolling interests were presented as minority interests outside of permanent equity in the Condensed Consolidated Balance Sheets. Additionally, the Company separately presents the net income attributable to noncontrolling interests in the Condensed Consolidated Statements of Income, resulting in an increase to consolidated Net income. In the Company’s 2008 Annual Report on Form 10-K, the net income attributable to noncontrolling interests was presented as minority interest expense in the Condensed Consolidated Statements of Income. Under SFAS 160, amounts reported as Net income attributable to noncontrolling interests are now reported net of any applicable taxes. The Company’s 2008 effective tax rate has been remeasured and reported in a manner consistent with the current measurement approach.

Page 6

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

SFAS 161. In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133 (“SFAS 161”), which amends and expands the disclosure requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), with the intent to provide users of financial statements with an enhanced understanding of: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative instruments. This statement applies to all entities and all derivative instruments. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted SFAS 161 on January 1, 2009 (see Notes 10 and 13).

FSP No. APB 14-1. In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (“FSP No. APB 14-1”). FSP No. APB 14-1 applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement, unless the embedded conversion option is required to be separately accounted for as a derivative under SFAS 133. FSP No. APB 14-1 specifies that issuers of convertible debt instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP No. APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company adopted FSP No. APB 14-1 on January 1, 2009, and the guidance has been applied retrospectively to all periods presented.

The adoption of FSP No. APB 14-1 did not affect the Company’s total cash flows; however, it did impact the Company’s results of operations by increasing interest expense associated with the Company’s 3.75% Convertible Senior Notes due 2026 (the “2026 Notes”) by adding a non-cash component to amortize a debt discount calculated based on the difference between the cash coupon of the convertible debt instrument and the estimated non-convertible debt borrowing rate. As a result, the Company’s Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Equity and Comprehensive Income and certain line items comprising the subtotal for Net cash provided by operating activities in the Company’s Condensed Consolidated Statements of Cash Flows have been affected by the adoption of this pronouncement. For additional disclosures regarding the terms of the 2026 Notes and how this instrument has been reflected in the Company’s Condensed Consolidated Financial Statements for the period ended June 30, 2009, see Note 6. The Company has elected not to apply the provisions of FSP No. APB 14-1 to its 2022 Floating Rate Convertible Subordinated Notes, which were issued in 2002. In April 2006, these notes became convertible and were called for redemption; therefore, these notes were not outstanding during any of the periods presented in the Company’s condensed consolidated financial statements for the period ended June 30, 2009 or any financial statements that will be presented in the Company’s Annual Report on Form 10-K for the year ending December 31, 2009.

FSP No. FAS 142-3. In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). The intent of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other U.S. generally accepted accounting principles. FSP FAS 142-3 requires an entity to disclose information for a recognized intangible asset that enables users of the financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company adopted FSP FAS 142-3 on January 1, 2009. The adoption of FSP FAS 142-3 did not have a material impact on the Company’s financial position or results of operations.

Page 7

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

FSP FAS 107-1 and APB 28-1. In April 2009, the FASB issued FSP FAS No. 107-1 and Accounting Principles Board (“APB”) 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP FAS 107-1 and APB 28-1”), which amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments (“SFAS 107”) and APB Opinion No. 28, Interim Financial Reporting, respectively, to require disclosures about fair value of financial instruments in interim financial statements, in addition to the annual financial statements as already required by SFAS 107. FSP FAS 107-1 and APB 28-1 will be required for interim periods ending after June 15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on the Company’s results of operations, cash flows or financial position (see Note 4).

SFAS 165. In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is based on the same principles as currently exist in auditing standards and was issued by the FASB to include accounting guidance that originated as auditing standards into the body of authoritative literature issued by the FASB. The standard addresses the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The Company adopted SFAS 165 during the quarterly period ended June 30, 2009. The Company evaluated subsequent events through August 5, 2009, which was the date the accompanying financial statements were issued.

3.	STOCK-BASED COMPENSATION

A summary of activity related to restricted stock and restricted stock units under the 2002 Restricted Stock Plan and the Second Amended and Restated 2004 Equity Incentive Plan (as amended and restated), as of December 31, 2008, and changes during the six month period ended June 30, 2009, is presented below:

	Unvested Shares
Outstanding at December 31, 2008		906,572
Granted		386,880
Forfeited		(16,739	)
Vested		(254,403	)
Outstanding at June 30, 2009		1,022,310

The weighted average grant date fair value per share for the 386,880 shares of common stock underlying the restricted stock units granted during the six month period ended June 30, 2009 was $26.26. During the six months ended June 30, 2008 and 2009, the Company’s stock-based compensation expense from restricted stock and restricted stock units was $3,625 and $4,286, respectively.

Page 8

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

4.	FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist primarily of cash, trade receivables, restricted assets, trade payables, debt instruments, interest rate swaps and commodity swaps. As of June 30, 2009, the carrying values of cash, trade receivables, restricted assets, and trade payables are considered to be representative of their respective fair values. The carrying values of the Company’s debt instruments, excluding the 3.75% Convertible Senior Notes due 2026 (the “2026 Notes”) and the 6.22% Senior Notes due 2015 (the “2015 Notes”), approximate their fair values as of June 30, 2009, based on current borrowing rates for similar types of borrowing arrangements. The 2026 Notes had a carrying value of $191,412 and a fair value of approximately $204,000 at June 30, 2009, based on the publicly quoted trading price of these notes. The 2015 Notes had a carrying value of $175,000 and a fair value of approximately $176,094 at June 30, 2009, based on quotes of bonds with similar ratings in similar industries. For details on the fair value of the Company’s interest rate and fuel commodity swaps, refer to Note 12.

5.	LANDFILL ACCOUNTING

At June 30, 2009, the Company owned 34 landfills, and operated, but did not own, three landfills under life-of-site operating agreements and seven landfills under limited-term operating agreements. The Company’s landfills had site costs with a net book value of $744,089 at June 30, 2009. With the exception of two owned landfills that only accept construction and demolition waste, all landfills that the Company owns or operates are municipal solid waste landfills. For the Company’s seven landfills operated under limited-term operating agreements, the owner of the property (generally a municipality) usually owns the permit and is generally responsible for final capping, closure and post-closure obligations. The Company is responsible for all final capping, closure and post-closure liabilities for the three landfills that it operates under life-of-site operating agreements.

The Company performs surveys at least annually to estimate the disposal capacity at its landfills. Many of the Company’s existing landfills have the potential for expanded disposal capacity beyond the amount currently permitted. The Company’s landfill depletion rates are based on the remaining disposal capacity, considering both permitted and probable expansion airspace at the landfills it owns, and landfills it operates, but does not own, under life-of-site agreements. Expansion airspace consists of additional disposal capacity being pursued through means of an expansion but is not actually permitted. Expansion airspace that meets certain internal criteria is included in the estimate of total landfill airspace. The Company’s landfill depletion rates are based on the term of the operating agreement at its operated landfills that have capitalized expenditures.

Based on remaining permitted capacity as of June 30, 2009, and projected annual disposal volumes, the average remaining landfill life for the Company’s owned landfills and landfills operated under life-of-site operating agreements is approximately 48 years. The Company is currently seeking to expand permitted capacity at seven of its owned landfills and one landfill that it operates under a life-of-site operating agreement, and considers the achievement of these expansions to be probable. Although the Company cannot be certain that all future expansions will be permitted as designed, the average remaining life, when considering remaining permitted capacity, probable expansion capacity and projected annual disposal volume, of the Company’s owned landfills and landfills operated under life-of-site operating agreements is 58 years, with lives ranging from 3 to 185 years.

During the six months ended June 30, 2008 and 2009, the Company expensed $11,100 and $14,222, respectively, or an average of $2.66 and $2.90 per ton consumed, respectively, related to landfill depletion at owned landfills and landfills operated under life-of-site agreements.

Page 9

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

The Company reserves for final capping, closure and post-closure maintenance obligations at the landfills it owns and landfills it operates under life-of-site operating agreements. The Company calculates the net present value of its final capping, closure and post-closure commitments by estimating the total obligation in current dollars, inflating the obligation based upon the expected date of the expenditure and discounting the inflated total to its present value using a credit-adjusted risk-free rate. Any changes in expectations that result in an upward revision to the estimated undiscounted cash flows are treated as a new liability and are inflated and discounted at rates reflecting current market conditions. Downward revisions (or if there are no changes) to the estimated undiscounted cash flows are inflated and discounted at rates reflecting the market conditions at the time the cash flows were originally estimated. This policy results in the Company’s capping, closure and post-closure liabilities being recorded in “layers.” At January 1, 2009, the Company increased its discount rate assumption for purposes of computing 2009 “layers” for final capping, closure and post-closure obligations from 7.5% to 9.25%, in order to more accurately reflect the Company’s long-term cost of borrowing as of the end of 2008. Consistent with the prior year, the Company’s inflation rate assumption is 2.5%. The resulting final capping, closure and post-closure obligation is recorded on the balance sheet as an addition to site costs and amortized to depletion expense as the landfills’ airspace is consumed. Interest is accreted on the recorded liability using the corresponding discount rate. During the six months ended June 30, 2008 and 2009, the Company expensed $729 and $912, respectively, or an average of $0.17 and $0.19 per ton consumed, respectively, related to final capping, closure and post-closure accretion expense.

The following is a reconciliation of the Company’s final capping, closure and post-closure liability balance from December 31, 2008 to June 30, 2009:

Final capping, closure and post-closure liability at December 31, 2008	$	22,002
Adjustments to final capping, closure and post-closure liabilities		(1,526)
Liabilities incurred		887
Accretion expense		912
Closure payments		(170)
Assumption of closure liabilities from acquisitions		8,488
Final capping, closure and post-closure liability at June 30, 2009	$	30,593

The Adjustments to final capping, closure and post-closure liabilities primarily consisted of revisions in cost estimates and decreases in estimates of annual tonnage consumption across the majority of the Company’s landfills, as well as an increase in estimated airspace at one of the Company’s landfills at which an expansion is being pursued. The Company performs its annual review of its cost and capacity estimates in the first quarter of each year.

At June 30, 2009, $22,968 of the Company’s restricted assets balance was for purposes of settling future final capping, closure and post-closure liabilities.

Page 10

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

6.	LONG-TERM DEBT

Long-term debt consists of the following:

	December 31, 2008			June 30, 2009
Revolver under Credit Facility, bearing interest ranging from 0.93% to 3.25%*	$	400,000		$	439,000
2026 Notes, bearing interest at 3.75%, net of discount of $10,930 and $8,588 as of December 31, 2008 and June 30, 2009, respectively		189,070			191,412
2015 Senior Notes, bearing interest at 6.22%		175,000			175,000
Tax-Exempt Bonds, bearing interest ranging from 0.35% to 7.25%*		53,960			53,370
Notes payable to sellers in connection with acquisitions, bearing interest at 5.5% to 10.35%*		4,888			3,941
Notes payable to third parties, bearing interest at 9.0% to 10.9%*		1,608			1,140
		824,526			863,863
Less – current portion		(4,698	)		(3,634	)
	$	819,828		$	860,229

____________________

*	Interest rates in the table above represent the range of interest rates incurred during the six month period ended June 30, 2009.

As discussed in Note 2, effective January 1, 2009, the Company adopted FSP No. APB 14-1 as it relates to the Company’s accounting and disclosure for its 2026 Notes. Consistent with the transition guidance in FSP No. APB 14-1, the Company’s adoption of this pronouncement is being treated as a change in accounting principle that is being applied retrospectively to all periods presented. The cumulative effect of the change in accounting principle on periods prior to those presented in the Company’s Condensed Consolidated Financial Statements for the period ended June 30, 2009, has been reflected as an offsetting adjustment to the December 31, 2007, balances of Additional paid-in capital and Retained earnings in the Company’s Condensed Consolidated Statements of Equity. A description of the prior-period information that has been retrospectively adjusted is provided below.

The 2026 Notes were issued in March 2006 and bear interest at a rate of 3.75% per annum on a total principal of $200,000. The 2026 Notes are convertible into cash and, if applicable, shares of the Company’s common stock based on an initial conversion rate of 29.4118 shares of common stock per $1 principal amount of 2026 Notes (which is equal to an initial conversion price of approximately $34.00 per share), subject to adjustment, and only under certain circumstances. Upon a surrender of the 2026 Notes for conversion, the Company will deliver cash equal to the lesser of the aggregate principal amount of notes to be converted and its total conversion obligation. The Company will deliver shares of its common stock in respect of the excess amount, if any, of its conversion obligation over the amount paid in cash. Based on the Company’s share price at June 30, 2009, the “if-converted” value of the 2026 Notes does not exceed the principal amount of the notes.

The holders of the 2026 Notes who convert their notes in connection with a change in control may be entitled to a make-whole premium in the form of an increase in the conversion rate. Beginning on April 1, 2010, the Company may redeem in cash all or part of the 2026 Notes at a price equal to 100% of the principal amount plus accrued and unpaid interest, including additional interest, if any, and if redeemed prior to April 1, 2011, an interest make-whole payment. The holders of the 2026 Notes can require the Company to repurchase all or a part of the 2026 Notes in cash on each of April 1, 2011, 2016 and 2021 and, in the event of a change of control of the Company, at a purchase price of 100% of the principal amount of the 2026 Notes plus any accrued and unpaid interest, including additional interest, if any.

Page 11

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

Upon adoption of FSP No. APB 14-1, the Company first determined the carrying amount of the liability component of the 2026 Notes at their issuance date by measuring the fair value of a similar liability excluding the embedded conversion option. At the date of issuance of the 2026 Notes, the Company’s borrowing rate for similar debt instruments with no conversion rights was estimated at 6.5% per annum. This borrowing rate was estimated to be representative of non-convertible debt with a maturity date of five years, which was considered appropriate given the April 1, 2011 put feature of the 2026 Notes, as previously discussed. Using a present value formula that incorporated a 6.5% annual discount rate over a five-year period with semi-annual interest coupon payment dates, the Company estimated the fair value of the hypothetical non-convertible debt to be $177,232. The Company then determined the carrying amount of the equity component of the 2026 Notes, represented by the embedded conversion option, by deducting the fair value of the liability component from the initial proceeds ascribed to the convertible debt instrument as a whole, which were equal to the $200,000 principal amount of the Notes. The resulting carrying amount of the equity component at the issuance date of the 2026 Notes was $22,768. This amount, net of the tax effect of $8,652, is reflected in the adjustment to the opening balance of Additional paid-in capital in the Company’s Condensed Consolidated Statements of Equity.

In addition to computing the initial liability and equity components of the 2026 Notes upon adoption of FSP No. APB 14-1, the Company also computed the amount of direct transaction costs to be allocated between the liability and equity components of the 2026 Notes at the date of issuance. The Company allocated direct transaction costs, totaling $5,534, between the liability and equity components in an amount proportionate to the allocation of the proceeds of the 2026 Notes. This computation resulted in $4,904 and $630 being allocated to the liability and equity components of the 2026 Notes, respectively. The amount allocated to the equity component, net of the tax effect of $240, is reflected in the adjustment to the opening balance of Additional paid-in capital in the Company’s Condensed Consolidated Statements of Equity.

Subsequent to the initial measurement of the liability and equity components, and the related direct transaction costs, as of the issuance date of the 2026 Notes, the Company calculated an amortization schedule for the excess of the principal amount of the liability component over its carrying amount (the “debt discount”), using the interest method. The debt discount is being amortized over a five-year period through April 1, 2011, representing the first date on which holders of the 2026 Notes may require the Company to repurchase all or a portion of their notes. In addition, the Company calculated the adjusted debt issuance cost amortization on the portion of direct transaction costs allocated to the liability component, which is recognized as interest expense in the Company’s Condensed Consolidated Statements of Income. The adjustment to the debt issuance cost amortization subsequent to adoption of FSP No. APB 14-1 relates to the portion of direct transaction costs allocated to the equity component. These costs were recognized as a reduction to the carrying value of the equity component, which is not amortized.

Amortization of the debt discount on the 2026 Notes, which is recognized as interest expense, from March 2006 to December 31, 2007, was calculated as $7,433. This amount, net of the tax effect of $2,825, is reflected in the adjustment to the opening balance of Retained earnings in the Company’s Condensed Consolidated Statements of Equity. The reduction to previously reported debt issuance cost amortization, as a result of the direct transaction costs allocated to the equity component, from March 2006 to December 31, 2007, was calculated as $220. This amount, net of the tax effect of $83, is reflected in the adjustment to the opening balance of Retained earnings in the Company’s Condensed Consolidated Statements of Equity.

Page 12

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

A summary of the financial statement line items that have been retrospectively adjusted as a result of the Company’s adoption of FSP No. APB 14-1 is presented in the table below:

Condensed Consolidated Balance Sheet	December 31, 2008 Balance as Reported in the 2008 Annual Report on Form 10-K			Cumulative Retrospective Adjustment				December 31, 2008 Balance as Presented in the June 30, 2009 Quarterly Report on Form 10-Q
Other assets, net		$	20,922		$	(283	)		$	20,639
Long-term debt and notes payable		$	830,758		$	(10,930	)		$	819,828
Deferred income tax liabilities		$	251,514		$	4,045			$	255,559
Additional paid-in capital		$	647,829		$	13,726			$	661,555
Retained earnings		$	630,037		$	(7,124	)		$	622,913

Condensed Consolidated Statement of Income	Balance for the Three Month Period Ended June 30, 2008, as Reported in the June 30, 2008 Quarterly Report on Form 10-Q			Retrospective Adjustment				Balance for the Three Month Period Ended June 30, 2008, as Presented in the June 30, 2009 Quarterly Report on Form 10-Q
Interest expense		$	9,059		$	1,069			$	10,128
Income tax provision		$	16,974		$	(406	)		$	16,568

Condensed Consolidated Statement of Income	Balance for the Six Month Period Ended June 30, 2008, as Reported in the June 30, 2008 Quarterly Report on Form 10-Q			Retrospective Adjustment				Balance for the Six Month Period Ended June 30, 2008, as Presented in the June 30, 2009 Quarterly Report on Form 10-Q
Interest expense		$	18,602		$	2,138			$	20,740
Income tax provision		$	31,950		$	(812	)		$	31,138

Condensed Consolidated Statement of Cash Flows	Balance for the Six Month Period Ended June 30, 2008, as Reported in the June 30,2008 Quarterly Report on Form 10-Q			Retrospective Adjustment				Balance for the Six Month Period Ended June 30, 2008, as Presented in the June 30, 2009 Quarterly Report on Form 10-Q
Deferred income taxes, net of acquisitions		$	13,769		$	(813	)		$	12,956
Amortization of debt issuance costs		$	970		$	(63	)		$	907
Amortization of debt discount		$	-		$	2,202			$	2,202

Page 13

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

For the financial statement line items adjusted as a result of the Company’s adoption of FSP No. APB 14-1, the balances as of, or for the period ended, June 30, 2009, that would have been reported prior to the Company’s adoption of FSP No. APB 14-1, are presented in the table below:

Condensed Consolidated Balance Sheet	June 30, 2009 Balance as Reported in the June 30, 2009 Quarterly Report on Form 10-Q			FSP No. APB 14-1 Adjustment				June 30, 2009 Balance Prior to Adoption of FSP No. APB 14-1
Other assets, net		$	19,463		$	220			$	19,683
Long-term debt and notes payable		$	860,229		$	8,588			$	868,817
Deferred income tax liabilities		$	282,429		$	(3,180	)		$	279,249
Additional paid-in capital		$	665,496		$	(13,726	)		$	651,770
Retained earnings		$	675,329		$	8,538			$	683,867

Condensed Consolidated Statement of Income	Balance for the Three Month Period Ended June 30, 2009, as Reported in the June 30, 2009 Quarterly Report on Form 10-Q			FSP No. APB 14-1 Adjustment				Balance for the Three Month Period Ended June 30, 2009 Prior to Adoption of FSP No. APB 14-1
Interest expense		$	12,307		$	(1,139	)		$	11,168
Income tax provision		$	16,716		$	433			$	17,149

Condensed Consolidated Statement of Income	Balance for the Six Month Period Ended June 30, 2009, as Reported in the June 30, 2009 Quarterly Report on Form 10-Q			FSP No. APB 14-1 Adjustment				Balance for the Six Month Period Ended June 30, 2009 Prior to Adoption of FSP No. APB 14-1
Interest expense		$	24,557		$	(2,279	)		$	22,278
Income tax provision		$	30,819		$	866			$	31,685

Condensed Consolidated Statement of Cash Flows	Balance for the Six Month Period Ended June 30, 2009, as Reported in the June 30, 2009 Quarterly Report on Form 10-Q			FSP No. APB 14-1 Adjustment				Balance for the Six Month Period Ended June 30, 2009 Prior to Adoption of FSP No. APB 14-1
Deferred income taxes, net of acquisitions		$	22,858		$	866			$	23,724
Amortization of debt issuance costs		$	970		$	63			$	1,033
Amortization of debt discount		$	2,342		$	(2,342	)		$	-

Page 14

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

The effect of the above retrospective adjustments on the Company’s operating income, net income and per-share amounts for the three and six month periods ended June 30, 2008, is presented in the tables below:

	Operating Income		Net Income			Basic Earnings per Share Attributable to Waste Connections’ Common Stockholders			Diluted Earnings per Share Attributable to Waste Connections’ Common Stockholders
Amount as reported for the three month period ended June 30, 2008, in the Company’s June 30, 2008 Quarterly Report on Form 10-Q	$	55,590	$	30,040		$	0.39		$	0.39

Impact of incremental interest expense (net of tax) recognized during the three month period ended June 30, 2008, as a result of adoption of FSP No. APB 14-1		-		(663	)		(0.01	)		(0.01	)

Amount as presented for the three month period ended June 30, 2008, in the Company’s June 30, 2009 Report on Form 10-Q	$	55,590	$	29,377		$	0.38		$	0.38

	Operating Income		Net Income			Basic Earnings per Share Attributable to Waste Connections’ Common Stockholders			Diluted Earnings per Share Attributable to Waste Connections’ Common Stockholders
Amount as reported for the six month period ended June 30, 2008, in the Company’s June 30, 2008 Quarterly Report on Form 10-Q	$	106,388	$	56,531		$	0.74		$	0.73

Impact of incremental interest expense (net of tax) recognized during the six month period ended June 30, 2008, as a result of adoption of FSP No. APB 14-1		-		(1,326	)		(0.02	)		(0.02	)

Amount as presented for the six month period ended June 30, 2008, in the Company’s June 30, 2009 Report on Form 10-Q	$	106,388	$	55,205		$	0.72		$	0.71

For the six month periods ended June 30, 2008 and 2009, the total interest expense recognized by the Company relating to both the contractual interest coupon and amortization of the non-cash debt discount on the 2026 Notes was $5,952 ($3,691, net of taxes) and $6,092 ($3,777, net of taxes), respectively. The portion of total interest expense related to the contractual interest coupon on the 2026 Notes during each of the six month periods ended June 30, 2008 and 2009 was $3,750 ($2,325, net of taxes). The portion of total interest expense related to amortizing the non-cash debt discount during the six month periods ended June 30, 2008 and 2009 was $2,202 ($1,366, net of taxes) and $2,342 ($1,452, net of taxes), respectively. The effective interest rate on the liability component for the six month periods ended June 30, 2008 and 2009 was 6.4%. As of June 30, 2009, the Company has seven quarterly periods remaining over which the debt discount will be amortized.

Page 15

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

A summary of the effect of the Company’s adoption of FSP No. APB 14-1 on the Company’s operating income, net income, and per-share amounts for the three and six month periods ended June 30, 2009, is presented in the table below:

	Operating Income		Net Income		Basic Earnings per Share Attributable to Waste Connections’ Common Stockholders		Diluted Earnings per Share Attributable to Waste Connections’ Common Stockholders
Amount as reported for the three month period ended June 30, 2009, in the Company’s June 30, 2009 Quarterly Report on Form 10-Q	$	59,418	$	30,682	$	0.38	$	0.38

Impact of incremental interest expense (net of tax) recognized during the three month period ended June 30, 2009, as a result of adoption of FSP No. APB 14-1		-		706		0.01		0.01

Amount that would have been reported for the three month period ended June 30, 2009, prior to adoption of FSP No. APB 14-1	$	59,418	$	31,388	$	0.39	$	0.39

Page 16

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

	Operating Income		Net Income		Basic Earnings per Share Attributable to Waste Connections’ Common Stockholders		Diluted Earnings per Share Attributable to Waste Connections’ Common Stockholders
Amount as reported for the six month period ended June 30, 2009, in the Company’s June 30, 2009 Quarterly Report on Form 10-Q	$	107,052	$	52,994	$	0.66	$	0.65

Impact of incremental interest expense (net of tax) recognized during the six month period ended June 30, 2009, as a result of adoption of FSP No. APB 14-1		-		1,413		0.01		0.02

Amount that would have been reported for the six month period ended June 30, 2009, prior to adoption of FSP No. APB 14-1	$	107,052	$	54,407	$	0.67	$	0.67

The following table presents information regarding the values at which the following items are carried in the Company’s December 31, 2008 and June 30, 2009 Condensed Consolidated Balance Sheets:

	December 31, 2008			June 30, 2009
Carrying amount of equity component	$	13,726		$	13,726

Principal amount of liability component	$	200,000		$	200,000
Unamortized discount on liability component		(10,930	)		(8,588	)
Net carrying amount of liability component	$	189,070		$	191,412

At June 30, 2009, the 2026 Notes did not meet any of the conditions for conversion. Under FSP No. APB 14-1, upon conversion of the 2026 Notes, the Company will be required to allocate the fair value of the consideration transferred and any transaction costs incurred between the equity and liability components. This will be done by first allocating to the liability component an amount equal to the fair value of the liability component immediately prior to its conversion, with the residual consideration allocated to the equity component. Any gain or loss equal to the difference between the consideration allocated to the liability component and the carrying value of the liability component, including any unamortized debt discount or issuance costs, will be recorded in earnings.

7.	ACQUISITIONS

As disclosed in Note 2, the Company has adopted SFAS 141(R) for all business combinations for which the acquisition date is on or after January 1, 2009. Assets and liabilities that arose from business combinations whose acquisition date preceded the application of SFAS 141(R) were not adjusted upon application of the new standard.

Page 17

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

For all acquisitions completed prior to the Company's adoption of SFAS 141(R), the acquisition purchase prices were 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. Purchase price allocations were considered preliminary until the Company was no longer waiting for information that it arranged to obtain and that was known to be available or obtainable. Although the time required to obtain the necessary information varied with circumstances specific to an individual acquisition, the “allocation period” for finalizing purchase price allocations did not exceed one year from the consummation of a business combination. Any adjustments made during the allocation period were recorded prospectively as an adjustment to the acquired goodwill from the business combination. As of June 30, 2009, the Company had two acquisitions that were completed prior to the Company’s adoption of SFAS 141(R), for which purchase price allocations were preliminary as a result of pending working capital valuations. The Company does not believe that the potential changes to its preliminary purchase price allocations related to acquisitions completed prior to January 1, 2009, which will be recognized as an adjustment to goodwill during the remaining periods in the year ending December 31, 2009, will have a material impact on its financial condition, including its reported goodwill. The Company expects the working capital valuations for these acquisitions to be completed during the quarter ended September 30, 2009.

For all acquisitions completed under SFAS 141(R), as of the respective acquisition dates, the Company recognizes, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition-date fair values. The Company measures and recognizes goodwill as of the acquisition date as the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition-date fair value of the Company's previously held equity interest in the acquiree (if any), over (b) the fair value of net assets acquired and liabilities assumed. If information about facts and circumstances existing as of the acquisition date is incomplete by the end of the reporting period in which a business combination occurs, the Company will report provisional amounts for the items for which the accounting is incomplete. The measurement period ends once the Company receives the information it was seeking; however, this period will not exceed one year from the acquisition date. Any material adjustments recognized during the measurement period will be reflected retrospectively in the consolidated financial statements of the subsequent period.

During the six months ended June 30, 2008, the Company acquired six individually immaterial non-hazardous solid waste collection, transfer, disposal and recycling businesses. During the six months ended June 30, 2009, the Company completed the acquisition of 100% interests in certain operations from Republic Services, Inc. and some of its subsidiaries and affiliates (“Republic”). The operations were divested as a result of Republic’s recent merger with Allied Waste Industries, Inc. The operations acquired include seven municipal solid waste landfills, six collection operations and three transfer stations across eight markets: Southern California; Northern California; Denver, CO; Houston, TX; Greenville/Spartanburg, SC; Charlotte, NC; Lubbock, TX; and Flint, MI. The Company paid $379,377 in existing cash for the purchased operations plus amounts paid for the purchase of accounts receivable and other prepaid assets and estimated working capital, which amounts are subject to post-closing adjustments. No other consideration, including contingent consideration, was transferred by the Company to acquire these operations. Pursuant to the asset purchase agreement, the Company is required to remit additional consideration to Republic if certain acquired operations exceed earnings targets specified in the agreement. The Company has not recorded a liability because the fair value of the contingent consideration is not material. Any changes in fair value of the contingent consideration subsequent to the acquisition date will be charged to expense until the contingency is settled. The Company expects these acquired businesses to contribute towards the achievement of the Company’s growth strategy of expansion through acquisitions. In addition to these acquisitions from Republic, the Company acquired three individually immaterial non-hazardous solid waste collection, disposal and recycling businesses during the six months ended June 30, 2009. The results of operations of the acquired businesses have been included in the Company’s consolidated financial statements from their respective acquisition dates. The acquisitions completed during the six months ended June 30, 2008 and 2009, were not material to the Company’s results of operations, either individually or in the aggregate. As a result, pro forma financial information has not been provided.

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WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

The following table summarizes the consideration transferred to acquire these businesses and the amounts of identified assets acquired and liabilities assumed at the acquisition date for acquisitions consummated in the six months ended June 30, 2008 and 2009:

	2008 Acquisitions		2009 Acquisitions
Fair value of consideration transferred:
Cash	$	32,525	$	384,165
Debt assumed		2,293		2,782
Common stock warrants		31		-
		34,849		386,947
Recognized amounts of identifiable assets acquired and liabilities assumed:
Accounts receivable		1,317		12,517
Other current assets		367		1,601
Property and equipment		4,822		291,365
Long-term franchise agreements and contracts		16,052		4,130
Customer lists		869		30,179
Other intangibles		-		18,331
Non-competition agreements		32		-
Accounts payable		(163)		(211)
Accrued liabilities		(1,424)		(973)
Deferred revenue		(606)		(3,617)
Other long-term liabilities		-		(8,489)
Deferred income taxes		(479)		-
Total identifiable net assets		20,787		344,833
Goodwill	$	14,062	$	42,114

The goodwill is attributable to the synergies and ancillary growth opportunities expected to arise after the Company’s acquisition of these businesses. Substantially all of the goodwill from these acquisitions is expected to be deductible for tax purposes.

The fair value of acquired working capital related to the acquisitions completed during the six months ended June 30, 2009 is provisional pending receipt of information from the acquiree to support the fair value of the assets acquired and liabilities assumed.

The gross amount of trade receivables due under contracts acquired during the period ended June 30, 2008 is $1,917, of which $600 is expected to be uncollectible. The gross amount of trade receivables due under contracts acquired during the period ended June 30, 2009 is $13,236, of which $719 is expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisition of these businesses.

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WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

A reconciliation of the Fair value of consideration transferred, as disclosed in the table above, to Payments for acquisitions, net of cash acquired, as reported in the Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2008 and 2009, is as follows:

	2008 Acquisitions		2009 Acquisitions
Cash consideration transferred	$	32,525	$	384,165
Payment of contingent consideration		-		2,000
Payment of acquisition-related liabilities		912		947
Payments for acquisitions, net of cash acquired	$	33,437	$	387,112

The $2,000 of contingent consideration paid during the six months ended June 30, 2009 represented additional purchase price for an acquisition closed in 2007. Acquisition-related liabilities are liabilities paid in the year shown above that were accrued for in a previous year.

During the three and six month periods ended June 30, 2009, the Company incurred $2,019 and $3,282 of third-party acquisition-related costs. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Income for the three and six month periods ended June 30, 2009.

8.	INTANGIBLE ASSETS

Intangible assets, exclusive of goodwill, consist of the following at June 30, 2009:

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Long-term franchise agreements and contracts	$	183,477	$	(15,895	)	$	167,582
Customer lists		52,100		(6,901	)		45,199
Non-competition agreements		9,732		(5,444	)		4,288
Other		22,355		(2,518	)		19,837
		267,664		(30,758	)		236,906
Nonamortized intangible assets:
Indefinite-lived intangible assets		116,160		-			116,160
Intangible assets, exclusive of goodwill	$	383,824	$	(30,758	)	$	353,066

The weighted-average amortization periods of long-term franchise agreements and contracts, customer lists and other intangibles acquired during the six months ended June 30, 2009 are 24.2 years, 9.9 years and 38.0 years, respectively.

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WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

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

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Long-term franchise agreements and contracts	$	179,674	$	(12,751	)	$	166,923
Customer lists		22,083		(4,951	)		17,132
Non-competition agreements		9,751		(5,157	)		4,594
Other		4,024		(2,389	)		1,635
		215,532		(25,248	)		190,284
Nonamortized intangible assets:
Indefinite-lived intangible assets		116,160		-			116,160
Intangible assets, exclusive of goodwill	$	331,692	$	(25,248	)	$	306,444

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

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

For the year ending December 31, 2009	$	12,718
For the year ending December 31, 2010	$	13,685
For the year ending December 31, 2011	$	13,516
For the year ending December 31, 2012	$	13,192
For the year ending December 31, 2013	$	11,778

9.	SEGMENT REPORTING

The Company’s revenues are derived from one industry segment, which includes the collection, transfer, recycling and disposal of non-hazardous solid waste. No single contract or customer accounted for more than 10% of the Company’s total revenues at the consolidated or segment level during the periods presented.

The Company manages its operations through three geographic operating segments (Western, Central and Southern) which, commencing in 2009, are also the Company’s reportable segments. Prior to 2009, the Company aggregated its geographic operating segments into one reportable segment. Each segment is responsible for managing several vertically integrated operations, which are comprised of districts.

The segment information presented herein reflects the realignment of the Company’s organizational structure in the second quarter of 2008, which reduced the number of its geographic operating segments from four to three.

The Company’s Chief Operating Decision Maker (“CODM”) evaluates operating segment profitability and determines resource allocations based on operating income (loss) before depreciation, amortization and gain (loss) on disposal of assets. Operating income (loss) before depreciation, amortization and gain (loss) on disposal of assets is not a measure of operating income, operating performance or liquidity under GAAP and may not be comparable to similarly titled measures reported by other companies. The Company’s management uses operating income (loss) before depreciation, amortization and gain (loss) on disposal of assets in the evaluation of segment operating performance as it is a profit measure that is generally within the control of the operating segments.

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WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands, except share, per share, per gallon and per ton amounts)

Summarized financial information concerning the Company’s reportable segments for the three and six months ended June 30, 2008 and 2009 is shown in the following tables:

Three Months Ended June 30, 2008	Gross Revenues		Intercompany Revenues(b)			Net Revenue		Operating Income (Loss) Before Depreciation, Amortization and Gain (Loss) on Disposal of Assets(c)
Western	$	140,069	$	(12,711	)	$	127,358	$	38,205
Central		88,903		(10,341	)		78,562		24,100
Southern		72,315		(11,202	)		61,113		18,367
Corporate(a)		-		-			-		(566	)
	$	301,287	$	(34,254	)	$	267,033	$	80,106

Three Months Ended June 30, 2009	Gross Revenues		Intercompany Revenues(b)			Net Revenue		Operating Income (Loss) Before Depreciation, Amortization and Gain (Loss) on Disposal of Assets(c)
Western	$	174,497	$	(21,401	)	$	153,096	$	46,218
Central		84,533		(9,293	)		75,240		25,935
Southern		88,581		(14,087	)		74,494		24,090
Corporate(a)		-		-			-		(5,242	)
	$	347,611	$	(44,781	)	$	302,830	$	91,001

Six Months

Ended June 30,

2008

Gross

Revenues