Back to GetFilings.com



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

FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

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 No. 0-28652


WASTE CONNECTIONS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 94-3283464
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification)

35 Iron Point Circle
Suite 200
Folsom, California 95630
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

Aggregate market value of voting stock held by non-affiliates of registrant as
of June 28, 2002: $835,998,082

Number of shares of Common Stock outstanding as of February 28, 2003: 28,086,871

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the 2003 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
================================================================================


WASTE CONNECTIONS, INC.
ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Item No. Page
-------- ----
PART I
1. BUSINESS 1
2. PROPERTIES 20
3. LEGAL PROCEEDINGS 20
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 20

PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 23
6. SELECTED FINANCIAL DATA 25
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 26
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 39
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 40
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 40

PART III 73

PART IV

14. CONTROLS AND PROCEDURES 73
15. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS
ON FORM 8-K 73

SIGNATURES 74
CERTIFICATIONS 75
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS 77
EXHIBIT INDEX 78


PART I

Forward Looking Statements

Certain information contained in this Annual Report on Form 10-K, including,
without limitation, information appearing under Item 1, "Business," and Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," includes statements that are forward-looking in nature. These
statements can be identified by the use of forward-looking terminology such as
"believes", "expects", "may", "will", "should" or "anticipates" or the negative
thereof or comparable terminology, or by discussions of strategy. Our business
and operations are subject to a variety of risks and uncertainties and,
consequently, actual results may materially differ from those projected by any
forward-looking statements in this Annual Report on Form 10-K. Factors that
could cause actual results to differ from those projected include, but are not
limited to: (1) competition or unfavorable industry or economic conditions could
lead to a decrease in demand for our services and to a decline in prices we
realize for our services, (2) we depend in part on acquisitions for growth, we
may be required to pay higher prices for acquisitions and we may experience
difficulty in integrating and deriving synergies from acquisitions, or finding
acquisition targets suitable to our growth strategy, (3) we may not always have
access to the additional capital that we require to execute our growth strategy
or our cost of capital may increase, (4) governmental regulations may require
increased capital expenditures or otherwise affect our business, (5) businesses
that we acquire may have undiscovered liabilities, (6) large, long-term
collection contracts on which we depend may not be replaced when they expire or
are terminated, and (7) we are highly dependent on the services of our senior
management, who would be difficult or impossible to replace. These risks and
uncertainties, as well as others, are discussed in greater detail in our other
filings with the Securities and Exchange Commission. We make no commitment to
revise or update any forward-looking statements to reflect events or
circumstances after the date any such statement is made.


ITEM 1. BUSINESS

General

Waste Connections, Inc., a Delaware corporation organized in 1997, is an
integrated solid waste services company that provides solid waste collection,
transfer, disposal and recycling services in mostly secondary markets in the
Western, Midwestern and Southeastern U.S. We currently own and operate 90
collection operations, 23 transfer stations, 19 Subtitle D landfills, one
construction and demolition landfill and 18 recycling facilities and operate,
but do not own, an additional six transfer stations and ten Subtitle D
landfills. We also own one Subtitle D landfill site which is permitted for
operation, but not constructed as of December 31, 2002. As of December 31, 2002,
we served more than one million commercial, industrial and residential customers
in 22 states: Alabama, California, Colorado, Georgia, Illinois, Iowa, Kansas,
Kentucky, Minnesota, Mississippi, Montana, Nebraska, New Mexico, Ohio, Oklahoma,
Oregon, South Dakota, Tennessee, Texas, Utah, Washington, and Wyoming.
Approximately 50% of our revenues are in exclusive markets, where the majority
of revenues are from exclusive arrangements, including franchise agreements,
long-term municipal contracts and governmental certificates.

Acquisitions have been and are expected to continue to be an important
component of our growth strategy. We have primarily targeted secondary markets
of the Western, Midwestern and Southeastern U.S. because we believe that: (1)
there is less competition in these markets from larger, better-capitalized solid
waste services companies; (2) these markets have strong projected economic and
population growth rates; (3) a large number of independent solid waste services
companies suitable for acquisition by us are located in these markets; and (4)
there is greater opportunity to enter into exclusive arrangements in these
markets. In addition, our senior management team has extensive experience in
acquiring, integrating and operating solid waste services businesses in these
markets.

We have developed a two-pronged strategy tailored to the competitive and
regulatory factors that affect our markets. In the markets where waste
collection services are performed under exclusive arrangements, we generally
focus on controlling the solid waste stream by providing collection services
under such arrangements. In markets where we believe that competitive and
regulatory factors make owning landfills advantageous, we generally focus on
providing integrated services, from collection through disposal of solid waste
in landfills that we own or operate.

Unless otherwise noted, all descriptions of our business in this Annual
Report on Form 10-K are as of December 31, 2002.

1

Industry Background

We estimate that the U.S. solid waste services industry generated revenues
of approximately $40 billion in 2002. The solid waste services industry has
undergone significant consolidation and integration since 1990. We believe that,
particularly in the Western, Midwestern and Southeastern U.S., the following
factors have primarily caused the consolidation and integration of the waste
services industry:

- - Increased Impact of Regulations. Stringent industry regulations, such as the
Subtitle D regulations, have caused operating and capital costs to rise.
Many smaller industry participants have found these costs difficult to bear
and have decided to either close their operations or sell them to larger
operators. In addition, Subtitle D requires more stringent engineering of
solid waste landfills, and mandates liner systems, leachate collection,
treatment and monitoring systems and gas collection and monitoring systems.
These ongoing costs are combined with increased financial reserve
requirements for solid waste landfill operators relating to closure and
post-closure monitoring. As a result, the number of solid waste landfills is
declining while the average size is increasing.

- - Increased Integration of Collection and Disposal Operations. In certain
markets, competitive pressures are forcing operators to become more
efficient by establishing an integrated network of solid waste collection
operations and transfer stations, through which they secure solid waste
streams for disposal. Operators have adopted a variety of disposal
strategies, including owning landfills, establishing strategic relationships
to secure access to landfills and to capture significant waste stream
volumes to gain leverage in negotiating lower landfill fees, and securing
long-term, most-favored-pricing contracts with high capacity landfills.

- - Pursuit of Economies of Scale. Larger operators achieve economies of scale
by vertically integrating their operations or by spreading their facility,
asset and management infrastructure over larger volumes. Larger solid waste
collection and disposal companies have become more cost-effective and
competitive by controlling a larger waste stream and by gaining access to
significant financial resources to make acquisitions.

- - Regulatory Framework in the Western U.S. In the Western U.S., waste
collection services are provided largely under three types of contractual
arrangements: certificates or permits, franchise agreements and municipal
contracts. Certificates or permits, such as governmental certificates
awarded to waste collection service providers in unincorporated areas and
electing municipalities of Washington by the Washington Utilities and
Transportation Commission (the "WUTC"), typically grant the certificate
holder the exclusive and perpetual right to provide specific residential,
commercial and industrial waste services in a territory at specified rates.
See "G certificates" on page 7. Franchise agreements typically provide an
exclusive service period of five to ten years or longer and specify the
service territory, a broad range of services to be provided, and rates for
the services. They also often give the service provider a right of first
refusal to extend the term of the agreement. Municipal contracts typically
provide a shorter service period and a more limited scope of services than
franchise agreements and generally require competitive bidding at the end of
the contract term. Unless customers within the areas covered by certain
governmental certificates, franchise agreements and municipal contracts
elect not to receive any waste collection services, they are required to pay
collection fees to the company providing these services in their area. These
exclusive rights and contractual arrangements create barriers to entry that
can be overcome primarily through acquisitions of companies with such
exclusive rights or contractual arrangements.

Despite the ongoing consolidation, the solid waste services industry remains
regional in nature and fragmented. Based on published industry sources,
approximately 20% of the total revenues of the U.S. solid waste industry is
accounted for by more than 5,000 private, predominantly small, collection and
disposal businesses. We expect the current consolidation trends in the solid
waste industry to continue, because many independent landfill and collection
operators lack the capital resources, management skills and technical expertise
necessary to comply with stringent environmental and other governmental
regulations and to compete with larger, more efficient, integrated operators. In
addition, many independent operators may wish to sell their businesses to
achieve liquidity in their personal finances or as part of their estate
planning. We believe that the fragmented nature of the industry offers
significant consolidation and growth opportunities, especially in secondary
markets of the Western, Midwestern and Southeastern U.S., for companies with
disciplined acquisition programs, decentralized operating strategies and access
to financial resources.

Strategy

Our objective is to build a leading integrated solid waste services company
in secondary markets located primarily in the Western, Midwestern and
Southeastern U.S. We have developed a two-pronged strategy tailored to the
competitive and regulatory factors that affect our markets.

First, in markets where waste collection services are provided under
exclusive arrangements, or where waste disposal is municipally funded or
available at multiple municipal sources, we believe that controlling the waste
stream by providing collection services under exclusive arrangements is often
more important to our growth and profitability than owning or operating
landfills. In addition, regulations in some Western U.S. markets dictate the
disposal facility to be used. The large size of many western states increases

2

the cost of interstate and long haul disposal, heightening the effects of
regulations that direct waste disposal, which may make it more difficult for a
landfill to obtain the disposal volume necessary to operate profitably. In
markets with these characteristics, we believe that landfill ownership or
vertical integration is not critical to our success.

Second, in markets where we believe that owning landfills is a strategic
element to a collection operation because of competitive and regulatory factors,
we generally focus on providing integrated services, from collection through
disposal of solid waste in landfills that we own or operate.

GROWTH STRATEGY

- - Internal Growth. To generate continued internal growth, we will focus on
increasing market penetration in our current and adjacent markets,
soliciting new commercial, industrial, and residential customers in markets
where such customers may elect whether or not to receive waste collection
services, marketing upgraded or additional services (such as compaction or
automated collection) to existing customers and, where appropriate, raising
prices. Where possible, we intend to leverage our franchise-based platforms
to expand our customer base beyond our exclusive market territories. As
customers are added in existing markets, our revenue per routed truck
increases, which generally increases our collection efficiencies and
profitability. In markets in which we have exclusive contracts, franchises
and certificates, we expect internal volume growth generally to track
population and business growth.

- - Exclusive Arrangements. We derive a significant portion of our revenues from
arrangements, including franchise agreements, municipal contracts and
governmental certificates, under which we are the exclusive service provider
in a specified market. We intend to devote significant resources to securing
additional franchise agreements and municipal contracts through competitive
bidding and additional governmental certificates by acquiring other
companies. In bidding for franchises and municipal contracts and evaluating
acquisition candidates holding governmental certificates, our management
team draws on its experience in the waste industry and its knowledge of
local service areas in existing and target markets. Our district managers
maintain relationships with local governmental officials within their
service areas, and sales representatives may be assigned to cover specific
municipalities. These personnel focus on maintaining, renewing and
renegotiating existing franchise agreements and municipal contracts and on
securing additional agreements and contracts.

- - Expansion Through Acquisitions. We intend to expand the scope of our
operations by continuing to acquire solid waste operations in new markets
and in existing or adjacent markets that are combined with or "tucked in" to
our existing operations. We focus our acquisition efforts on markets which
we believe provide significant growth opportunities for a well-capitalized
market entrant and where we can create economic and operational barriers to
entry by new competitors. We believe that our experienced management,
decentralized operating strategy, financial strength, size and public
company status make us an attractive buyer to certain solid waste collection
and disposal acquisition candidates. We have developed an acquisition
discipline based on a set of financial, geographic and management criteria
to evaluate opportunities. Once an acquisition is closed, we seek to
integrate it and to minimize disruption to the ongoing operations of both
Waste Connections and the acquired business.

We intend to expand into new markets through acquisitions. We use an initial
acquisition in a new market as an operating base and seek to strengthen the
acquired operation's presence in that market by providing additional
services, adding new customers and making "tuck-in" acquisitions. We next
seek to broaden our regional presence by adding additional operations in
markets adjacent to the new location. We believe that many suitable
"tuck-in" acquisition opportunities exist within our current and targeted
market areas that provide us with opportunities to increase our market share
and route density.

OPERATING STRATEGY

- - Decentralized Operations. We manage our operations on a decentralized basis.
This places decision-making authority close to the customer, enabling us to
identify customers' needs quickly and to address those needs in a
cost-effective manner. We believe that decentralization provides a
low-overhead, highly efficient operational structure that allows us to
expand into geographically contiguous markets and operate in relatively
small communities that larger competitors may not find attractive. We
believe that this structure gives us a strategic competitive advantage,
given the relatively rural nature of much of the Western, Midwestern and
Southeastern U.S., and makes us an attractive buyer to many potential
acquisition candidates.

- - We currently deliver our services from approximately 112 operating locations
which are grouped into four regions, Pacific Northwest, Western, Central and
Eastern. We organized our business into these four regions on the basis of
their respective geographic characteristics, interstate waste flow, revenue
base, employee base, regulatory structure and acquisition opportunities.

3

Each region has a Regional Vice President and a Regional Controller,
reporting directly to the corporate management. They are responsible for
operations and accounting in that region and supervise a regional staff.

- - Our regions are divided into districts. Our district managers have
autonomous service and decision-making authority for their districts and are
responsible for maintaining service quality, promoting safety in their
operations, implementing marketing programs, and overseeing day-to-day
operations, including contract administration. District managers also help
identify acquisition candidates and are responsible for integrating acquired
businesses into our operations and obtaining the permits and other
governmental approvals required for us to operate them.

- - Operating Enhancements. We develop company-wide operating standards, which
are tailored for each of our markets based on industry standards and local
conditions. We implement cost controls and employee training and safety
procedures, and establish a sales and marketing plan for each market. We use
a wide area information system network, implement advanced management
information systems and financial controls, and consolidate certain
accounting, personnel functions, customer service, productivity reporting
and dispatching systems. While regional management operates with a high
degree of autonomy, our senior officers monitor regional and district
operations and require adherence to our accounting, purchasing, marketing
and internal control policies, particularly with respect to financial
matters. Our executive officers regularly review the performance of district
managers and operations. We believe that by establishing operating
standards, closely monitoring performance and streamlining certain
administrative functions, we can improve the profitability of existing
operations.

To improve an acquired business' operational productivity, administrative
efficiency and profitability, we apply the same operating standards,
information systems and financial controls to the acquired business that our
existing operations employ. Moreover, if we can internalize the waste stream
of acquired operations, we can further increase operating efficiencies and
improve capital utilization. Where not restricted by exclusive agreements,
contracts, permits or certificates, we also solicit new commercial,
industrial and residential customers in areas within and surrounding the
markets served by acquired collection operations, to further improve
economies of scale and increase the volume of solid waste collected by the
acquired operations.


SERVICES

COMMERCIAL, INDUSTRIAL AND RESIDENTIAL WASTE SERVICES

We serve more than one million commercial, industrial and residential
customers. Our services are generally provided under one of the following: a)
governmental certificates, b) exclusive franchise agreements, c) exclusive
municipal contracts, d) commercial and industrial service agreements, e)
residential subscriptions and f) residential contracts.

Governmental certificates, exclusive franchise agreements and exclusive
municipal contracts grant us rights to provide services within specified areas
at established rates. Governmental certificates are generally perpetual in
duration. We currently have in excess of 610 municipal contracts and franchise
agreements which vary in both size and duration. Generally, franchise agreements
with counties tend to be larger and of longer duration than municipal contracts.
Waste Connections is continuing to provide service under some municipal
contracts that have expired, while new agreements are being negotiated. We do
not expect that the loss of any current contracts in negotiation for renewal or
likely to terminate in 2003 would have a material adverse affect on our revenues
or cash flows. No individual contract or customer accounted for more than 5% of
our total revenues for the year ended December 31, 2002.

We provide commercial and industrial services, other than those we perform
under governmental certificates, franchise agreements or municipal contracts,
under agreements generally ranging from one to five years. We determine fees
under these agreements by such factors as collection frequency, level of
service, route density, the type, volume and weight of the waste collected, type
of equipment and containers furnished, the distance to the disposal or
processing facility, the cost of disposal or processing and prices charged in
our markets for similar service. Collection of larger volumes associated with
commercial and industrial waste streams generally helps improve our operating
efficiencies, and consolidation of these volumes allows us to negotiate more
favorable disposal prices. Our commercial and industrial customers use portable
containers for storage, enabling us to service many customers with fewer
collection vehicles. Commercial and industrial collection vehicles normally
require one operator. We provide one to eight cubic yard containers to
commercial customers, 10 to 50 cubic yard containers to industrial customers,
and 30 to 96 gallon carts to residential customers. For an additional fee, we
install stationary compactors that compact waste prior to collection on the
premises of a substantial number of large volume customers.

4

We provide residential waste services, other than those we perform under
governmental certificates, franchise agreements or municipal contracts, under
contracts with homeowners' associations, apartment owners or mobile home park
operators, or on a subscription basis with individual households. We set base
residential fees on a contract basis primarily on route density, the frequency
and level of service, the distance to the disposal or processing facility,
weight and type of waste collected, type of equipment and containers furnished,
the cost of disposal or processing and prices charged by competitors in that
market for similar services. Collection fees are paid either by the
municipalities from tax revenues or directly by the residents receiving the
services.

LANDFILLS

Currently, solid waste landfills in the United States must be designed,
permitted, operated, closed and maintained after closure in compliance with
federal, state and local regulations pursuant to Subtitle D of the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"). Operating a solid
waste landfill includes excavating, constructing liners and final caps,
continually spreading and compacting waste, covering waste with earth or other
inert material at least once a day with the objective of maintaining sanitary
conditions, using the airspace effectively and preparing the site so it can
ultimately be used for other purposes.

We seek to identify solid waste landfill acquisition candidates to achieve
vertical integration in markets where the economic and regulatory environment
makes landfill acquisitions attractive. In some markets, acquiring landfills
provides opportunities to vertically integrate our collection, transfer and
disposal operations while improving operating margins. When we have vertical
integration, we eliminate third party disposal costs and generally are able to
realize higher margins and stronger operating cash flows. The fees charged at
disposal facilities, which are known as "tipping fees," are based on market
factors and take into account the type and weight or volume of solid waste
deposited and the type and size of the vehicles used in the transportation of
the waste. We evaluate landfill acquisition candidates by determining, among
other things whether access to the landfill is economically feasible from our
existing market areas either directly or through transfer stations, the amount
and disposal cost of waste we currently dispose of at a facility owned by a
third party that could be diverted to the landfill acquisition candidate, the
expected life of the landfill, the potential for expanding the landfill and the
potential for material environmental liabilities at the landfill.

We owned and operated 20 landfills and operated, but did not own, ten
landfills at December 31, 2002. We also own one Subtitle D landfill site which
is permitted for operation, but not constructed as of December 31, 2002.
Currently, we own landfills in California, Colorado, Illinois, Kansas,
Minnesota, Nebraska, New Mexico, Oklahoma, Oregon, Tennessee and Washington. We
operate, but do not own, landfills in California, Colorado, Georgia,
Mississippi, Nebraska and New Mexico. With the exception of one landfill located
in Tennessee that only accepts construction and demolition waste, all landfills
that we own or operate are Subtitle D landfills. For operating contracts, the
owner of the property, generally a municipality, usually owns the permit and we
operate the landfill for a contracted term, which may be the life of the
landfill. The property owner is generally responsible for closure and
post-closure obligations under our seven operating contracts for which the
contracted term is not the life of the landfill. Our operating landfills that we
do not own include three landfills for which we have life-of-site operating
agreements and are responsible for all closure and post-closure liabilities.

Based on remaining permitted capacity as of December 31, 2002, and projected
annual disposal volumes, the average remaining landfill life for our 20 owned
and operated landfills and three landfills operated, but not owned, under
life-of-site operating agreements, is approximately 53 years. Many of our
existing landfills have the potential for expanded disposal capacity beyond the
amount currently permitted. We monitor the available permitted in-place disposal
capacity of our landfills on an ongoing basis and evaluate whether to seek to
expand this capacity. In making this evaluation, we consider various factors,
including the volume of waste projected to be disposed of at the landfill, the
size of the unpermitted acreage included in the landfill, the likelihood that we
will be able to obtain the necessary approvals and permits required for the
expansion and the costs that would be involved in developing the additional
capacity. We also regularly consider whether it is advisable, in light of
changing market conditions and/or regulatory requirements, to seek to expand or
change the permitted waste streams or to seek other permit modifications. We are
currently seeking to expand permitted capacity at seven of our landfills for
which we consider expansions to be probable. Although we cannot be certain that
all future expansions will be permitted as designed, the average remaining
landfill life for our 20 owned and operated landfills and three landfills
operated, but not owned, under life-of-site operating agreements is
approximately 62 years when considering remaining permitted capacity, probable
expansion capacity and projected annual disposal volume. At December 31, 2002,
the expected remaining airspace capacity in tonnage of waste that can be
accepted at our 20 owned and operated landfills and three landfills operated,
but not owned, under life-of-site operating agreements is shown below (in
thousands):

5

PROBABLE
PERMITTED EXPANSION TOTAL
------------ ------------ ------------
Remaining tonnage 290,942 47,542 338,484


The following table reflects landfill capacity and airspace changes, as
measured in tons, for 20 owned and operated landfills and three landfills
operated, but not owned, under life-of-site operating agreements during the year
ended December 31, 2002 (in thousands):

PROBABLE
PERMITTED EXPANSION TOTAL
AIRSPACE AIRSPACE AIRSPACE
------------ ------------ ------------
Balance, beginning of year 271,139 21,890 293,029
Acquisitions and new life-of-site
operating agreements 16,195 -- 16,195
New expansions pursued -- 34,901 34,901
Permits granted 6,133 (6,133) --
Airspace consumed (5,454) -- (5,454)
Changes in engineering estimates 2,929 (3,116) (187)
------------ ------------ ------------
Balance, end of year 290,942 47,542 338,484
============ ============ ============


The estimated operating lives for our 20 owned and operated landfills and
three landfills operated, but not owned, under life-of-site operating
agreements, based on remaining permitted and probable expansion capacity and
projected annual disposal volume, in years, as of December 31, 2002, is as
follows:

0 to 10 11 to 20 21 to 40 41 to 50 51 + TOTAL
-------- -------- -------- -------- -------- --------

Owned and operated landfills 2 2 4 1 11 20
Operated landfills under
life-of-site contracts -- -- -- 1 2 3
-------- -------- -------- -------- -------- --------
2 2 4 2 13 23
======== ======== ======== ======== ======== ========


The seven operating contracts for which the contracted term is not the life
of the landfill have remaining terms of one to twelve years.

The disposal tonnage that we received in 2002 and 2001 at all of our
landfills is shown below (tons in thousands):

2002 2001
------------------------ ------------------------
NUMBER TOTAL NUMBER TOTAL
OF SITES TONS OF SITES TONS
---------- ---------- ---------- ----------

Owned and operated landfills 20 5,057 17 3,593
Operated landfills 7 610 8 471
Operated landfills under
life-of-site contracts 3 397 1 15
---------- ---------- ---------- ----------
30 6,064 26 4,079
========== ========== ========== ==========


6

TRANSFER STATION SERVICES

We have an active program to acquire, develop, own and operate transfer
stations in markets proximate to our operations. Transfer stations extend our
direct-haul reach and link disparate collection operations with disposal
capacity that we own, operate or have under contract. We owned 23 transfer
stations and operated six transfer stations at December 31, 2002. Currently, we
own transfer stations in Colorado, Georgia, Kansas, Montana, Nebraska, Oklahoma,
Oregon, Tennessee and Washington. In addition, we operate, but do not own,
transfer stations in California, Kentucky, Nebraska, and Tennessee. These
transfer stations receive, compact, and transfer solid waste to be transported
by larger vehicles to landfills. We believe that the transfer stations benefit
us by:

- - concentrating the waste stream from a wider area, which increases the volume
of disposal at landfills that we operate and gives us greater leverage in
negotiating for more favorable disposal rates at other landfills;

- - improving utilization of collection personnel and equipment; and

- - building relationships with municipalities and private operators that
deliver waste, which can lead to additional growth opportunities.

RECYCLING SERVICES

We offer municipal, commercial, industrial and residential customers
recycling services for a variety of recyclable materials, including cardboard,
office paper, plastic containers, glass bottles and ferrous and aluminum metals.
We own and operate 18 recycling processing facilities and sell other collected
recyclable materials to third parties for processing before resale. We often
share the profits from our resale of recycled materials with other parties to
our recycling contracts. For example, certain of our municipal recycling
contracts in Washington, negotiated before we acquired those businesses, specify
certain benchmark resale prices for recycled commodities. To the extent the
prices we actually receive for the processed recycled commodities collected
under the contract exceed the prices specified in the contract, we share the
excess with the municipality, after recovering any previous shortfalls resulting
from actual market prices falling below the prices specified in the contract. To
reduce our exposure to commodity price volatility and risk with respect to
recycled materials, we have adopted a pricing strategy of charging collection
and processing fees for recycling volume collected from third parties. We
believe that recycling will continue to be an important component of local and
state solid waste management plans due to the public's increasing environmental
awareness and expanding regulations that mandate or encourage recycling.

G CERTIFICATES

A substantial portion of our Washington collection business is performed
under governmental certificates (referred to as "G certificates") awarded by the
WUTC. G certificates apply only to unincorporated areas of Washington and
municipalities that have elected to have their solid waste collection overseen
by the WUTC. G certificates generally grant the holder the exclusive and
perpetual right to provide certain solid waste collection and transportation
services in a specified territory. The WUTC has repeatedly determined that, in
enacting the statute authorizing G certificates, the Washington Legislature
intended to favor grants of exclusive, rather than overlapping, service rights
for conventional solid waste services. Accordingly, most G certificates
currently grant exclusive solid waste collection and transportation rights for
conventional solid waste services in their specified territories.

SALES AND MARKETING

In many of our existing markets, we provide waste collection, transfer and
disposal services to municipalities and governmental authorities under exclusive
franchise agreements, municipal contracts and G certificates; therefore, service
providers do not contract directly with individual customers. In addition,
because we have grown to date primarily through acquisitions, we have generally
assumed existing franchise agreements, municipal contracts and G certificates
from the acquired companies, rather than obtaining new contracts. For these
reasons, our sales and marketing efforts to date have been narrowly focused. We
have added sales and marketing personnel as necessary to solicit new customers
in markets where we are not the exclusive provider of solid waste services,
expand our presence into areas adjacent to or contiguous with our existing
markets, and market additional services to existing customers.

COMPETITION

The solid waste services industry is highly competitive and fragmented and
requires substantial labor and capital resources. The industry presently
includes three large national waste companies: Allied Waste Industries, Inc.,
Republic Services, Inc., and Waste

7

Management, Inc. Casella Waste Systems, Inc., and Waste Industries, Inc. are
other public companies with a regional focus and annual revenues in excess of
$200 million. Certain of the markets in which we compete or will likely compete
are served by one or more large, national solid waste companies, as well as by
numerous privately held regional and local solid waste companies of varying
sizes and resources, some of which have accumulated substantial goodwill in
their markets. We also compete with operators of alternative disposal
facilities, including incinerators, and with counties, municipalities, and solid
waste districts that maintain their own waste collection and disposal
operations. Public sector operations may have financial advantages over Waste
Connections, because of their access to user fees and similar charges, tax
revenues and tax-exempt financing.

We compete for collection, transfer and disposal volume based primarily on
the price and quality of our services. From time to time, competitors may reduce
the price of their services in an effort to expand their market shares or
service areas or to win competitively bid municipal contracts. These practices
may cause us to reduce the price of our services or, if we elect not to do so,
to lose business. We provide a substantial portion of our residential,
commercial and industrial collection services under exclusive franchise and
municipal contracts and certificates, some of which are subject to periodic
competitive bidding. We provide the balance of our services under subscription
agreements with individual households and one to five year service contracts
with commercial and industrial customers.

The solid waste collection and disposal industry is currently undergoing
significant consolidation, and we encounter competition in our efforts to
acquire landfills, transfer and collection operations. Intense competition
exists not only for collection, transfer and disposal volume, but also for
acquisition candidates. We generally compete for acquisition candidates with
publicly owned regional and large national waste management companies.
Competition in the disposal industry may also be affected by the increasing
national emphasis on recycling and other waste reduction programs, which may
reduce the volume of waste deposited in landfills. Accordingly, it may become
uneconomical for us to make further acquisitions or we may be unable to locate
or acquire suitable acquisition candidates at price levels and on terms and
conditions that we consider appropriate, particularly in markets we do not
already serve.

REGULATION

INTRODUCTION

Our landfill operations and non-landfill operations, including waste
transportation, transfer stations, vehicle maintenance shops and fueling
facilities, are all subject to extensive and evolving federal, state and local
environmental laws and regulations, the enforcement of which has become
increasingly stringent in recent years. The environmental regulations that
affect us are administered by the EPA and other federal, state and local
environmental, zoning, health and safety agencies. The WUTC regulates the
portion of our collection business in Washington performed under G certificates,
which generally grant us perpetual and exclusive collection rights in certain
areas. We are currently in substantial compliance with applicable federal, state
and local environmental laws, permits, orders and regulations. We do not
currently anticipate any material costs necessary to bring our operations into
environmental compliance (although there can be no assurance in this regard). We
anticipate that regulation, legislation and regulatory enforcement actions
related to the solid waste services industry will continue to increase. We
attempt to anticipate future regulatory requirements and to plan in advance as
necessary to comply with them.

The principal federal, state and local statutes and regulations that apply
to our operations are described below. All of the federal statutes described
below contain provisions that authorize, under certain circumstances, lawsuits
by private citizens to enforce the provisions of the statutes. In addition to a
penalty award by the United States, some of those statutes authorize an award of
attorneys' fees to parties that successfully bring such an action. Enforcement
actions under these statutes may include both civil and criminal penalties, as
well as injunctive relief in some instances.

THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA")

RCRA regulates the generation, treatment, storage, handling, transportation
and disposal of solid waste and requires states to develop programs to ensure
the safe disposal of solid waste. RCRA divides solid waste into two groups,
hazardous and nonhazardous. Wastes are generally classified as hazardous if they
either (i) are specifically included on a list of hazardous wastes, or (ii)
exhibit certain characteristics defined as hazardous. Household wastes are
specifically designated as nonhazardous. Wastes classified as hazardous under
RCRA are subject to much stricter regulation than wastes classified as
nonhazardous, and businesses that deal with hazardous waste are subject to
regulatory obligations in addition to those imposed on handlers of nonhazardous
waste. From the date of inception through December 31, 2002, we did not, to our
knowledge, transport hazardous wastes under circumstances that would

8

subject us to hazardous waste regulations under RCRA. Some of our ancillary
operations (e.g., vehicle maintenance operations) may generate hazardous wastes.
We manage these wastes in substantial compliance with applicable laws.

In October 1991, the Environmental Protection Agency adopted the Subtitle D
Regulations governing solid waste landfills. The Subtitle D Regulations, which
generally became effective in October 1993, include location restrictions,
facility design standards, operating criteria, closure and post-closure
requirements, financial assurance requirements, groundwater monitoring
requirements, groundwater remediation standards and corrective action
requirements. In addition, the Subtitle D Regulations require that new landfill
sites meet more stringent liner design criteria (typically, composite soil and
synthetic liners or two or more synthetic liners) intended to keep leachate out
of groundwater and have extensive collection systems to carry away leachate for
treatment prior to disposal. Groundwater monitoring wells must also be installed
at virtually all landfills to monitor groundwater quality and, indirectly, the
effectiveness of the leachate collection system. The Subtitle D Regulations also
require, where certain regulatory thresholds are exceeded, that facility owners
or operators control emissions of methane gas generated at landfills in a manner
intended to protect human health and the environment. Each state is required to
revise its landfill regulations to meet these requirements or such requirements
will be automatically imposed by the EPA on landfill owners and operators in
that state. Each state is also required to adopt and implement a permit program
or other appropriate system to ensure that landfills in the state comply with
the Subtitle D Regulations. Various states in which we operate or in which we
may operate in the future have adopted regulations or programs as stringent as,
or more stringent than, the Subtitle D Regulations.

RCRA also regulates underground storage of petroleum and other regulated
materials. RCRA requires registration, compliance with technical standards for
tanks, release detection and reporting, and corrective action, among other
things. Certain of Waste Connections' facilities and operations are subject to
these requirements.

THE FEDERAL WATER POLLUTION CONTROL ACT OF 1972, AS AMENDED (THE "CLEAN WATER
ACT")

The Clean Water Act regulates the discharge of pollutants from a variety of
sources, including solid waste disposal sites and transfer stations, into waters
of the United States. If run-off from our owned or operated transfer stations or
run-off or collected leachate from our owned or operated landfills is discharged
into streams, rivers or other surface waters, the Clean Water Act would require
us to apply for and obtain a discharge permit, conduct sampling and monitoring
and, under certain circumstances, reduce the quantity of pollutants in such
discharge. Also, virtually all landfills are required to comply with the EPA's
storm water regulations issued in November 1990, which are designed to prevent
contaminated landfill storm water runoff from flowing into surface waters. We
believe that our facilities comply in all material respects with the Clean Water
Act requirements. Various states in which we operate or in which we may operate
in the future have been delegated authority to implement the Clean Water Act
permitting requirements, and some of these states have adopted regulations that
are more stringent than the federal requirements. For example, states often
require permits for discharges to ground water as well as surface water.

THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF
1980 ("CERCLA")

CERCLA established a regulatory and remedial program intended to provide for
the investigation and cleanup of facilities where or from which a release of any
hazardous substance into the environment has occurred or is threatened. CERCLA's
primary mechanism for remedying such problems is to impose strict joint and
several liability for cleanup of facilities on current owners and operators of
the site, former owners and operators of the site at the time of the disposal of
the hazardous substances, any person who arranges for the transportation,
disposal or treatment of the hazardous substances, and the transporters who
select the disposal and treatment facilities. CERCLA also imposes liability for
the cost of evaluating and remedying any damage to natural resources. The costs
of CERCLA investigation and cleanup can be very substantial. Liability under
CERCLA does not depend on the existence or disposal of "hazardous waste" as
defined by RCRA; it can also be based on the existence of even very small
amounts of the more than 700 "hazardous substances" listed by the EPA, many of
which can be found in household waste. In addition, the definition of "hazardous
substances" in CERCLA incorporates substances designated as hazardous or toxic
under the federal Clean Water Act, Clear Air Act and Toxic Substances Control
Act. If we were found to be a responsible party for a CERCLA cleanup, the
enforcing agency could hold us, or any other generator, transporter or the owner
or operator of the contaminated facility, responsible for all investigative and
remedial costs, even if others were also liable. CERCLA also authorizes the
imposition of a lien in favor of the United States on all real property subject
to, or affected by, a remedial action for all costs for which a party is liable.
CERCLA gives a responsible party the right to bring a contribution action
against other responsible parties for their allocable shares of investigative
and remedial costs. Our ability to obtain reimbursement from others for their
allocable shares of such costs would be limited by our ability to find other
responsible parties and prove the extent of their responsibility and by the
financial resources of such other parties. Various state laws also impose
liability for investigation, cleanup and other damages associated with hazardous
substance releases.

9

THE CLEAN AIR ACT

The Clean Air Act generally, through state implementation of federal
requirements, regulates emissions of air pollutants from certain landfills based
on factors such as the date of the landfill construction and tons per year of
emissions of regulated pollutants. Larger landfills and landfills located in
areas where the ambient air does not meet certain requirements of the Clean Air
Act may be subject to even more extensive air pollution controls and emission
limitations. In addition, the EPA has issued standards regulating the disposal
of asbestos-containing materials. Air permits to construct may be required for
gas collection and flaring systems, and operating permits may be required,
depending on the potential air emissions. State air regulatory programs may
implement the federal requirements but may impose additional restrictions. For
example, some state air programs uniquely regulate odor and the emission of
toxic air pollutants.

THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970 (THE "OSH ACT")

The OSH Act is administered by the Occupational Safety and Health
Administration ("OSHA"), and in many states by state agencies whose programs
have been approved by OSHA. The OSH Act establishes employer responsibilities
for worker health and safety, including the obligation to maintain a workplace
free of recognized hazards likely to cause death or serious injury, to comply
with adopted worker protection standards, to maintain certain records, to
provide workers with required disclosures and to implement certain health and
safety training programs. Various OSHA standards may apply to our operations,
including standards concerning notices of hazards, safety in excavation and
demolition work, the handling of asbestos and asbestos-containing materials, and
worker training and emergency response programs.

FLOW CONTROL/INTERSTATE WASTE RESTRICTIONS

Certain permits and approvals, as well as certain state and local
regulations, may limit a landfill or transfer station to accepting waste that
originates from specified geographic areas, restrict the importation of
out-of-state waste or wastes originating outside the local jurisdiction or
otherwise discriminate against non-local waste. These restrictions, generally
known as flow control restrictions, are controversial, and some courts have held
that some flow control schemes violate constitutional limits on state or local
regulation of interstate commerce. From time to time, federal legislation is
proposed that would allow some local flow control restrictions. Although no such
federal legislation has been enacted to date, if such federal legislation should
be enacted in the future, states in which we own or operate landfills could
limit or prohibit the importation of out-of-state waste or direct that wastes be
handled at specified facilities. Such state actions could adversely affect our
landfills. These restrictions could also result in higher disposal costs for our
collection operations. If we were unable to pass such higher costs through to
our customers, our business, financial condition and operating results could be
adversely affected.

Certain state and local jurisdictions may also seek to enforce flow control
restrictions through local legislation or contractually. In certain cases, we
may elect not to challenge such restrictions. These restrictions could reduce
the volume of waste going to landfills in certain areas, which may adversely
affect our ability to operate our landfills at their full capacity and/or reduce
the prices that we can charge for landfill disposal services. These restrictions
may also result in higher disposal costs for our collection operations. If we
were unable to pass such higher costs through to our customers, our business,
financial condition and operating results could be adversely affected.

STATE AND LOCAL REGULATION

Each state in which we now operate or may operate in the future has laws and
regulations governing the generation, storage, treatment, handling,
transportation and disposal of solid waste, occupational safety and health,
water and air pollution and, in most cases, the siting, design, operation,
maintenance, closure and post-closure maintenance of landfills and transfer
stations. State and local permits and approval for these operations may be
required and may be subject to periodic renewal, modification or revocation by
the issuing agencies. In addition, many states have adopted statutes comparable
to, and in some cases more stringent than, CERCLA. These statutes impose
requirements for investigation and cleanup of contaminated sites and liability
for costs and damages associated with such sites, and some provide for the
imposition of liens on property owned by responsible parties. Furthermore, many
municipalities also have ordinances, local laws and regulations affecting our
operations. These include zoning and health measures that limit solid waste
management activities to specified sites or activities, flow control provisions
that direct or restrict the delivery of solid wastes to specific facilities,
laws that grant the right to establish franchises for collection services and
then put such franchises out for bid, and bans or other restrictions on the
movement of solid wastes into a municipality.

10

Permits or other land use approvals with respect to a landfill, as well as
state or local laws and regulations, may specify the quantity of waste that may
be accepted at the landfill during a given time period, and/or specify the types
of waste that may be accepted at the landfill. Once an operating permit for a
landfill is obtained, it must generally be renewed periodically.

There has been an increasing trend at the state and local level to mandate
and encourage waste reduction at the source and waste recycling, and to prohibit
or restrict the disposal in landfills of certain types of solid wastes, such as
yard wastes, leaves and tires. The enactment of regulations reducing the volume
and types of wastes available for transport to and disposal in landfills could
prevent us from operating our facilities at their full capacity.

Some state and local authorities enforce certain federal laws in addition to
state and local laws and regulations. For example, in some states, RCRA, the OSH
Act, parts of the Clean Air Act and parts of the Clean Water Act are enforced by
local or state authorities instead of by the EPA, and in some states those laws
are enforced jointly by state or local and federal authorities.

PUBLIC UTILITY REGULATION

In many states, public authorities regulate the rates that landfill
operators may charge. The adoption of rate regulation or the reduction of
current rates in states in which we own or operate landfills could adversely
affect our business, financial condition and operating results.

Solid waste collection services in all unincorporated areas of Washington
and in electing municipalities in Washington are provided under G certificates
awarded by the WUTC. The WUTC also sets rates for regulated solid waste
collection services in Washington.

RISK MANAGEMENT, INSURANCE AND FINANCIAL SURETY BONDS

We maintain environmental and other risk management programs appropriate for
our business. Our environmental risk management program includes evaluating
existing facilities and potential acquisitions for environmental law compliance.
We do not presently expect environmental compliance costs to increase materially
above current levels, but we cannot predict whether future acquisitions will
cause such costs to increase. We also maintain a worker safety program that
encourages safe practices in the workplace. Operating practices at all Waste
Connections operations emphasize minimizing the possibility of environmental
contamination and litigation. Our facilities comply in all material respects
with applicable federal and state regulations.

Conditions in the market for various lines of insurance have changed since
September 11, 2001, with many lines of insurance being subject to reduced
availability and substantial premium increases. Beginning August 1, 2002, we
significantly changed our insurance programs for automobile liability, property,
general liability and workers' compensation. Prior to this date, each of these
areas was third-party insured with a per incident deductible of up to $5,000.
Under our new insurance program, we have increased our per incident deductible
to $2 million for automobile liability claims, and $1 million for general
liability claims, workers' compensation claims and employer's liability claims.

During a 12 month period, our automobile liability policy will pay up to $3
million per claim and in aggregate, after we pay the $2 million per claim
deductible. Additionally, we have an umbrella policy with a third party
insurance company for automobile liability, general liability and employer's
liability that will pay, during a 12 month period, up to $25 million of claims
in excess of the $5 million limit for automobile claims and up to $25 million in
excess of the per incident deductible amount for all other claims. Our umbrella
policy also provides for no limit on statutory benefits for workers'
compensation claims reaching the $1 million deductible amount per incident. Our
umbrella policy does not cover property claims as the insurance limits for these
claims are in accordance with the replacement values of the insured property.

In November 2002, we purchased environmental protection insurance under a
three-year policy with limits of $10 million per occurrence and in the
aggregate. This insurance covers all owned or operated landfills and transfer
stations and all owned materials recycling facilities. Under our policy,
insurance is guaranteed for acquired and newly constructed facilities, but each
addition to the policy is underwritten on a site-specific basis and the premium
is set according to the conditions found at the site. Our policy provides
insurance for new pollution conditions that originate after the commencement of
our coverage. Pollution conditions existing prior to the commencement of our
coverage, if found, could be excluded from coverage.

The increased amounts that we self-insure could increase volatility in our
operating margins and reported earnings based on the timing of occurrences and
claim costs of incidents, accidents and injuries. Significant increases in
premiums on insurance that we

11

retain could reduce our margins. To the extent that the amount we pay in claims
exceeds the amount of any savings in premiums that we achieve by increasing the
amount that we self-insure, our operating margins will be reduced. Additionally,
if we were to incur a liability for environmental cleanups not covered under our
environmental insurance policy or in excess of our insurance coverage limits,
our financial condition could be materially and adversely affected.

We use 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. As a result of recent changes in the
insurance industry, we have experienced less availability and increased cost of
surety bonds for landfill closure and post-closure requirements. We generally
have not experienced significant difficulty in obtaining surety bonds for
performance under our municipal collection contracts or landfill operating
agreements. 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.

Our current surety bond underwriters have provided us with non-binding
commitments to issue up to $90 million of bonds, consisting of $50 million of
bonds for landfill closure and post-closure requirements and $40 million of
bonds for performance under collection contracts and landfill operating
agreements. These non-binding commitments do not have a stated expiration date;
however, individual bonds issued typically have a term of one year. At December
31, 2002, we had provided customers and various regulatory authorities with
surety bonds in the aggregate amount of approximately $36.3 million to secure
our landfill closure and post-closure requirements and $27.8 million to secure
performance under collection contracts and landfill operating agreements.

If our current bond underwriters are unwilling to issue additional bonds
under the current non-binding commitment, renew existing bonds upon expiration,
or increase their total commitment upon reaching the maximum issuance amount
under the current non-binding commitments, or if we are unable to obtain surety
bonds through new underwriters as such needs arise, we would need to arrange
other means of financial assurance, such as a cash trust or a letter of credit,
to secure contract performance or meet closure and post-closure requirements.
Such alternate financial assurance may not be readily available, and may result
in additional expense or capital outlays.

EMPLOYEES

At December 31, 2002, we employed 3,609 full-time employees, including 371
persons classified as professionals or managers, 2,772 employees involved in
collection, transfer, disposal and recycling operations, and 466 sales,
clerical, data processing or other administrative employees.

Approximately 238 of our drivers and mechanics are represented by the
Teamsters Union in various locations. These employees are subject to labor
agreements that are subject to renegotiation periodically. In October 2002,
approximately 55 employees who are represented by the Teamsters Union commenced
a strike at our facilities in Pierce County, Washington. We continued to operate
these facilities with a combination of existing employees and strike
replacements. The employees have filed a petition to de-certify the union. In
connection with this labor dispute, we incurred costs of approximately $1.4
million in the fourth quarter of 2002 relating to travel and costs for
management assistance, replacement workers, security, legal expenses and other
expenses.

We do not expect any significant disruption in our business in 2003 as a
result of labor negotiations or employee strikes. We are not aware of any other
organizational efforts among our employees and we believe that our relations
with our employees are good. Approximately 94 of our drivers and mechanics at
our Vancouver, WA facilities are represented by the Teamsters Union. On January
31, 2003, the labor agreement with these employees expired and the employees
have continued to work under the terms of the expired labor agreement. We are
currently negotiating a new labor agreement with these employees and have no
reason to believe that we will not be successful in reaching a mutually
acceptable agreement.

AVAILABLE INFORMATION

Our internet website address is http:wasteconnections.com. We make our
reports on Forms 10-K, 10-Q and 8-K available on our website free of charge as
soon as reasonably practicable after we file them with the SEC.

12

RISK FACTORS

Outlined below are some of the risks that we face and that could affect our
business and financial statements for 2003 and beyond. However, they are not the
only risks that we face. There may be additional risks that we do not presently
know of or that we currently believe are immaterial which could also impair our
business.

RISKS RELATED TO OUR BUSINESS

Difficulties in making acquisitions, acquiring exclusive contracts and
- ----------------------------------------------------------------------
generating internal growth may cause our growth to be slower than expected.
- ---------------------------------------------------------------------------

Our growth strategy includes expanding through acquisitions, acquiring
additional exclusive arrangements and generating internal growth. Since
inception, most of our growth has been through acquisitions. Internally
generated growth for the industry and Waste Connections has generally been less
than 8% per year. Although we have identified numerous acquisition candidates
that we believe are suitable, we may not be able to acquire them at prices or on
terms and conditions favorable to us. Our ability to grow also depends on
several other factors, including:

- - the availability of capital to support our growth;
- - our ability to compete with existing and emerging companies;
- - our ability to maintain profit margins in the face of competitive pressures;
- - our ability to continue to recruit, train and retain qualified employees; and
- - continued strong demand for our services.

Difficulties in any of these areas could hinder our growth.

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

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

Rapid growth may strain our management, operational, financial and other
- ------------------------------------------------------------------------
resources.
- ----------

From inception through December 31, 2002, we acquired 151 solid waste
services related businesses. To maintain and manage our growth, we will need to
expand our management information systems capabilities and our operational and
financial systems and controls. We will also need to attract, train, motivate,
retain and manage additional senior managers, technical professionals and other
employees. Failure to do any of these things would restrict our ability to
maintain and improve our profitability while continuing to grow.

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

Part of our strategy is to achieve economies of scale and operating
efficiencies by growing through acquisitions. We may not achieve these goals
unless we effectively combine the operations of acquired businesses with our
existing operations. Our senior management team may not be able to integrate our
completed and future acquisitions. Any difficulties we encounter in the
integration process could interfere with our operations and reduce our operating
margins.

We compete for acquisition candidates with other purchasers, some of which have
- -------------------------------------------------------------------------------
greater financial resources than Waste Connections. These competitors may be
- ----------------------------------------------------------------------------
able to offer more favorable acquisition terms, thus limiting our ability to
- ----------------------------------------------------------------------------
grow through acquisition.
- -------------------------

Other companies have adopted or will probably adopt our strategy of
acquiring and consolidating regional and local businesses. We expect that
increased consolidation in the solid waste services industry will increase
competitive pressures. Increased competition for acquisition candidates may make
fewer acquisition opportunities available to us, and may cause us to make
acquisitions on less
13

attractive terms, such as higher purchase prices. Acquisition costs may increase
to levels beyond our financial capability or to levels that would adversely
affect our operating results and financial condition.

Timing of acquisitions may cause fluctuations in our quarterly results, which
- -----------------------------------------------------------------------------
may cause our stock price to decline.
- -------------------------------------

We are not always able to control the timing of our acquisitions. Obtaining
third-party consents and regulatory approvals, completing due diligence on the
acquired businesses, and finalizing transaction terms and documents are not
entirely within our control and may take longer than we anticipate, causing
certain transactions to be delayed. Our inability to complete acquisitions in
the time frames that we expect may cause our operating results to be less
favorable than expected, which could cause our stock price to decline.

We may be unable to compete effectively with governmental service providers and
- -------------------------------------------------------------------------------
larger and better capitalized companies, which may result in reduced revenues
- -----------------------------------------------------------------------------
and lower profits.
- ------------------

Our industry is highly competitive, fragmented and requires substantial
labor and capital resources. Some of the markets in which we compete or will
likely compete are served by one or more large, national solid waste companies,
as well as by numerous regional and local solid waste companies of varying sizes
and resources, some of which have accumulated substantial goodwill in their
markets.

We also compete with counties, municipalities and solid waste districts that
maintain their own waste collection and disposal operations. These operators may
have financial advantages over Waste Connections because of their access to user
fees and similar charges, tax revenues and tax-exempt financing. Some of our
competitors may also be better capitalized, have greater name recognition or be
able to provide services at a lower cost than Waste Connections.

We may lose contracts through competitive bidding, early termination or
- -----------------------------------------------------------------------
governmental action, which would cause our revenues to decline.
- ---------------------------------------------------------------

We derive a substantial portion of our revenue from services provided under
exclusive municipal contracts, franchise agreements and governmental
certificates. Many of these will be subject to competitive bidding at some time
in the future. For example, we have approximately 86 municipal contracts,
representing annual revenues of approximately $5.8 million, that could expire in
the next 12 months and have no renewal provisions. We also intend to bid on
additional municipal contracts and franchise agreements. We may not be the
successful bidder. In addition, some of our customers may terminate their
contracts with us before the end of the contract term. Municipalities may annex
unincorporated areas within counties where we provide collection services; as a
result, our customers in annexed areas may be required to obtain service from
competitors that have been franchised by the annexing municipalities to provide
those services. Municipalities in which services are currently provided on a
competitive basis may elect to franchise collection services. Unless we are
awarded franchises by these municipalities, we will lose customers.
Municipalities in Washington may by law annex unincorporated territory, which
would likely remove such territory from the area covered by governmental
certificates issued to us by the WUTC. Annexation would reduce the areas covered
by our governmental certificates and subject more of our Washington operations
to competitive bidding in the future. Moreover, legislative action could amend
or repeal the laws governing WUTC regulation, which could harm our competitive
position by subjecting more areas to competitive bidding. If we were not able to
replace revenues from contracts lost through competitive bidding or early
termination or from the renegotiation of existing contracts with other revenues
within a reasonable time period, our revenues could decline.

We may not have enough capital or be able to raise enough additional capital on
- -------------------------------------------------------------------------------
satisfactory terms to meet our capital requirements, which would limit our
- --------------------------------------------------------------------------
growth through acquisitions.
- ----------------------------

Continued growth will require additional capital. We expect to finance
future acquisitions through cash from operations, borrowings under our credit
facility, issuing additional equity or debt securities and/or seller financing.
If acquisition candidates are unwilling to accept, or we are unwilling to issue,
shares of our common stock as part of the consideration for acquisitions or if
our common stock does not maintain a sufficient market value, we may have to use
more of our cash or borrowings under our credit facility to fund acquisitions.
We will also need to make substantial capital expenditures to develop or acquire
new landfills, transfer stations and other facilities and to maintain such
properties. Using cash for acquisitions and capital expenditures limits our
financial flexibility and makes us more likely to seek additional capital
through future debt or equity financings. If available cash from operations and
borrowings under the credit facility are not sufficient to fund acquisitions and
capital expenditures, we will need additional equity and/or debt financing. If
we incur more debt, our interest expense would increase and we may have to agree
to financial covenants that limit our operational and financial flexibility. We
have pledged substantially all of our assets as collateral for

14

our credit facility, which could restrict our ability to obtain additional debt
on attractive terms. If we issue more equity, we may dilute the ownership
interests of our then-existing stockholders. If we are unable to obtain
additional equity and/or debt financing on attractive terms, our rate of growth
through acquisitions may decline.

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

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

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

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

Efforts by labor unions to organize our employees could divert management
- -------------------------------------------------------------------------
attention and increase our operating expenses.
- ----------------------------------------------

Labor unions often attempt to organize our employees, and these efforts will
likely continue in the future. Certain groups of our employees are represented
by unions, and we have negotiated collective bargaining agreements with some of
these groups. Additional groups of employees may seek union representation in
the future, and the negotiation of collective bargaining agreements with these
groups could divert management attention and result in increased operating
expenses and lower net income. If we are unable to negotiate acceptable
collective bargaining agreements, we might have to wait through "cooling off"
periods, which are often followed by union-initiated work stoppages, including
strikes. Depending on the type and duration of any labor disruptions, our
operating expenses could increase significantly, which could adversely affect
our financial condition, results of operations and cash flows.

The geographic concentration of our business makes our results vulnerable to
- ----------------------------------------------------------------------------
factors affecting the regions in which we operate, and seasonal fluctuations may
- --------------------------------------------------------------------------------
cause our business and financial results to vary among quarters, which could
- ----------------------------------------------------------------------------
create volatility in our stock price.
- -------------------------------------

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

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

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

Increases in the costs of labor, disposal, fuel or energy could reduce operating
- --------------------------------------------------------------------------------
margins.
- --------

Our continued success will depend on our ability to attract and retain
qualified personnel. We compete with other businesses in our markets for
qualified employees. From time to time, the labor supply is tight in some of our
markets. A shortage of qualified employees would require us to enhance our wage
and benefits packages to compete more effectively for employees or to hire more

15

expensive temporary employees. Labor is our largest cost, and even relatively
small increases in labor costs per employee could materially affect our cost
structure. If we fail to attract and retain qualified employees, to control our
labor costs, or to recover any increased labor costs through increased prices we
charge for our services or otherwise offset such increases with cost savings in
other areas, our operating margins could suffer. If we incur increases in our
disposal costs in areas where we do not dispose of solid waste at a landfill
that we own or operate or if we incur increases in costs of operating landfills
that we do own or operate and if, in either case, we are unable to pass these
costs on to our customers, our operating results would suffer. Although fuel and
energy costs account for a relatively small portion of our total operating
expenses, the price of fuel and energy is volatile, and shortages sometimes
occur. To partially reduce our exposure to fluctuations in the price of fuel, we
have entered into an unconditional obligation to purchase diesel fuel for
approximately 51 of our operating districts at a fixed price under a 12 month
agreement expiring on December 31, 2003. Although recent energy crises affecting
California and other western states in which we operate did not materially
affect our operations or profitability in those regions, further significant
increases in the cost of fuel or energy, or shortages of fuel or energy, could
interrupt or curtail our operations and lower our operating margins.

Decreased availability of surety bonds could require us to obtain other means of
- --------------------------------------------------------------------------------
financial assurance, which could result in additional capital outlays and
- -------------------------------------------------------------------------
increased expense and cause a reduction in our operating margins.
- -----------------------------------------------------------------

We use 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. As a result of recent changes in the
insurance industry, we have experienced less availability of surety bonds for
landfill closure and post-closure requirements. We generally have not
experienced significant difficulty in obtaining surety bonds for performance
under our municipal collection contracts or landfill operating agreements.
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.

Our current surety bond underwriters have provided us with non-binding
commitments to issue up to $90 million of bonds, consisting of $50 million of
bonds for landfill closure and post-closure requirements and $40 million of
bonds for performance under collection contracts and landfill operating
agreements. These non-binding commitments do not have a stated expiration date;
however, individual bonds issued typically have a term of one year. At December
31, 2002, we had provided customers and various regulatory authorities with
surety bonds in the aggregate amount of approximately $36.3 million to secure
our landfill closure and post-closure requirements and $27.8 million to secure
performance under collection contracts and landfill operating agreements.

If our current bond underwriters are unwilling to issue additional bonds
under the current non-binding commitment, renew existing bonds upon expiration,
or increase their total commitment upon reaching the maximum issuance amount
under the current non-binding commitments, or if we are unable to obtain surety
bonds through new underwriters as such needs arise, we would need to arrange
other means of financial assurance, such as a cash trust or a letter of credit,
to secure contract performance or meet closure and post-closure requirements.
Such alternate financial assurance may not be readily available, and may result
in additional expense or capital outlays.

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

Conditions in the market for various lines of insurance have changed since
September 11, 2001, with many lines of insurance being subject to reduced
availability and substantial premium increases. Beginning August 1, 2002, we
significantly changed our insurance programs for automobile liability, property,
general liability and workers' compensation. Prior to this date, each of these
areas was third-party insured with a per incident deductible of up to $5,000.
Under our new insurance program, we have increased our per incident deductible
to $2 million for automobile liability claims, and $1 million for general
liability claims, workers' compensation claims, and employer's liability claims.
Our automobile liability policy will pay up to $3 million in aggregate, after we
pay the $2 million deductible, during a 12 months period. Additionally, we have
an umbrella policy with a third party insurance company for automobile
liability, general liability and employer's liability that will pay, during a 12
month period, up to $25 million of claims in excess of the $5 million limit for
automobile claims and up to $25 million in excess of the per incident deductible
amount for all other claims. Our umbrella policy also provides for no limit on
statutory benefits for workers' compensation claims, after achieving the $1
million deductible amount per incident. Our umbrella policy does not cover
property claims as the insurance limits for these claims are in accordance with
the replacement values of the insured property. The increased amounts that we
self-insure could cause significant volatility in our operating margins and
reported earnings based on the occurrence and claim costs of incidents,
accidents and injuries. Significant increases in premiums on insurance that we
retain could reduce our margins. In addition, to the extent that the

16

amount we pay in claims exceeds the amount of any savings in premiums that we
achieve by increasing the amount that we self-insure, our operating margins will
be reduced.

Each business that we acquire or have acquired may have liabilities that we fail
- --------------------------------------------------------------------------------
or are unable to discover, including liabilities that arise from prior owners'
- ------------------------------------------------------------------------------
failure to comply with environmental laws, which may harm our financial
- -----------------------------------------------------------------------
condition.
- ----------

As a successor owner, we may be legally responsible for these liabilities.
Even if we obtain legally enforceable representations, warranties and
indemnities from the sellers of such businesses, they may not cover the
liabilities fully. Some environmental liabilities, even if we do not expressly
assume them, may be imposed on Waste Connections under various legal theories.
Our insurance program does not cover liabilities associated with any
environmental cleanup or remediation of our own sites. A successful uninsured
claim against Waste Connections could harm our financial condition.

Our growth may be limited by the inability to obtain new landfills and expand
- -----------------------------------------------------------------------------
existing ones.
- --------------

We currently own and/or operate a number of landfills. Based on remaining
permitted capacity, probable expansion capacity and projected annual disposal
volumes, the estimated remaining lives of our owned landfills and landfills we
operate, but do not own, under life-of-site operating agreements range from
approximately 6 to 313 years, with an average remaining life of approximately 62
years. Our ability to meet our growth objectives may depend in part on our
ability to acquire, lease and expand landfills and develop new landfill sites.
We may not be able to obtain new landfill sites or expand the permitted capacity
of our landfills when necessary. Obtaining new landfill sites is important to
our expansion into new non-exclusive markets; if we do not believe that we can
obtain a landfill site in a non-exclusive market, we may choose not to enter
into that market. Expanding existing landfill sites is important in those
markets where the remaining life of our landfills is relatively short. We may
choose to forego acquisitions and internal growth in these markets because
increased volumes would further shorten the life of these landfills. Either of
these circumstances could result in slower growth.

In some areas in which we operate, suitable land for new landfill sites or
- --------------------------------------------------------------------------
expansion of existing landfill sites may be unavailable, which could increase
- -----------------------------------------------------------------------------
our disposal costs and reduce our operating margins.
- ----------------------------------------------------

Operating permits for landfills in states where we operate must generally be
renewed every five to ten years. It has become increasingly difficult and
expensive to obtain required permits and approvals to build, operate and expand
solid waste management facilities, including landfills and transfer stations.
The process often takes several years, requires numerous hearings and compliance
with zoning, environmental and other requirements and is resisted by citizen,
public interest or other groups. We may not be able to obtain or maintain the
permits we require to expand, and such permits may contain burdensome terms and
conditions. Even when granted, final permits to expand are often not approved
until the remaining permitted disposal capacity of a landfill is very low. Local
laws and ordinances also may affect our ability to obtain permits to expand
landfills. If we were to exhaust our permitted capacity at a landfill, our
ability to expand internally would be limited, and we could be required to cap
and close that landfill and forced to dispose of collected waste at more distant
landfills or at landfills operated by our competitors. The resulting increased
costs would reduce our operating margins.

Our accruals for our landfill closure and post-closure costs may be inadequate,
- -------------------------------------------------------------------------------
and our earnings would be lower if we are required to pay additional amounts.
- -----------------------------------------------------------------------------

We may be required to pay closure and post-closure costs of landfills and
any disposal facilities that we own or operate. Closure and post-closure costs
of our owned landfills, and landfills not owned, but operated under life-of-site
agreements, are generally incurred for a term of 30 years after final closure of
a landfill, and accrued based on engineering estimates of future requirements
associated with the final landfill design, final landfill capping and closure
and post-closure process. Our obligations to pay closure or post-closure costs
may exceed the amount we accrued and reserved and other amounts available from
funds or reserves established to pay such costs. Paying additional amounts would
lower our earnings and could cause our stock price to decline.

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

In accordance with accounting principles generally accepted in the United
States, we capitalize some expenditures and advances relating to acquisitions,
pending acquisitions and landfill development projects. We expense indirect
acquisition costs such as executive salaries, general corporate overhead, public
affairs and other corporate services as we incur those costs. We charge against
earnings any unamortized capitalized expenditures and advances (net of any
amount that we estimate we will recover, through sale or otherwise) that relate
to any operation that is permanently shut down, any pending acquisition that is
not consummated and any
17

landfill development project that we do not expect to complete. Therefore, we
may incur charges against earnings in future periods, which could lower our
stock price.

Recent accounting pronouncements may require a write-down of our goodwill, which
- --------------------------------------------------------------------------------
could materially impair our net worth.
- --------------------------------------

In June 2001, the Financial Accounting Standards Board issued Statement No.
142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition and supercedes APB 17, Intangible Assets. The most significant
changes made by FAS 142 are: (1) goodwill and indefinite-lived intangible assets
will no longer be amortized; (2) goodwill will be tested for impairment at least
annually at the reporting unit level; and (3) intangible assets deemed to have
an indefinite life will be tested for impairment at least annually.

As a result of our acquisition strategy, we have a material amount of
goodwill recorded on our financial statements. Under FAS 142, effective January
1, 2002, we no longer amortize our existing goodwill. We are required to test
goodwill for impairment using the two-step process prescribed in FAS 142. The
first step is a screen for potential impairment, while the second step measures
the amount of the impairment, if any. In 2002, we performed the first of the
required impairment tests of goodwill and indefinite-lived intangible assets
based on the carrying values as of January 1, 2002 and September 30, 2002.
Subsequent to September 30, 2002, no events or changes in circumstances occurred
that indicated the potential existence of goodwill or indefinite-lived
intangible asset impairment. As a result of performing the tests for potential
impairment, we determined that no impairment existed as of January 1, 2002 or
December 31, 2002 and therefore, it was not necessary to write down any of our
goodwill or indefinite-lived intangible assets. We will continue to perform the
potential impairment tests on an annual basis during the fourth quarter of each
fiscal year. If, as a result of performing future impairment tests, we are
required to write down any of our goodwill or indefinite-lived intangible
assets, operating results would be negatively impacted and our net worth will be
reduced. Our credit agreement contains a covenant requiring us to maintain a
minimum funded debt to capitalization ratio, and net worth is one of the
components of capitalization. A reduction in net worth, therefore, if
substantial, could limit the amount that we can borrow under our credit
agreement and any failure to comply with the agreement could result in an event
of default under the credit agreement.

If we fail to comply with covenants and conditions in our credit facility, we
- -----------------------------------------------------------------------------
may be unable to make acquisitions and may be required to repay our debt early,
- -------------------------------------------------------------------------------
which could harm our financial results.
- ---------------------------------------

Our credit facility requires us to obtain the consent of the lending banks
before acquiring any other business for more than $25 million in cash and
assumed debt. If we are not able to obtain our banks' consent to acquisitions of
this size, we may not be able to complete them, which could inhibit our growth.
Our credit facility also contains financial covenants based on our current and
projected financial condition after completing an acquisition. If we cannot
satisfy these financial covenants on a pro forma basis after completing an
acquisition, we would not be able to complete the acquisition without a waiver
from our lending banks. Whether or not a waiver is needed, if the results of our
future operations differ materially from what we expect, we may no longer be
able to comply with the covenants in the credit facility. Our failure to comply
with these covenants may result in a default under the credit facility, which
would allow our lending banks to accelerate the date for repayment of debt
incurred under the credit facility and could harm our business and financial
results.

Provisions in our charter and bylaws may deter changes in control that could
- ----------------------------------------------------------------------------
benefit our stockholders.
- -------------------------

Provisions in our certificate of incorporation and By-Laws, and in the
Delaware General Corporation Law, may deter tender offers and hostile takeovers
and delay or prevent changes in control or management of Waste Connections,
including transactions in which stockholders might be paid more than current
market prices for their shares. These provisions may also limit our
stockholders' ability to approve transactions that they believe are in their
best interests.

RISKS RELATED TO OUR INDUSTRY

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

Environmental laws and regulations have been enforced more and more
stringently in recent years because of greater public interest in protecting the
environment. These laws and regulations impose substantial costs on us and
affect our business in many ways, including as described below. In addition,
federal, state and local governments may change the rights they grant to, and
the restrictions they impose on, solid waste services companies, and those
changes could restrict our operations and growth.

18

We may be unable to obtain and maintain licenses or permits and zoning,
- -----------------------------------------------------------------------
environmental and/or other land use approvals that we need to own and operate
- -----------------------------------------------------------------------------
our landfills.
- --------------

These licenses or permits and approvals are difficult and time-consuming to
obtain and renew, and elected officials and citizens' groups frequently oppose
them. Failure to obtain and maintain the permits and approvals we need to own or
operate landfills (including increasing their capacity) could force us to
dispose of collection waste at more distant landfills or at landfills owned by
other competitors, thus increasing our disposal costs and reducing our operating
margins.

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

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

We may be subject in the normal course of business to judicial and
- ------------------------------------------------------------------
administrative proceedings involving federal, state or local agencies or
- ------------------------------------------------------------------------
citizens' groups, which could interrupt our operations, require expensive
- -------------------------------------------------------------------------
remediation and create negative publicity.
- ------------------------------------------

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

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

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

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

We provide recycling services to some of our customers. The sale prices of
and demand for recyclable materials, particularly paper products, are frequently
volatile, and when they decline our revenues and operating results may decline.

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

Certain courts have held that states may not regulate the flow of solid
waste in interstate commerce if the effect would be to discriminate between
interstate and intrastate commerce. If legislation should be enacted that would
overturn or modify these decisions, and if one or more of the states in which we
dispose of interstate waste should take action that would prohibit or increase
the costs of our continued disposal of interstate waste, our operating results
could be adversely affected.

19

ITEM 2. PROPERTIES

As of December 31, 2002, we owned 90 collection operations, 23 transfer
stations, 19 Subtitle D landfills, one construction and demolition landfill and
18 recycling facilities and operated, but did not own, an additional six
transfer stations and ten Subtitle D landfills. We also own one Subtitle D
landfill site which is permitted for operation, but not constructed as of
December 31, 2002. We lease various offices and facilities, including our
corporate offices in Folsom, California. We own various equipment, including
waste collection and transportation vehicles, related support vehicles, carts,
containers, and heavy equipment used in landfill operations. We believe that our
existing facilities and equipment are generally adequate for our current
operations. However, we expect to make additional investments in property and
equipment for expansion and replacement of assets and in connection with future
acquisitions.

Our corporate headquarters is located in Folsom, California, where we lease
approximately 31,000 square feet of space.


ITEM 3. LEGAL PROCEEDINGS

In January 2002, the Oklahoma Department of Environmental Quality Land
Protection Division (the "Department") issued an order to Waste Connections
requiring us to cease accepting more than 200 tons per day of out-of-state waste
at our Red Carpet Landfill in Oklahoma due to our alleged failure to obtain the
Department's prior approval of a disposal plan for that waste. At that time, the
Department assessed Waste Connections a fine of $0.2 million for past violations
related to accepting more than 200 tons per day of out-of-state waste prior to
obtaining the Department's approval of a disposal plan. While seeking the
Department's approval of a disposal plan, we continued to accept more than 200
tons a day of out-of-state waste because we believed, based on the advice of our
legal counsel, that the Department did not have the legal right to require us to
obtain its approval of a disposal plan prior to accepting more than 200 tons per
day of out-of-state waste. In June 2002, the Department issued an amended order
approving our disposal plan subject to conditions and increasing the fine
assessed against us to $2.2 million because we continued to accept more than 200
tons per day of out of state waste prior to obtaining its approval of our plan.
We objected to some of the conditions imposed in the order and initiated
litigation against the Department challenging this order. Based on our
consideration of the facts surrounding the order and the advice of our legal
counsel, in the event the matter is not settled and litigation proceeds, we
believe that we will prevail. Therefore, we believe that any payment resulting
from the order will not materially affect our cash flows, financial condition or
results of operations.

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


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

There were no matters submitted to a vote of security holders during the
fourth quarter of 2002.

EXECUTIVE OFFICERS

The following table sets forth certain information concerning our executive
officers as of March 15, 2003:

NAME AGE POSITIONS
- ---- --- ---------

Ronald J. Mittlestaedt (1) 39 President, Chief Executive Officer and Chairman
Steven F. Bouck 46 Executive Vice President and Chief Financial Officer
Darrell W. Chambliss 38 Executive Vice President - Operations
Robert D. Evans 56 Executive Vice President, General Counsel and Secretary
Kenneth O. Rose 54 Senior Vice President - Administration
Michael R. Foos 37 Vice President - Finance and Chief Accounting Officer
David M. Hall 45 Vice President - Business Development
Eric J. Moser 36 Vice President - Corporate Controller
Eric Hansen 38 Vice President - Information Technology
Jerri L. Hunt 51 Vice President - Human Resources and Risk Management
James M. Little 41 Vice President - Engineering


(1) Member of the Executive Committee of the Board of Directors.


20

Ronald J. Mittelstaedt has been President, Chief Executive Officer and a
director since Waste Connections was formed, and was elected Chairman in January
1998. Mr. Mittelstaedt has more than 14 years of experience in the solid waste
industry. He served as a consultant to United Waste Systems, Inc., with the
title of Executive Vice President, from January 1997 to August 1997, where he
was responsible for corporate development for all states west of Colorado. As
Regional Vice President of USA Waste Services, Inc. (including Sanifill, Inc.,
which was acquired by USA Waste Services, Inc.) from November 1993 to January
1997, he was responsible for all operations in 16 states and Canada. Mr.
Mittelstaedt held various positions at Browning-Ferris Industries, Inc. ("BFI")
from August 1988 to November 1993, most recently as Division Vice President in
northern California, overseeing the San Jose market. Previously he was the
District Manager responsible for BFI's operations in Sacramento and the
surrounding areas. He holds a B.S. degree in Finance from the University of
California at Santa Barbara.

Steven F. Bouck has been Executive Vice President and Chief Financial
Officer since February 1998. Mr. Bouck held various positions with First
Analysis Corporation from 1986 to 1998, including most recently as Managing
Director coordinating corporate finance. In that capacity, he provided merger
and acquisition advisory services to companies in the environmental industry.
Mr. Bouck was also responsible for assisting in investing venture capital funds
focused on the environmental industry that were managed by First Analysis. In
connection with those investments, he served on the boards of directors of
several companies. Mr. Bouck holds B.S. and M.S. degrees in mechanical
engineering from Rensselaer Polytechnic Institute and an M.B.A. in Finance from
the Wharton School. He has been a Chartered Financial Analyst since 1990.

Darrell W. Chambliss has been Executive Vice President - Operations since
October 1, 1997. Mr. Chambliss held various management positions at USA Waste
Services, Inc. (including Sanifill, Inc. and United Waste, Inc., both of which
were acquired by USA Waste Services, Inc.) from April 1995 to September 1997,
including most recently Division Manager in Corning, California, where he was
responsible for the operations of 19 operating companies as well as supervising
and integrating acquisitions. From July 1989 to April 1995, he held various
management positions with BFI, including serving as Assistant District Manager
in San Jose, California, where he was responsible for a significant hauling
operation, and serving as District Manager in Tucson, Arizona for more than
three years. Mr. Chambliss holds a B.S. degree in Business Administration from
the University of Arkansas.

Robert D. Evans has been Executive Vice President, General Counsel and
Secretary of Waste Connections since June 2002. From 1978 until he joined the
company, Mr. Evans was a partner in the San Francisco law firm of Shartsis,
Friese & Ginsburg LLP, where he was also a member of the Management Committee.
Mr. Evans' practice included representing companies in mergers and acquisitions
and corporate finance transactions. Prior to joining Waste Connections, Mr.
Evans had been the company's primary outside counsel since its formation. Mr.
Evans holds a B.A. degree in Economics and a J.D. degree from the University of
California at Berkeley.

Kenneth O. Rose has been Senior Vice President - Administration since May
2002. He also served as a consultant to Waste Connections in March and April
2002. From May 2000 to March 2002, he provided consulting services to
WorldOil.Com, Inc. and Gulf Publishing Company. As Vice President -
Administration for Coach USA, Inc., from October 1996 to April 2000, Mr. Rose
was responsible for all corporate administrative activities in the United
States, Canada and Mexico. Mr. Rose has over seven years experience in the solid
waste industry obtained primarily with USA Waste Services, Inc. (including
Sanifill, Inc., which was acquired by USA Waste Services, Inc.) where he held
the position of Corporate Director - Administration from December 1990 to
September 1996. From August 1989 to November 1990, Mr. Rose provided consulting
and personnel services to BSI, Inc., a solid waste services company in Houston,
Texas acquired by Sanifill, Inc. Prior to joining the waste industry, Mr. Rose
held various administrative positions in the oil and offshore drilling
industries from 1971 to 1989 with Standard Oil Company-Indiana, Gulf Oil
Corporation and Chevron Corporation. Mr. Rose holds a B.S. degree in Accounting
from the University of Wyoming.

David M. Hall has been Vice President - Business Development since August 1,
1998. Mr. Hall has more than 16 years of experience in the solid waste industry
with extensive operating and marketing experience in the Western U.S. From
October, 1995 to July 1998, Mr. Hall was the Divisional Vice President of USA
Waste Services, Inc., Rocky Mountain Division (including Sanifill, Inc. which
was acquired by USA Waste Services, Inc.). In that position, he oversaw all
operations and business development in six Rocky Mountain states. Prior to his
employment with Sanifill, Mr. Hall held various management positions with BFI
from October 1986 to October 1995, including Vice President of Sales for the
Western United States. Mr. Hall was employed from 1979 to 1986 in a variety of
sales and marketing management positions in the high technology sector. Mr. Hall
received a B.S. degree in Management and Marketing from Southwest Missouri State
University.

Michael R. Foos has been Vice President - Finance and Chief Accounting
Officer since October 1999. From October 1997 to September 1999, Mr. Foos served
as Vice President and Corporate Controller of Waste Connections. Mr. Foos served
as Division Controller of USA Waste Services, Inc. (including Sanifill, Inc.,
which was acquired by USA Waste Services, Inc.) from October

21

1996 to September 1997, where he was responsible for financial compilation and
reporting and acquisition due diligence for a seven-state region. Mr. Foos
served as Assistant Regional Controller at USA Waste Services, Inc. from August
1995 to September 1996, where he was responsible for internal financial
reporting for operations in six states and Canada. Mr. Foos also served as
District Controller for Waste Management, Inc. from February 1990 to July 1995,
and was a member of the audit staff of Deloitte & Touche from 1987 to 1990. Mr.
Foos holds a B.S. degree in Accounting from Ferris State University.

Eric J. Moser has been Vice President - Corporate Controller since October
1999. From October 1997 to September 1999, Mr. Moser served as Waste
Connections' Treasurer and Assistant Corporate Controller. From August 1995 to
September 1997, Mr. Moser held various finance positions at USA Waste Services,
Inc. (including Sanifill, Inc., which was acquired by USA Waste Services, Inc.),
most recently as Controller of the Ohio Division, where he was responsible for
internal financial compilation and reporting and acquisition due diligence.
Previously Mr. Moser was Controller of the Michigan Division of USA Waste
Services, Inc., where he was responsible for internal financial reporting. Mr.
Moser served as Controller for Waste Management, Inc. from June 1993 to August
1995, where he was responsible for internal financial reporting for a hauling
company, landfill and transfer station. Mr. Moser holds a B.S. degree in
Accounting from Illinois State University.

Eric Hansen has been Vice President - Information Technology since January
2001. From April 1998 to December 2000, Mr. Hansen served as Waste Connections'
Director of Management Information Systems. Mr. Hansen served as Information
Systems Manager with Fibres International from October 1997 to April 1998. Mr.
Hansen held various positions including NT Administrator for the Multnomah
Athletic Club in Portland, Oregon from August 1989 to October 1997. Mr. Hansen
holds a B.S degree from Portland State University.

Jerri L. Hunt has been Vice President - Human Resources and Risk Management
since December 1999. From 1994 to 1999, Ms. Hunt held various positions with
First Union National Bank (including the Money Store, which was acquired by
First Union National Bank), most recently Vice President of Human Resources in
which she managed all aspects of human resources for over 5,000 employees
located throughout the United States. From 1989 to 1994, Ms. Hunt served as
Manager of Human Resources and Risk Management for BFI, where she was
responsible for all aspects of human resources and safety and environmental
compliance matters. Ms. Hunt also served as a Human Resources Supervisor for
United Parcel Service from 1976 to 1989. She holds a B.S. degree from California
State University, Sacramento and a master's degree in Human Resources from
Golden Gate University.

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







22

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common stock trades on the New York Stock Exchange under the symbol
"WCN". The following table sets forth, for the periods indicated, the high and
low prices per share of our common stock, as reported on The Nasdaq Stock
Market(R) - National Market for the periods indicated through October 23, 2002,
and as reported on the New York Stock Exchange beginning October 24, 2002.

HIGH LOW
-------- --------
2001
First Quarter $ 33.50 $ 23.00
Second Quarter 37.31 25.70
Third Quarter 34.90 22.20
Fourth Quarter 32.90 25.47

2002
First Quarter $ 34.26 $ 23.49
Second Quarter 37.68 30.60
Third Quarter 36.24 25.60
Fourth Quarter 39.56 29.73

2003
First Quarter (through March 13, 2003) $ 39.98 $ 30.75



On March 13, 2003, there were 89 record holders of Waste Connections' common
stock.

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

During the fourth quarter of 2002, we issued warrants to purchase 5,400
shares of our common stock to a business development consultant as part of a
compensation plan for services rendered. This consultant is a sophisticated
investor, familiar with our business and industry in which we operate. The
consultant is also an "accredited investor" as defined in Rule 501(a) under the
Securities Act of 1933, as amended (the "Securities Act") received copies of our
most recent annual report to shareholders and the proxy statement accompanying
that annual report, and had access to all of our reports filed with the
Securities and Exchange Commission during our last fiscal year and the current
year. The consultant was able to ask questions of our management concerning the
terms of offering and to obtain additional information necessary to verify the
accuracy of information to which he had access. No general solicitation or
advertising was used in connection with the issuance of the warrants. The
warrants were issued with legends stating that they have not been registered
under the Securities Act and setting forth restrictions on transfer. The
warrants were issued in reliance on the exemptions from registration provided by
Sections 3(b) and 4(2) of the Securities Act and Regulation D under that Act.



23



The following is a summary of all of our equity compensation plans,
including plans that were assumed through acquisitions and individual
arrangements that provide for the issuance of equity securities as compensation,
as of December 31, 2002. See Note 10 to the consolidated financial statements
for additional discussion.




(c)
Number of securities
(a) (b) remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a))
------------- ------------------- ------------------- ------------------------

Equity compensation plans
approved by security holders 1,963,527 $ 23.06 2,684,351
Equity compensation plans not
approved by security holders 889,472 24.48 2,259,200
------------ ------------
Total 2,852,999 $ 23.50 4,943,551
============ ============























24

ITEM 6. SELECTED FINANCIAL DATA

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

YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1998 1999 2000 2001 2002
------------ ------------ ------------ ------------ ------------

STATEMENT OF OPERATIONS DATA:
Revenues $ 99,624 $ 184,225 $ 304,355 $ 377,533 $ 498,661
Operating expenses:
Cost of operations 71,635 112,686 174,510 210,590 281,331
Selling, general and administrative 10,599 16,019 25,579 32,007 47,366
Depreciation and amortization 8,008 14,769 27,195 36,138 38,977
Loss on disposal of operations -- -- 833 4,879 --
Acquisition-related expenses -- 9,003 150 -- --
------------ ------------ ------------ ------------ ------------
Income from operations 9,382 31,748 76,088 93,919 130,987

Interest expense (3,458) (11,531) (28,705) (30,045) (32,228)
Other income (expense), net (881) (66) 116 (6,196) (813)
------------ ------------ ------------ ------------ ------------
Income before income tax provision
and minority interests 5,043 20,151 47,499 57,678 97,946

Minority interests -- -- -- (7,338) (9,367)
------------ ------------ ------------ ------------ ------------
Income before income tax provision 5,043 20,151 47,499 50,340 88,579

Income tax provision (2,776) (10,924) (19,310) (19,812) (33,113)
------------ ------------ ------------ ------------ ------------
Net income $ 2,267 $ 9,227 $ 28,189 $ 30,528 $ 55,466
============ ============ ============ ============ ============
Redeemable convertible preferred
stock accretion (917) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income applicable to common
stockholders $ 1,350 $ 9,227 $ 28,189 $ 30,528 $ 55,466
============ ============ ============ ============ ============

Basic income per common share $ 0.13 $ 0.49 $ 1.21 $ 1.13 $ 2.00
============ ============ ============ ============ ============

Diluted income per common share $ 0.11 $ 0.46 $ 1.17 $ 1.10 $ 1.90
============ ============ ============ ============ ============
Shares used in calculating basic
income per share 10,412,868 18,655,801 23,301,358 27,069,685 27,750,642
============ ============ ============ ============ ============
Shares used in calculating diluted
income per share 12,323,990 19,929,539 23,994,994 27,675,639 32,325,624
============ ============ ============ ============ ============



DECEMBER 31,
--------------------------------------------------------------------------------
1998 1999 2000 2001 2002
------------ ------------ ------------ ------------ ------------

BALANCE SHEET DATA:
Cash and equivalents $ 3,351 $ 2,393 $ 2,461 $ 7,279 $ 4,067
Working capital (deficit) (14,167) (10,149) (10,398) (4,825) (23,048)
Property and equipment, net 51,422 335,260 384,237 465,806 578,040
Total assets 176,659 617,958 810,104 979,353 1,261,882
Long-term debt 68,274 275,145 334,194 416,171 578,481
Total stockholders' equity 66,837 218,521 334,208 379,805 451,712



25


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

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

OVERVIEW

Waste Connections, Inc. is an integrated solid waste services company that
provides solid waste collection, transfer, disposal and recycling services in
mostly secondary markets in the Western, Midwestern and Southeastern U.S. As of
December 31, 2002, we served more than one million commercial, industrial and
residential customers in Alabama, California, Colorado, Georgia, Illinois, Iowa,
Kansas, Kentucky, New Mexico, Minnesota, Mississippi, Montana, Nebraska, Ohio,
Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, and Wyoming.
As of that date, we owned 90 collection operations and operated or owned 29
transfer stations, 29 Subtitle D landfills, one construction and demolition
landfill and 18 recycling facilities. We also own one Subtitle D landfill site
which is permitted for operation, but not constructed as of December 31, 2002.

We generally intend to pursue an acquisition-based growth strategy and as of
December 31, 2002 have acquired 151 businesses since our inception in September
1997. Excluding debt and other long-term liabilities assumed totaling $73.5
million, the aggregate consideration for acquisitions occurring in 2002, using
the purchase method of accounting, was approximately $169.4 million. From
inception through December 31, 2002, the results of operations of these acquired
businesses have been included in our financial statements only from the
respective dates of acquisition, except for 14 acquisitions accounted for under
the poolings-of-interests method of accounting, which are included for all
periods presented. We anticipate that a substantial part of our future growth
will come from acquiring additional solid waste collection, transfer and
disposal businesses and, therefore, we expect additional acquisitions could
continue to affect period-to-period comparisons of our operating results.

CRITICAL ACCOUNTING POLICIES

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

Self-insurance liabilities. During 2002, we increased our scope of
self-insurance, becoming primarily self-insured for automobile liability,
general liability and workers' compensation claims. Previously, we were
primarily self-insured only for automobile collision and employee group health
claims. Our self-insurance accruals are based on claims filed and estimates of
claims incurred but not reported and are developed by our management and by our
third-party claims administrator. The self-insurance accruals are influenced by
our past claims experience factors, which have a limited history, and by
published industry development factors. If we experience insurance claims or
costs above or below our historically evaluated levels, our estimates could be
materially affected. The frequency and amount of claims or incidents could vary
significantly over a period of time, which could materially affect our
self-insurance liabilities. Additionally, the actual costs to settle the
self-insurance liabilities could materially differ from the original estimates.

Accounting for landfills. The discussion below details our accounting
policies for landfills through December 31, 2002. As of January 1, 2003, our
practice will change upon our adoption of SFAS No. 143, Accounting for Asset
Retirement Obligations ("SFAS No. 143"). Our adoption of SFAS No. 143 will
result in a significant change to our accounting policies for landfill closure
and post-closure obligations. See discussion below under "New Accounting
Pronouncements" for additional information and an analysis of the estimated
impact the adoption of SFAS No. 143 will have on our balance sheet and results
of operations for the year ended December 31, 2003.

We amortize certain costs at our landfills using a units-of-production
method as permitted airspace of the landfill is consumed. Landfill closure and
post-closure costs are recorded at net present value and accreted to reflect the
passage of time. The accounting methods discussed below require us to make
certain estimates and assumptions. Changes to these estimates and assumptions
could have a material effect on our financial position and results of
operations. Any changes to our estimates are applied prospectively.

Landfill development costs. Landfill development costs include the costs of
acquisition, construction associated with excavation, liners, site berms,
groundwater monitoring wells and leachate collection systems. We estimate the
total costs associated with developing each landfill site to its final capacity.
Total landfill costs include the development costs associated with "deemed"
permitted airspace. Deemed permitted airspace is addressed below. Landfill
development costs are dependent upon future events and thus actual costs could
vary significantly from our estimates. Material differences between estimated
and actual development costs

26


may affect our cash flows by increasing our capital expenditures and thus affect
our results of operations by increasing our landfill depletion expense.

Closure and post-closure obligations. We reserve for estimated closure and
post-closure maintenance obligations at the landfills we own and certain
landfills that we operate, but do not own. We could have additional material
financial obligations relating to closure and post-closure costs of the other
disposal facilities that we currently own or operate and that we may own or
operate in the future. We calculate the net present value of the closure and
post closure commitment assuming an inflation rate of 3% and a discount rate of
7.5%. We accrete discounted amounts previously recorded to reflect the passage
of time. Our adoption of SFAS 143, Accounting for Asset Retirement Obligations
("SFAS No. 143") on January 1, 2003 will result in a significant change to our
accounting policies for landfill closure and post-closure obligations. For
example, our discount rate will be increased to 8.5% as of January 1, 2003.
Refer to "New Accounting Pronouncements" below for an analysis of the estimated
impact the adoption of SFAS No. 143 will have on our balance sheet and results
of operations for the year ended December 31, 2003. Significant reductions in
our estimates of the remaining lives of our landfills or significant increases
in our estimates of the landfill closure and post-closure maintenance costs
could have a material adverse effect on our financial condition and results of
operations.

Disposal capacity. Our internal and third-party engineers perform surveys at
least annually to estimate the disposal capacity at our landfills. Our landfill
depletion rates are based on the remaining disposal capacity, considering both
permitted and deemed permitted airspace, at our landfills. Deemed permitted
airspace consists of additional disposal capacity being pursued through means of
an expansion. Deemed permitted airspace that meets certain internal criteria is
included in our estimate of total landfill airspace. Our internal criteria to
determine when deemed permitted airspace may be included as disposal capacity is
as follows:

(1) The land where the expansion is being sought is contiguous to the
current disposal site, and is either owned by us or we have a purchase
option;
(2) Total development 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.

We may be unsuccessful in obtaining permits for disposal capacity that has
been deemed permitted. If we are unsuccessful in obtaining permits for deemed
permitted disposal capacity, we will charge the previously capitalized
development costs to expense. This will adversely affect our operating results
and cash flows and could result in greater landfill depletion expense being
recognized on a prospective basis.

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

Impairment of intangible assets. We periodically evaluate acquired
businesses for potential impairment indicators. Our judgments regarding the
existence of impairment indicators are based on regulatory factors, market
conditions, anticipated cash flows and operational performance of our acquired
businesses. Future events could cause us to conclude that impairment indicators
exist and that goodwill or other intangibles associated with our acquired
businesses are impaired. Any resulting impairment loss could reduce our net
worth and have a material adverse effect on our financial condition and results
of operations. Additionally, our credit agreement contains a covenant requiring
us to maintain a minimum funded debt to capitalization ratio, and net worth is
one of the components of capitalization. A reduction in net worth, therefore, if
substantial, could limit the amount that we can borrow under our credit
agreement and any failure to comply with the agreement could result in an event
of default under the credit agreement. As of December 31, 2002, goodwill and
intangible assets represented 46.2% of our total assets.

27


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

We deem the total remaining permitted and deemed permitted airspace of an
acquired landfill to be a tangible asset. Therefore, for acquired landfills, we
initially allocate 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 airspace.

We often consummate single acquisitions that include a combination of
collection operations and landfills. For each separately identified collection
operation and landfill acquired in a single acquisition, we perform 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,
we further allocate 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.

We accrue the payment of contingent purchase price if the events surrounding
the contingency are deemed probable. 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.

Allowance for doubtful accounts. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments. If the financial condition of our customers
deteriorated, impairing their ability to make payments, additional allowances
may be required. In addition, if certain customer and billing information is not
properly integrated from acquisitions that we close, additional allowances may
be required.

GENERAL

Our revenues consist mainly of fees we charge customers for solid waste
collection, transfer, disposal and recycling services. Our collection business
also generates revenues from the sale of recyclable commodities, which have
significant variability. A large part of our collection revenues comes from
providing commercial, industrial and residential services. We frequently perform
these services under service agreements or franchise agreements with counties or
municipal contracts. Our existing franchise agreements and all of our existing
municipal contracts give us the exclusive right to provide specified waste
services in the specified territory during the contract term. These exclusive
arrangements are awarded, at least initially, on a competitive bid basis and
subsequently on a bid or negotiated basis. We also provide residential
collection services on a subscription basis with individual households.
Approximately 50% of our revenues for the year ended December 31, 2002 were
derived from market areas where services are provided predominantly under
exclusive franchise agreements, long-term municipal contracts and governmental
certificates. Governmental certificates grant us perpetual and exclusive
collection rights in the covered areas. Contracts with counties and
municipalities and governmental certificates provide relatively consistent cash
flow during the terms of the contracts. Because we bill most residential
customers quarterly, subscription agreements also provide a stable source of
revenues for us. Our collection business also generates revenues from the sale
of recyclable commodities. The table below shows for the periods indicated the
percentage of our total reported revenues attributable to services provided,
prior to intercompany eliminations.





28


Year Ended December 31,
---------------------------
2000 2001 2002
----- ----- -----
Collection 70.8% 67.9% 65.9%
Landfill 13.4 18.7 18.5
Transfer and processing 9.3 9.6 12.1
Recycling 6.0 3.4 3.3
Other 0.5 0.4 0.2
----- ----- -----
100.0% 100.0% 100.0%
----- ----- -----

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

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

We derive a substantial portion of our revenues from services provided under
exclusive municipal contracts and franchise agreements. No single contract or
customer accounted for more than 5% of our revenues for the years ended December
31, 2000, 2001 and 2002.

Costs of operations include labor, fuel, equipment maintenance and tipping
fees paid to third-party disposal facilities, worker's compensation and vehicle
insurance and claims expense, the cost of materials we purchase for recycling,
third-party transportation expense, district and state taxes and host community
fees and royalties. In 2002, we increased our scope of self-insurance, becoming
primarily self-insured for general liability, workers' compensation and
automobile liability. Previously, we were primarily self-insured only for
automobile collision and employee group health claims. The frequency and amount
of claims or incidents for the areas in which we are primarily self-insured
could vary significantly from quarter to quarter and/or year to year, resulting
in increased volatility of our cost of operations. As of December 31, 2002, we
owned and/or operated 29 transfer stations, which reduce our costs by allowing
us to use collection personnel and equipment more efficiently and by
consolidating waste to reduce transportation costs to remote sites and gain more
favorable disposal rates that may be available for larger quantities of waste.

Selling, general and administrative ("SG&A") expenses include management,
clerical and administrative compensation, overhead costs associated with our
marketing and sales force, professional services and community relations
expense.

Depreciation expense includes depreciation of fixed assets over their
estimated useful lives using the straight-line method. Prior to January 1, 2002,
amortization expense included the amortization of goodwill (for businesses
acquired prior to June 30, 2001) and other intangible assets using the
straight-line method. As discussed more fully below, beginning January 1, 2002,
goodwill and indefinite-lived intangible assets are no longer amortized.

We capitalize some third-party expenditures related to pending acquisitions
or development projects, such as legal, engineering and interest expenses. We
expense indirect acquisition costs, such as executive and corporate overhead,
public relations and other corporate services, as we incur them. We charge
against net income any unamortized capitalized expenditures and advances (net of
any portion that we believe we may recover, through sale or otherwise) that
relate to any operation that is permanently shut down and any pending
acquisition or landfill development project that we believe will not be
completed. We routinely evaluate all capitalized costs, and expense those
related to projects that we believe are not likely to succeed. At December 31,
2002, we had $0.4 million of capitalized interest related to landfill
development projects and $0.1 million in capitalized expenditures relating to
pending acquisitions.

We continually evaluate the value and future benefits of our intangible
assets, including goodwill. We assess the recoverability from future operations
using cash flows and income from operations of the related acquired businesses
as measures. Under this approach, the carrying value is reduced if it becomes
probable that our best estimate for expected future cash flows of the related
business would be less than the carrying amount of the intangible assets. As of
December 31, 2002, there have been no adjustments to

29


the carrying amounts of intangibles resulting from these evaluations. As of
December 31, 2002, goodwill and other intangible assets represented
approximately 46.2% of total assets and 128.9% of stockholders' equity.

Goodwill represents the excess of the purchase price over the fair value of
the net assets of the acquired entities. In allocating the purchase price of an
acquired company among its assets, we first assign value to the tangible assets,
followed by intangible assets, including covenants not to compete and certain
contracts. We determine the value of the other intangible assets by considering,
among other things, the present value of the cash flows associated with those
assets.

NEW ACCOUNTING PRONOUNCEMENTS

SFAS Nos. 141 and 142

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets" (collectively, the "Statements"), effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives are no longer amortized but are subject to
annual impairment tests in accordance with the Statements. Other intangible
assets, including those meeting new recognition criteria under the Statements,
continue to be amortized over their estimated useful lives.

We fully adopted the new rules on accounting for goodwill and other
intangible assets beginning on January 1, 2002. We test goodwill for impairment
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. In 2002, we performed the first of the required
impairment tests of goodwill and indefinite-lived intangible assets based on the
carrying values as of January 1, 2002 and September 30, 2002. Between September
30, 2002 and December 31, 2002, no events or changes in circumstances occurred
that indicated the potential existence of goodwill or indefinite-lived
intangible asset impairment. As a result of performing the tests for potential
impairment, we determined that no impairment existed as of January 1, 2002 or
December 31, 2002 and therefore, it was not necessary to write down any of our
goodwill or indefinite-lived intangible assets. We will continue to perform the
potential impairment tests on an annual basis during the fourth quarter of our
fiscal year.

Net income for the years ended December 31, 2000 and 2001, adjusted for the
nonamortization provisions of SFAS No. 142, was $33.1 million and $37.4 million,
respectively. Basic shares outstanding were 23,301,358 and 27,069,685,
respectively, for the years ended December 31, 2000 and 2001. Diluted shares
outstanding were 23,994,994 and 27,675,639, respectively, for the years ended
December 31, 2000 and 2001.

SFAS No. 143

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
Accounting for Asset Retirement Obligations ("SFAS No. 143"), which outlines
standards for accounting for obligations associated with the retirement of
long-lived assets. SFAS No. 143 is effective beginning January 1, 2003 and will
impact the accounting for landfill retirement obligations, which we have
historically referred to as closure and post-closure obligations. The adoption
of SFAS No. 143 will have no impact on our cash requirements.

Accrued closure and post-closure costs represent an estimate of the current
value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills we currently own and/or
operate. Closure and post-closure monitoring and maintenance costs represent the
costs related to cash expenditures yet to be incurred when a landfill facility
ceases to accept waste and closes. Accruals for closure and post-closure
monitoring and maintenance requirements in the U.S. consider site inspection,
groundwater monitoring, leachate management, methane gas control and recovery,
and operating and maintenance costs to be incurred during the period after the
facility closes. Certain of these environmental costs, principally capping and
methane gas control costs, are also incurred during the operating life of the
site in accordance with the landfill operation requirements of Subtitle D and
the air emissions standards. Site specific closure and post-closure engineering
cost estimates are prepared annually for landfills owned and/or operated by us
for which we are responsible for closure and post-closure.

Under our historical accounting practice, landfill closure and post-closure
obligations are calculated by estimating the total obligation in current
dollars, inflating the obligation based upon the expected date of the
expenditure using an inflation rate of 3% and discounting the inflated total to
its present value using a 7.5% discount rate. The resulting obligation is
recorded as a long-term liability with a corresponding increase to landfill site
costs. Interest is accreted on the recorded liability using the corresponding
discount rate and recorded as a component of interest expense. The amount
recorded to site costs is charged to depletion expense on a

30


units-of-consumption basis as landfill airspace is consumed. The impact of
changes determined to be changes in estimates, based on the annual update, are
accounted for on a prospective basis. Final capping costs are generally included
in the estimate of the total costs associated with developing each landfill site
to its final capacity and depleted on a units-of-production basis under our
current accounting method as landfill airspace is consumed. Final capping costs
have generally not been included in the calculation of closure and post-closure
liabilities under our current accounting method.

We believe the adoption of SFAS No. 143 will impact the calculation of
landfill retirement obligations, and the classification of amounts recorded in
the financial statements as follows:

- - Landfill closure and post-closure liabilities will continue to be calculated
by estimating the total obligation in current dollars, inflating the
obligation based upon the expected date of the expenditure using an
inflation rate of 3% and discounting the inflated total to its present value
using an 8.5% discount rate. The 8.5% discount rate is higher than the 7.5%
historically used because SFAS No. 143 requires the use of a credit-adjusted
risk-free rate. The resulting closure and post-closure obligation will be
recorded on the balance sheet as the landfill's total airspace is consumed.
Discounting the obligation with a higher discount rate and recording the
liability as airspace is consumed results in a decrease to the previously
recorded closure and post-closure liabilities.

- - Final capping costs will be included in the calculation of closure and
post-closure liabilities. Final capping costs will be estimated using
current dollars, inflated to the expected date of the final capping
expenditures, discounted to a net present value and recorded on the balance
sheet as a component of closure and post-closure liabilities as landfill
airspace is consumed.

- - Interest accretion will be reduced as a result of the decrease in the
recorded closure and post-closure liabilities and will be reclassified from
interest expense to cost of operations, thus causing a reduction in income
from operations and an increase of net income. However, there will be no
change in operating cash flow.

- - Depletion on the closure and post-closure obligation recorded as a component
of landfill site costs will generally be less during the early portion of a
landfill's operating life and increase thereafter.

Upon adoption, SFAS No. 143 requires a cumulative change in accounting for
landfill obligations retroactively to the date of the inception of the landfill.
Inception of the asset retirement obligation is the date operations commenced or
the date the asset was acquired. Upon adoption of SFAS No. 143 on January 1,
2003, we expect a cumulative effect of the change in accounting principle of
$0.4 million ($0.3 million, net of tax), a decrease in our closure and
post-closure liability of $9.1 million and a decrease in our net landfill assets
of $8.7 million.

The following is a summary of management's estimate of the changes that will
result from the adoption of SFAS No. 143 on January 1, 2003 (unaudited, amounts
in thousands):

Balance at Balance at
December 31, January 1,
2002 Change 2003
--------- --------- ---------
Landfill site costs $ 412,226 $ (9,286) $ 402,940
Accumulated depletion (31,458) 619 (30,839)
--------- --------- ---------

Net landfill site costs $ 380,768 $ (8,667) $ 372,101
--------- --------- ---------

Closure and post-closure liability $ 13,749 $ (9,142) $ 4,607
--------- --------- ---------

The following is a reconciliation of our estimated 2003 landfill expenses,
based on landfills owned as of December 31, 2002, after adoption of SFAS No. 143
to the estimated expense under our historical accounting practice (unaudited,
amounts in thousands):

Historical
Method Change Revised
--------- --------- ---------
Closure and post-closure accretion $ 1,031 $ (639) $ 392
Landfill depletion 12,703 (1,064) 11,639
--------- --------- ---------
$ 13,734 $ (1,703) $ 12,031
========= ========= =========

31


SFAS No. 144

Effective January 1, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The adoption of SFAS No. 144 did not have a material impact on our financial
statements and related disclosures.

SFAS No. 145

In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Modifications to Reporting of Extinguishments of Debt and Accounting for
Certain Capital Lease Modifications and Technical Corrections", effective for
transactions occurring after May 15, 2002. SFAS No. 145 requires gains and
losses on extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items. SFAS No. 145 also
requires that certain modifications to capital leases be treated as a
sale-leaseback and modifies the accounting for sub-leases when the original
lessee remains a secondary obligor (or guarantor). We elected to adopt SFAS No.
145 early, which resulted in the reclassification from extraordinary items to
other expenses of $0.3 million of losses incurred during the year ended December
31, 2001 resulting from early extinguishments of debt.

SFAS No. 146

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities", effective
for transactions occurring after December 31, 2002. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. Our
adoption of SFAS No. 146 is not expected to have a material effect on our
financial statements.

SFAS No. 148

In December 2002, the Financial Accounting Standards Board issued FASB
Statement No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition to SFAS No. 123's
fair value method of accounting for stock-based employee compensation. SFAS No.
148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No.
28, "Interim Financial Reporting", to require disclosure in the summary of
accounting policies of the effects of an entity's accounting policy with respect
to stock-based employee compensation on reported net income and earnings per
share in annual and interim financial statements. SFAS No. 148 does not amend
SFAS No. 123 to require companies to account for employee stock options using
the fair value method. We adopted the disclosure provisions of SFAS No. 148 and
continue to account for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" ("APB 25").

FIN 45

In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). It clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee, including its
ongoing obligation to stand ready to perform over the term of the guarantee in
the event that the specified triggering events or conditions occur. The
objective of the initial measurement of the liability is the fair value of the
guarantee at its inception. The initial recognition and initial measurement
provisions of FIN 45 are effective for us on a prospective basis for guarantees
issued after December 31, 2002. We will record the fair value of future material
guarantees, if any.

FIN 46

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"). 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
immediately to variable interest entities created after January 31, 2003 and to
existing variable interest entities beginning after June 15, 2003. We do not
expect the adoption of FIN 46 to have a material impact on our financial
statements because, as of December 31, 2002, we consolidate all of our less than
100% owned subsidiaries.

32


RESULTS OF OPERATIONS

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


Year Ended December 31,
--------------------------------------------------------------------------
2000 as a 2001 as a 2002 as a
% of % of % of
2000 Revenue 2001 Revenue 2002 Revenue
--------- --------- --------- --------- --------- ---------

Revenues $ 304,355 100.0% $ 377,533 100.0% $ 498,661 100.0%
Cost of operations 174,510 57.3 210,590 55.8 281,331 56.4
Selling, general and administrative 25,579 8.4 32,007 8.5 47,366 9.5
Depreciation and amortization 27,195 9.0 36,138 9.5 38,977 7.8
Loss on disposal of operations 833 0.3 4,879 1.3 -- --
Acquisition-related expenses 150 0.0 -- -- -- --
--------- --------- --------- --------- --------- ---------
Income from operations 76,088 25.0 93,919 24.9 130,987 26.3

Interest expense, net (28,705) (9.4) (30,045) (8.0) (32,228) (6.5)
Other income (expense), net 116 0.0 (6,196) (1.6) (813) (0.2)
Minority interests -- -- (7,338) (1.9) (9,367) (1.9)
Income tax provision (19,310) (6.3) (19,812) (5.3) (33,113) (6.6)
--------- --------- --------- --------- --------- ---------
Net income $ 28,189 9.3% $ 30,528 8.1% $ 55,466 11.1%
========= ========= ========= ========= ========= =========


Years Ended December 31, 2002 and 2001

Revenues. Total revenues for the year ended December 31, 2002 increased
$121.2 million, or 32.1%, to $498.7 million from $377.5 million for the year
ended December 31, 2001. Revenues in the year ended December 31, 2002 from
acquisitions closed in 2002 as well as the inclusion in 2002 of 12 months of
revenues from businesses acquired in 2001 totaled approximately $94.9 million,
or 78.4% of the increase. For the remaining increase in revenues, $15.5 million
was attributable to selected price increases, $2.3 million was due to improved
recyclable commodity prices and $8.5 million was the result of volume growth in
our existing business.

Cost of Operations. Total cost of operations increased $70.7 million, or
33.6%, to $281.3 million for the year ended December 31, 2002 from $210.6
million for the year ended December 31, 2001. The increase was primarily
attributable to acquisitions closed in 2002, the inclusion in 2002 of 12 months
of operating costs from businesses acquired in 2001, $1.4 million of costs
incurred resulting from an employee labor strike at our facilities in Pierce
County, Washington, growth in our existing business and higher insurance costs,
partially offset by greater integration of collection volumes into landfills we
own or operate.

Total cost of operations as a percentage of revenues for the year ended
December 31, 2002 increased 0.6 percentage points to 56.4% from 55.8% for the
year ended December 31, 2001. The increase as a percentage of revenues was
primarily attributable to the mix of revenues associated with acquisitions
closed in 2002, which had operating margins below our company average, higher
insurance costs, and costs resulting from a labor strike in Pierce County,
Washington, partially offset by greater integration of collection volumes into
landfills we own or operate.

SG&A. Total SG&A increased $15.4 million, or 48.0%, to $47.4 million for the
year ended December 31, 2002 from $32.0 million for the year ended December 31,
2001. The increase was primarily attributable to additional personnel from
acquisitions closed in 2002, the inclusion in 2002 of 12 months of SG&A costs
from businesses acquired in 2001, additional corporate, regional and district
level overhead, $1.3 million of employment-related expenses associated with the
termination of our search for a chief operating officer and the hiring of two
new corporate officers, higher relocation expenses associated with new hires and
transfers of existing employees, increased bad debt expense, increased legal
expenses, higher insurance costs, stock compensation expense related to the
issuance of restricted stock to district-level personnel in 2002, $0.4 million
expense associated with the relocation of our headquarters and early termination
of our former corporate headquarters property lease and $0.3 million of costs
associated with the listing of our common stock on the New York Stock Exchange.
During the year ended December 31, 2001, we recognized $0.9 million of expenses
related to the termination of negotiations and due diligence for a large
potential acquisition.

SG&A as a percentage of revenues for the year ended December 31, 2002
increased 1.0 percentage point to 9.5% from 8.5% for the year ended December 31,
2001. The increase in SG&A as a percentage of revenues resulted from
acquisitions closed in 2002

33


having SG&A costs as a percentage of revenues above our company average,
additional corporate, regional and district level overhead to accommodate our
current and future growth, employment-related expenses associated with the
termination of our search for a chief operating officer and the hiring of two
new corporate officers, higher employee relocation expenses related to new hires
and transfers of existing employees, increased bad debt expense, increased legal
expenses, stock compensation expense related to restricted stock issued to
district-level personnel in 2002, the accrual of an expense associated with the
relocation of our headquarters and early termination of our former corporate
headquarters property lease and costs associated with the listing of our common
stock on the New York Stock Exchange. The increase in SG&A as a percentage of
revenues was partially offset by the recognition during 2001 of expenses related
to the termination of negotiations and due diligence for a large potential
acquisition.

Depreciation and Amortization. Depreciation and amortization expenses for
the year ended December 31, 2002 increased $2.9 million, or 7.9%, to $39.0
million from $36.1 million for the year ended December 31, 2001. The increase
resulted primarily from increased depletion due to higher volumes of waste
disposed at our landfills, depreciation and depletion associated with
acquisitions closed in 2002 and the inclusion in 2002 of 12 months of
depreciation and depletion from businesses acquired in 2001, and increased
depreciation expense resulting from new equipment acquired to support our base
operations, partially offset by decreased amortization expense from not
amortizing goodwill during the year ended December 31, 2002, due to the
application of the nonamortization provisions of SFAS No. 142. Total goodwill
amortization expense recognized in the year ended December 31, 2001 was $9.6
million. No goodwill amortization expense was recognized in the year ended
December 31, 2002.

Depreciation and amortization as a percentage of revenues for the year ended
December 31, 2002 decreased 1.7 percentage points to 7.8% from 9.5% for the year
ended December 31, 2001. The decrease in depreciation and amortization as a
percentage of revenues was the result of applying the nonamortization provisions
of SFAS No. 142, partially offset by increased depletion due to higher volumes
of waste disposed at our landfills and increased depreciation expense associated
with new equipment acquired in 2002. Goodwill amortization expense as a
percentage of revenues for the year ended December 31, 2001 was 2.5%.

Loss on Disposal of Operations. During the year ended December 31, 2001, we
sold some of our Utah operations that were deemed to no longer be of strategic
importance. We recognized a non-cash pre-tax loss of $4.9 million from this
sale.

Operating Income. Operating income for the year ended December 31, 2002
increased $37.1 million, or 39.5%, to $131.0 million from $93.9 million for the
year ended December 31, 2001. The increase was primarily attributable to the
growth in revenues, applying the nonamortization provisions of SFAS No. 142 and
the absence of the prior year loss associated with the disposal of some of our
Utah operations, partially offset by higher operating costs, depreciation,
depletion and SG&A expenses.

Operating income as a percentage of revenues for the year ended December 31,
2002 increased 1.4 percentage points to 26.3% from 24.9% for the year ended
December 31, 2001. The increase in operating income as a percentage of revenues
was attributable to applying the nonamortization provisions of SFAS No. 142 and
not incurring losses on the disposal of operations, partially offset by declines
in gross margins, higher depreciation and depletion expenses and an increase in
SG&A expenses as a percentage of revenues.

Interest Expense. Interest expense for the year ended December 31, 2002
increased $2.2 million, or 7.3%, to $32.2 million from $30.0 million for the
year ended December 31, 2001. The increase was primarily attributable to higher
debt levels incurred to fund our acquisitions, partially offset by lower
interest rates on our revolving credit facility and our replacing a portion of
the borrowings under our revolving credit facility with lower interest
subordinated debt obligations. At December 31, 2002, we had $76.0 million of
floating rate borrowings under our credit facility, $175.0 million of Floating
Rate Convertible Subordinated Notes due 2022 and $18.0 million of other floating
rate debt. Should interest rates rise, our interest cost on these borrowings
would increase. Based on the outstanding borrowing amounts for these floating
rate instruments at December 31, 2002, a one percent increase in interest rates
would result in a $2.7 million increase in interest expense.

Other Expense. Other expense decreased to $0.8 million for the year ended
December 31, 2002 from $6.2 million for the year ended December 31, 2001. The
primary component of other expense for the year ended December 31, 2001 was $6.3
million of expenses resulting from cash payments for the early termination of an
interest rate swap. During the first quarter of 2001, we determined that the
debt, the specific cash flows of which an interest rate swap was designated as
hedging, would be repaid prior to its due date from the net proceeds of our
convertible subordinated debt offering; therefore, it was probable that the
future variable interest payments under the related debt (the hedged
transactions) would not occur. The remaining components of other expense for
2002 and 2001 were net losses incurred on the disposal of certain assets.

Minority Interests. Minority interests increased $2.1 million, or 27.7%, to
$9.4 million for the year ended December 31, 2002, from $7.3 million for the
year ended December 31, 2001. The increase was attributable to increased
earnings by our majority-owned subsidiaries, as well as our owning majority
interests in those entities, acquired in February 2001, for the entire 12 months
ended December 31, 2002, compared to owning them for approximately eleven months
in the year ended December 31, 2001.

34


Provision for Income Taxes. Income taxes increased $13.3 million, or 67.1%,
to $33.1 million for the year ended December 31, 2002, from $19.8 million for
the year ended December 31, 2001. This increase was due to increased pre-tax
earnings, partially offset by a 1.5 percentage point reduction in our effective
tax rate due to the elimination of non-deductible goodwill. The effective income
tax rate for the year ended December 31, 2002 was 37.4%, which is above the
federal statutory rate of 35.0% primarily due to state and local taxes.

Net Income. Net income increased $25.0 million, or 81.7%, to $55.5 million
for the year ended December 31, 2002, from $30.5 million for the year ended
December 31, 2001. The increase was primarily attributable to increased
operating income in 2002, and the absence of prior year losses associated with
the disposal of some of our Utah operations and the termination of an interest
rate swap in 2001, partially offset by increases in interest expense, higher
income tax expense and higher minority interests.

Years Ended December 31, 2001 and 2000

Revenues. Total revenues for 2001 increased $73.2 million, or 24.0%, to
$377.5 million from $304.4 million in 2000. Approximately 53% of the increase
resulted from acquisitions accounted for using the purchase method of accounting
that closed since the beginning of 2001. The remaining increase was primarily
attributable to the inclusion in 2001 of 12 months of revenues from businesses
acquired in 2000, selective price increases and growth in the base business,
partially offset by a decline in commodity prices and the loss of revenues
previously generated by certain Utah operations that were sold in 2001.

Cost of Operations. Total cost of operations for 2001 increased $36.1
million, or 20.7%, to $210.6 million from $174.5 million in 2000. The increase
was primarily attributable to the inclusion of the cost of operations of
acquisitions closed since the beginning of the year and the inclusion in 2001 of
12 months of operating costs from businesses acquired in 2000. Cost of
operations as a percentage of revenues declined by 1.5 percentage points to
55.8% in 2001 from 57.3% in 2000. The decline in cost of operations as a
percentage of revenues was primarily attributable to the effect of tuck-in
acquisitions closed since the beginning of 2001, economies of scale from the
larger revenue base, greater integration of collection volumes into landfills we
own or operate and selective price increases.

SG&A. SG&A expenses increased $6.4 million, or 25.1%, to $32.0 million for
2001 from $25.6 million for 2000. Our SG&A increased as a result of additional
personnel from companies acquired, additional corporate overhead to accommodate
our growth and the incurrence of $0.9 million in expenses related to the
termination of negotiations and due diligence for a large potential acquisition.
SG&A as a percentage of revenues increased 0.1 percentage points to 8.5% for
2001 from 8.4% for 2000. The increase in SG&A as a percentage of revenues was
due to the incurrence of terminated acquisition expenses, offset by the result
of spreading overhead expenses over a larger base of revenue from the
acquisitions completed in 2001.

Depreciation and Amortization. Depreciation and amortization expense
increased $8.9 million, or 32.9% to $36.1 million in 2001 from $27.2 million in
2000. The increase resulted primarily from the inclusion of depreciation and
amortization of businesses acquired in 2001, the inclusion in 2001 of 12 months
of depreciation and amortization from businesses acquired in 2000, the
amortization of goodwill and other intangible assets associated with
acquisitions accounted for using the purchase method of accounting and a greater
percentage of revenues derived from landfill activity. Depreciation and
amortization as a percentage of revenues increased 0.6 percentage points to 9.5%
for 2001 from 8.9% for 2000. The increase in depreciation and amortization as a
percentage of revenues in 2001 was due to the increased amortization of landfill
airspace associated with landfills purchased in 2001 and the roll over effect of
landfills acquired in 2000, partially offset by not having to amortize goodwill
on acquisitions closed subsequent to June 30, 2001. The landfill amortization
rates as a percentage of revenues are generally higher than the depreciation and
amortization rates associated with collection assets.

Loss on Disposal of Operations. During 2001, we sold some of our Utah
operations that were deemed to no longer be of strategic importance. We
recognized a pre-tax loss of $4.9 million from this sale. During 2000, we sold
our Idaho operations and recognized a pre-tax loss of $0.8 million from this
sale.

Acquisition Related Expenses. Acquisition related expenses decreased to $0
for 2001 from $0.2 million in 2000. The prior year acquisition related expenses
were for commissions, professional fees, and other direct costs resulting from
the one acquisition that was accounted for using the pooling-of-interests
method.

Operating Income. Operating income increased $17.8 million, or 23.4%, to
$93.9 million in 2001 from $76.1 million in 2000. The increase was attributable
to operating income recognized from acquisitions closed in 2001, the inclusion
in 2001 of 12 months of operating income from acquisitions closed in 2000,
selective price increases, economies of scale from a greater revenue base and
greater integration of collection volumes into transfer stations and landfills
we own or operate, partially offset by increased losses

35


from the disposal of certain operations, increased depreciation and amortization
expenses and SG&A expenses. Operating income as a percentage of revenues
decreased 0.1 percentage points to 24.9% for 2001 from 25.0% for 2000. The
decrease in operating income as a percentage of revenues is attributable to the
increased losses on the disposal of certain operations, and increases in
depreciation and amortization and SG&A as a percentage of revenues, partially
offset by the improvement in gross margins and economies of scale from a greater
revenue base, and the elimination of stock compensation and acquisition related
expenses.

Interest Expense. Interest expense increased $1.3 million, or 4.7%, to $30.0
million for 2001 from $28.7 million in 2000. The increase is attributable to
higher debt levels to fund certain of our acquisitions, partially offset by
lower interest rates on our revolving credit facility and our payment of a
portion of the borrowings under our revolving credit facility with funds
received from our issuance of convertible subordinated debt obligations bearing
lower interest rates.

Other Expense. Other expense increased $6.3 million to $6.2 million in 2001
from other income of $0.1 million in 2000. The primary components of other
expense in 2001 was $6.3 million of expenses resulting from cash payments made
to terminate an interest rate swap prior to its due date, partially offset by
gains on the sale of certain assets. During the first quarter of 2001, we
determined that the debt, the specific cash flows of which an interest rate swap
was designated as hedging, would be repaid prior to its due date from the net
proceeds of our convertible subordinated debt offering; therefore, it was
probable that the future variable interest payments under the related debt (the
hedged transactions) would not occur.

Minority Interests. Minority interests were $7.3 million in 2001, compared
to $0 in 2000. The increase is attributable to the purchase by Waste Connections
during the first quarter of 2001 of majority interests in two unrelated
entities.

Provision for Income Taxes. Income taxes increased $0.5 million, or 2.6%, to
$19.8 million in 2001 from $19.3 million in 2000. The effective income tax rate
in 2001 was 39.4%, which is above the federal statutory rate of 35.0% as the
result of state and local taxes and non-deductible goodwill associated with
certain acquisitions.

Net Income. Net income increased $2.3 million, or 8.3%, to $30.5 million in
2001 from $28.2 million in 2000. The increase was primarily attributable to the
increase in operating income, offset by the increases in interest expense, other
expense, minority interests and income tax expense. Net income as a percentage
of revenues decreased by 1.2 percentage points to 8.1% for 2001 from 9.3% for
2000. The decrease was attributable to the decrease in operating income as a
percentage of revenues, and the increases in minority interests and other
expense, partially offset by decreases in interest expense and income tax
expense as a percentage of revenues.

Liquidity and Capital Resources

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

As of December 31, 2002, we had a working capital deficit of $23.0 million,
including cash and equivalents of $4.1 million. Our working capital deficit
increased $18.2 million from $4.8 million at December 31, 2001. Our strategy in
managing our working capital is generally to apply the cash generated from our
operations that remains after satisfying our working capital and capital
expenditure requirements to reduce our indebtedness under our credit facility
and to minimize our cash balances. The increase in our working capital deficit
from the prior year is primarily due to increases in accounts payable and
accrued liabilities, combined with our strategy of minimizing our cash balances.

In April 2001, we sold $150 million of 5.5% Convertible Subordinated Notes
Due April 2006 (the "2006 Notes") in a Rule 144A private placement. The 2006
Notes are unsecured, rank junior to existing and future Senior Indebtedness, as
defined in the indenture governing the notes, and are convertible at any time at
the option of the holder into common stock at a conversion price of $38.03 per
share. We received proceeds of approximately $144.4 million from our private
placement of these notes and used these proceeds to repay certain outstanding
indebtedness under our credit facility.

During April 2002, we sold $175 million of Floating Rate Convertible
Subordinated Notes due 2022 (the "2022 Notes"). The 2022 Notes bear interest at
the 3-month LIBOR rate plus 50 basis points, payable quarterly. The 2022 Notes
are unsecured and rank pari passu with the 2006 Notes and junior to all existing
and future senior indebtedness, as defined in the indenture governing the notes.
Upon the incurrence of certain conditions, the 2022 Notes are convertible into
common stock at 20.6654 shares per $1,000 principal amount of notes, or $48.39
per share. No change in the available borrowing capacity under our Credit
Facility or material covenants resulted from our issuance of the 2022 Notes. We
received proceeds of approximately $169.0 million from our sale of the 2022
Notes and used the proceeds to repay a portion of the outstanding indebtedness
and related costs under our credit facility and for general corporate purposes,
including payment for an acquisition.

36


We have a $435 million revolving credit facility with a syndicate of banks
for which Fleet Boston Financial Corp. acts as agent. As of December 31, 2002,
we had an aggregate of $216 million outstanding under the credit facility,
exclusive of stand-by letters of credit, with the interest on $1 million of the
outstanding borrowings at prime plus 50 basis points and the interest on $215
million of the outstanding borrowings at LIBOR plus 225 basis points. The credit
facility allows us to issue up to $40 million in stand-by letters of credit,
which reduce the amount of total borrowings available under the credit facility.
As of December 31, 2002, we had $23.6 million of outstanding letters of credit
issued under the credit facility. Thus, at December 31, 2002 we had
approximately $195.4 million in borrowing capacity available under our credit
facility. Virtually all of our assets, including our interest in the equity
securities of our subsidiaries, secure our obligations under the credit
facility. The credit facility matures in 2005 and bears interest at a rate per
annum equal to, at our discretion, either the Fleet National Bank Base Rate plus
applicable margin, or the Eurodollar Rate plus applicable margin. The credit
facility places certain business, financial and operating restrictions on the
Company relating to, among other things, incurring additional indebtedness,
investments, acquisitions, asset sales, mergers, dividends, distributions, and
repurchases and redemption of capital stock. The credit facility also contains
covenants requiring that specified financial ratios and balances be maintained.
As of December 31, 2002, we were in compliance with these covenants. The credit
facility also requires the lenders' approval of acquisitions in certain
circumstances. We use the credit facility for acquisitions, capital
expenditures, working capital, standby letters of credit and general corporate
purposes. At December 31, 2001, we had an aggregate of $232.5 million
outstanding under the credit facility. The $16.5 million decrease in outstanding
borrowings under our credit facility was primarily due to paying a portion of
our credit facility balance with the proceeds from our 2022 Notes, the proceeds
from stock option exercises and cash generated from operations, partially offset
by borrowings under our credit facility to fund our acquisitions and capital
expenditures. If we are unable to incur additional indebtedness under our credit
facility or obtain additional capital through future debt or equity financings,
our rate of growth through acquisitions may decline.

As of December 31, 2002, we had the following contractual obligations and
commercial commitments (in thousands):


Payments Due by Period
----------------------
Contractual Less Than 1 1 to 3 4 to 5 Over 5
Obligations Total Year Years Years Years
----------- ----- ---- ----- ----- -----

Long-term debt (1) $582,127 $ 3,646 $223,188 $154,711 $200,582
Operating leases 24,467 3,408 5,749 3,945 11,365
Unconditional purchase
obligations 7,802 7,802 -- -- --
------------------------------------------------------------
Total contractual cash
obligations $614,396 $ 14,856 $228,937 $158,656 $211,947
============================================================


(1) Long-term debt payments include $216.0 million due 2005 under our
credit facility. As of December 31, 2002, our credit facility allows us to
borrow up to $435 million.


Amount of Commitment Expiration Per Period
------------------------------------------
Commercial Less Than 1 1 to 3 4 to 5 Over 5
Commitments Total Year Years Years Years
----------- ----- ---- ----- ----- -----

Standby letters of credit $ 23,638 $ 23,638 $ -- $ -- $ --

Financial surety bonds (2) 64,062 61,205 2,847 10 --
----------------------------------------------------------
Total commercial
commitments $ 87,700 $ 84,843 $ 2,847 $ 10 $ --
==========================================================


(2) We use 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. As a result of recent changes
in the insurance industry, we have experienced less availability and increased
costs of surety bonds for landfill closure and post-closure requirements. We
generally have not experienced significant difficulty in obtaining surety bonds
for performance under our municipal collection contracts or landfill operating
agreements. 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.

37


Our current surety bond underwriters have provided us with non-binding
commitments to issue up to $90 million of bonds, consisting of $50 million of
bonds for landfill closure and post-closure requirements and $40 million of
bonds for performance under collection contracts and landfill operating
agreements. These non-binding commitments do not have a stated expiration date;
however, individual bonds issued typically have a term of one year. At December
31, 2002, we had provided customers and various regulatory authorities with
surety bonds in the aggregate amount of approximately $36.3 million to secure
our landfill closure and post-closure requirements and $27.8 million to secure
performance under collection contracts and landfill operating agreements.

If our current bond underwriters are unwilling to issue additional bonds
under the current non-binding commitment, renew existing bonds upon expiration,
or increase their total commitment upon reaching the maximum issuance amount
under the current non-binding commitments, or if we are unable to obtain surety
bonds through new underwriters as such needs arise, we would need to arrange
other means of financial assurance, such as a cash trust or a letter of credit,
to secure contract performance or meet closure and post-closure requirements.
While such alternate financial assurance has been readily available, it may
result in additional expense or capital outlays.

For the year ended December 31, 2002, net cash provided by operations was
approximately $127.9 million. Of this, $10.1 million was provided by working
capital for the period. The primary components of working capital were increases
in accrued liabilities associated with income taxes, interest, payroll and
insurance, partially offset by an increase in trade accounts receivable and a
decline in accounts payable. The remaining components of the net cash provided
by operations for 2002 include $55.5 million of net income, $39.0 million of
depreciation and amortization, $9.4 million of minority interest expense, a
combined $3.0 million of non-cash debt issuance cost amortization and stock
compensation expense and $10.1 million of deferred income taxes.

For the year ended December 31, 2002, net cash used by investing activities
was $222.9 million. Of this, $166.6 million was used to fund the cash portion of
acquisitions closed in 2002. Cash used for capital expenditures was $56.8
million, which was primarily for investments in fixed assets, consisting
primarily of trucks, containers, other equipment and landfill development. Other
cash inflows from investing activities include $2.2 million received from the
disposal of assets. Other cash outflows from investing activities include $2.0
million of restricted cash funding in 2002 for our landfill closure and
post-closure obligations.

For the year ended December 31, 2002, net cash provided by financing
activities was $91.8 million, which was provided by $90.0 million of net
borrowings under our various debt arrangements and $14.1 million of proceeds
from stock option and warrant exercises, less $5.9 million of cash distributions
to minority interest holders and $6.5 million of debt issuance costs, primarily
related to our 2022 Notes sold in 2002.

We made approximately $56.8 million in capital expenditures during the year
ended December 31, 2002. We expect to make capital expenditures of approximately
$60.0 million in 2003 in connection with our existing business. We intend to
fund our planned 2003 capital expenditures principally through existing cash,
internally generated funds, and borrowings under our existing credit facility.
In addition, we may make substantial additional capital expenditures in
acquiring solid waste collection and disposal businesses. If we acquire
additional landfill disposal facilities, we may also have to make significant
expenditures to bring them into compliance with applicable regulatory
requirements, obtain permits or expand our available disposal capacity. We
cannot currently determine the amount of these expenditures because they will
depend on the number, nature, condition and permitted status of any acquired
landfill disposal facilities. We believe that our credit facility and the funds
we expect to generate from operations will provide adequate cash to fund our
working capital and other cash needs for the foreseeable future.

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

INFLATION

To date, inflation has not significantly affected our operations. Consistent
with industry practice, many of our contracts allow us to pass through certain
costs to our customers, including increases in landfill tipping fees and, in
some cases, fuel costs. Therefore, we believe that we should be able to increase
prices to offset many cost increases that result from inflation. However,
competitive pressures may require us to absorb at least part of these cost
increases, particularly during periods of high inflation.

38


SEASONALITY

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

In December 1999, we entered into an interest rate swap with Fleet Boston
Financial Corporation. Under the swap agreement, which was effective through
December 2001, the interest rate on a $125 million LIBOR-based loan under the
Credit Facility was effectively fixed with an interest rate of 6.1% plus
applicable margin. This rate remained at 6.1% if LIBOR was less than 7.0%. If
LIBOR exceeded 7.0%, the interest rate under the swap agreement would increase
one basis point for every LIBOR basis point above 7.0%.

In May 2000, we entered into another interest rate swap with Union Bank of
California. Under the swap agreement, which was effective through December 2003,
the interest rate on a separate $125 million LIBOR-based loan under the Credit
Facility was effectively fixed with an interest rate of 7.0% plus applicable
margin.

In December 2000, we restructured both of those interest rate swap
agreements, extending their maturity through December 2003 and removing their
embedded option features. As of December 31, 2000, the Fleet Boston swap had a
notional amount of $125 million at a fixed rate of 6.17% plus applicable margin
and the Union Bank of California swap had a notional amount of $125 million at a
fixed rate of 7.01% plus applicable margin. In March 2001, $110 million of the
notional amount under the Union Bank of California swap was terminated because
we used the proceeds from our 5.5% Convertible Subordinated Notes offering to
repay $110 million of the LIBOR loan, the cash flows of which this swap was
designated as hedging.

We have performed sensitivity analyses to determine how market rate changes
will affect the fair value of our market risk sensitive hedge positions and all
other debt. Such an analysis is inherently limited in that it reflects a
singular, hypothetical set of assumptions. Actual market movements may vary
significantly from our assumptions. Fair value sensitivity is not necessarily
indicative of the ultimate cash flow or earnings effect we would recognize from
the assumed market rate movements. We are exposed to cash flow risk due to
changes in interest rates with respect to the $76 million remaining floating
rate balance owed under our credit facility, $175 million of our 2022 Notes,
$9.1 million of floating rate debt under various notes payable to third parties
and floating rate municipal bond obligations of approximately $8.9 million. A
one percentage point increase in interest rates on our variable-rate debt as of
December 31, 2002 would decrease our annual pre-tax income by approximately $2.7
million. All of our remaining debt instruments are at fixed rates, or
effectively fixed under the interest rate swap agreements described above;
therefore, changes in market interest rates under these instruments would not
significantly impact our cash flows or results of operations.

We market a variety of recyclable materials, including cardboard, office
paper, plastic containers, glass bottles and ferrous and aluminum metals. We own
and operate 18 recycling processing facilities and sell other collected
recyclable materials to third parties for processing before resale. We often
share the profits from our resale of recycled materials with other parties to
our recycling contracts. For example, certain of our municipal recycling
contracts in Washington, negotiated before we acquired those businesses, specify
benchmark resale prices for recycled commodities. If the prices we actually
receive for the processed recycled commodities collected under the contract
exceed the prices specified in the contract, we share the excess with the
municipality, after recovering any previous shortfalls resulting from actual
market prices falling below the prices specified in the contract. To reduce our
exposure to commodity price risk with respect to recycled materials, we have
adopted a pricing strategy of charging collection and processing fees for
recycling volume collected from third parties. Although there can be no
assurance of market recoveries in the event of a decline, because of the
provisions within certain of our contracts that pass commodity risk along to the
customers, we believe, given historical

39


trends and fluctuations in the recycling commodities market, that a 10% decrease
in average recycled commodity prices from the prices that were in effect at
December 31, 2002 would not materially affect our cash flows or pre-tax income.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 14 of Part IV of this Report.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.






























40


INDEX TO FINANCIAL STATEMENTS

WASTE CONNECTIONS, INC.


Page
----

Report of Ernst & Young LLP, Independent Auditors 42
Consolidated Balance Sheets as of December 31, 2001 and 2002 43
Consolidated Statements of Income for the years ended
December 31, 2000, 2001 and 2002 44
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the years ended December 31, 2000, 2001 and 2002 45
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 2001 and 2002 46
Notes to Consolidated Financial Statements 48






























41


REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS



Board of Directors and Stockholders

Waste Connections, Inc.


We have audited the accompanying consolidated balance sheets of Waste
Connections, Inc. as of December 31, 2001 and 2002, and the related consolidated
statements of income, stockholders' equity and comprehensive income, and cash
flows for each of the three years in the period ended December 31, 2002. Our
audits also included the financial statement schedule listed in Item 14.(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Waste Connections,
Inc. at December 31, 2001 and 2002, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002 the Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").

ERNST & YOUNG LLP

Sacramento, California
February 14, 2003




42


WASTE CONNECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


DECEMBER 31,
2001 2002
----------- -----------

ASSETS
Current assets:
Cash and equivalents $ 7,279 $ 4,067
Accounts receivable, net of allowance for doubtful accounts of $2,167
and $2,509 at December 31, 2001 and 2002, respectively 51,372 63,488
Prepaid expenses and other current assets 8,123 8,652
----------- -----------
Total current assets 66,774 76,207

Property and equipment, net 465,806 578,040
Goodwill, net 411,757 548,975
Intangible assets, net 16,248 33,498
Other assets, net 18,768 25,162
----------- -----------
$ 979,353 $ 1,261,882
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,807 $ 30,688
Accrued liabilities 25,132 45,905
Deferred revenue 13,355 19,016
Current portion of long-term debt and notes payable 5,305 3,646
----------- -----------
Total current liabilities 71,599 99,255

Long-term debt and notes payable 416,171 578,481
Other long-term liabilities 13,264 14,813
Deferred income taxes 78,689 94,543
----------- -----------
Total liabilities 579,723 787,092

Commitments and contingencies
Minority interests 19,825 23,078

Stockholders' equity:
Preferred stock: $0.01 par value; 7,500,000 shares authorized; none
issued and outstanding -- --
Common stock: $0.01 par value; 50,000,000 shares authorized;
27,423,669 and 28,046,535 shares issued and outstanding
at December 31, 2001 and 2002, respectively 274 280
Additional paid-in capital 316,594 332,705
Deferred stock compensation (160) (775)
Retained earnings 68,032 123,498
Unrealized loss on market value of interest rate swaps (4,935) (3,996)
----------- -----------
Total stockholders' equity 379,805 451,712
----------- -----------
$ 979,353 $ 1,261,882
=========== ===========

See accompanying notes.

43


WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


YEARS ENDED DECEMBER 31,
2000 2001 2002
------------ ------------ ------------

Revenues $ 304,355 $ 377,533 $ 498,661
Operating expenses:
Cost of operations 174,510 210,590 281,331
Selling, general and administrative 25,579 32,007 47,366
Depreciation and amortization 27,195 36,138 38,977
Loss on disposal of operations 833 4,879 --
Acquisition-related expenses 150 -- --
------------ ------------ ------------
Income from operations 76,088 93,919 130,987

Interest expense (28,705) (30,045) (32,228)
Other income (expense), net 116 (6,196) (813)
------------ ------------ ------------
Income before income tax provision and minority interests 47,499 57,678 97,946

Minority interests -- (7,338) (9,367)
------------ ------------ ------------
Income before income tax provision 47,499 50,340 88,579

Income tax provision (19,310) (19,812) (33,113)
------------ ------------ ------------
Net income $ 28,189 $ 30,528 $ 55,466
============ ============ ============

Basic income per common share $ 1.21 $ 1.13 $ 2.00
============ ============ ============

Diluted income per common share $ 1.17 $ 1.10 $ 1.90
============ ============ ============

Shares used in calculating basic income per share 23,301,358 27,069,685 27,750,642
============ ============ ============
Shares used in calculating diluted income per share 23,994,994 27,675,639 32,325,624
============ ============ ============





See accompanying notes.

44


WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)


STOCKHOLDERS' EQUITY
-----------------------------------------



COMMON STOCK ADDITIONAL
COMPREHENSIVE ------------------------- PAID-IN
INCOME SHARES AMOUNT CAPITAL
---------- ---------- ----------


Balances at December 31, 1999 21,209,665 $ 212 $ 209,157
Issuance of common
stock warrants -- -- 183
Issuance of common stock 4,472,413 45 82,886
Amortization of deferred
stock compensation -- -- --
Exercise of stock options and warrants 797,968 8 4,213
Net income -- -- --
---------- ---------- ----------
Balances at December 31, 2000 26,480,046 265 296,439
Issuance of common
stock warrants -- -- 105
Stock options granted below fair
market value -- -- 200
Issuance of common stock 337,905 3 8,634
Amortization of deferred
stock compensation
Exercise of stock options and warrants 605,718 6 11,216
Unrealized loss on market value of
interest rate swaps -- -- --
Net income $ 30,528 -- -- --
Other comprehensive income - unrealized
loss on interest rate swaps (8,144) -- -- --
Income tax effect of other
comprehensive income 3,209 -- -- --
----------
Comprehensive income $ 25,593 -- -- --
========== ---------- ---------- ----------
Balances at December 31, 2001 27,423,669 274 316,594
Issuance of common
stock warrants -- -- 577
Issuance of restricted stock -- -- 812
Stock options granted below fair
market value -- -- 650
Amortization of deferred
stock compensation -- -- --
Exercise of stock options and warrants 622,866 6 14,072
Unrealized gain on market value of
interest rate swaps -- -- --
Net income $ 55,466 -- -- --
Other comprehensive income - unrealized
gain on interest rate swaps 1,751 -- -- --
Income tax effect of other
comprehensive income (812) -- -- --
----------
Comprehensive income $ 56,405 -- -- --
========== ---------- ---------- ----------
Balances at December 31, 2002 28,046,535 $ 280 $ 332,705
========== ========== ==========


STOCKHOLDERS' EQUITY
---------------------------------------------------------
UNREALIZED
LOSS ON
MARKET
VALUE OF DEFERRED
INTEREST STOCK RETAINED
RATE SWAPS COMPENSATION EARNINGS TOTAL
---------- ---------- ---------- ----------
Balances at December 31, 1999 $ -- $ (163) $ 9,315 $ 218,521
Issuance of common
stock warrants -- -- -- 183
Issuance of common stock -- -- -- 82,931
Amortization of deferred
stock compensation -- 163 -- 163
Exercise of stock options and warrants -- -- -- 4,221
Net income -- -- 28,189 28,189
---------- ---------- ---------- ----------
Balances at December 31, 2000 -- -- 37,504 334,208
Issuance of common
stock warrants -- -- -- 105
Stock options granted below fair
market value -- (200) -- --
Issuance of common stock -- -- -- 8,637
Amortization of deferred
stock compensation 40 40
Exercise of stock options and warrants -- -- -- 11,222
Unrealized loss on market value of
interest rate swaps (4,935) -- -- (4,935)
Net income -- -- 30,528 30,528
Other comprehensive income - unrealized
loss on interest rate swaps -- -- -- --
Income tax effect of other
comprehensive income -- -- -- --


Comprehensive income -- -- -- --
---------- ---------- ---------- ----------
Balances at December 31, 2001 (4,935) (160) 68,032 379,805
Issuance of common
stock warrants -- -- -- 577
Issuance of restricted stock -- (812) -- --
Stock options granted below fair
market value -- (650) -- --
Amortization of deferred
stock compensation -- 847 -- 847
Exercise of stock options and warrants -- -- -- 14,078
Unrealized gain on market value of
interest rate swaps 939 -- -- 939
Net income -- -- 55,466 55,466
Other comprehensive income - unrealized
gain on interest rate swaps -- -- -- --
Income tax effect of other
comprehensive income -- -- -- --


Comprehensive income -- -- -- --
---------- ---------- ---------- ----------
Balances at December 31, 2002 $ (3,996) $ (775) $ 123,498 $ 451,712
========== ========== ========== ==========

See accompanying notes.

45


WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)


YEARS ENDED DECEMBER 31,
2000 2001 2002
--------- --------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,189 $ 30,528 $ 55,466
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss (gain) on disposal of assets 804 4,868 (1)
Depreciation 18,627 25,687 37,626
Amortization of goodwill and intangibles 8,568 10,451 1,351
Loss on termination of interest rate swap -- 6,337 --
Deferred income taxes 1,303 12,442 10,132
Minority interests -- 7,338 9,367
Amortization of debt issuance costs 668 1,592 2,195
Stock-based compensation 163 40 847
Interest income on restricted cash (414) (654) (485)
Loss on early extinguishment of debt -- 305 --
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable, net (8,014) (1,978) (1,594)
Prepaid expenses and other current assets (674) (3,556) 380
Accounts payable 716 (1,677) (2,730)
Deferred revenue 508 576 478
Accrued liabilities 3,631 (5,325) 13,610
Other long-term liabilities (299) 224 1,274
--------- --------- ---------
Net cash provided by operating activities 53,776 87,198 127,916
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets 311 3,049 2,234
Payments for acquisitions, net of cash acquired (168,307) (52,853) (166,626)
Capital expenditures for property and equipment (25,408) (40,215) (56,776)
Increase in restricted cash, net of interest income (99) (989) (2,014)
Decrease in other assets 529 168 291
--------- --------- ---------
Net cash used in investing activities (192,974) (90,840) (222,891)
--------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 162,413 263,521 381,000
Principal payments on notes payable and long-term debt (107,508) (246,638) (290,962)
Proceeds from sale of common stock 82,110 -- --
Proceeds from option and warrant exercises 4,221 7,620 14,078
Termination of interest rate swap -- (6,337) --
Distributions to minority interest holders -- (3,370) (5,880)
Debt issuance costs (1,970) (6,336) (6,473)
--------- --------- ---------
Net cash provided by financing activities 139,266 8,460 91,763
--------- --------- ---------

Net increase (decrease) in cash and equivalents 68 4,818 (3,212)
Cash and equivalents at beginning of year 2,393 2,461 7,279
--------- --------- ---------
Cash and equivalents at end of year $ 2,461 $ 7,279 $ 4,067
========= ========= =========

See accompanying notes.

46


WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)




YEARS ENDED DECEMBER 31,
2000 2001 2002
--------- --------- ---------

SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION AND NON-CASH TRANSACTIONS:
Cash paid for income taxes $ 13,123 $ 13,607 $ 8,408
========= ========= =========
Cash paid for interest $ 27,815 $ 28,232 $ 28,973
========= ========= =========
Inconnection with its acquisitions, the Company
assumed liabilities as follows:
Fair value of assets acquired $ 186,459 $ 164,956 $ 262,565
Cash paid for acquisitions (including acquisition
costs) (168,307) (52,853) (166,626)
--------- --------- ---------
Liabilities assumed and stock and notes payable
issued to sellers $ 18,152 $ 112,103 $ 95,939
========= ========= =========




















See accompanying notes.

47


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

1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

Waste Connections, Inc. ("WCI" or "the Company") was incorporated in
Delaware on September 9, 1997 and commenced its operations on October 1, 1997
through the purchase of certain solid waste operations in Washington. The
Company is an integrated, non-hazardous solid waste services company that
provides collection, transfer, disposal and recycling services to commercial,
industrial and residential customers in Alabama, California, Colorado, Georgia,
Illinois, Iowa, Kansas, Kentucky, Minnesota, Mississippi, Montana, Nebraska, New
Mexico, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah,
Washington, and Wyoming.

Basis of Presentation

These consolidated financial statements include the accounts of WCI and its
wholly-owned and majority-owned subsidiaries. The consolidated entity is
referred to herein as the Company. All intercompany accounts and transactions
have been eliminated in consolidation.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less at purchase to be cash equivalents. As of December 31, 2001
and 2002, cash equivalents consisted of demand money market accounts.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risks consist primarily of accounts receivable. The
Company generally does not require collateral on its trade receivables. Credit
risk on accounts receivable is minimized as a result of the large and diverse
nature of the Company's customer base. The Company maintains allowances for
losses based on the expected collectibility of accounts receivable. Credit
losses have been within management's expectations.

Revenue Recognition and Accounts Receivable

Revenues are recognized as services are provided. Certain customers are
billed in advance and, accordingly, recognition of the related revenues is
deferred until the services are provided.

The Company's receivables are recorded when billed, advanced or accrued and
represent claims against third parties that will be settled in cash. The
carrying value of the Company's receivables, net of the allowance for doubtful
accounts, represents their estimated net realizable value. The Company estimates
its allowance for doubtful accounts based on historical collection trends, type
of customer such as municipal or non-municipal, the age of outstanding
receivables and existing economic conditions. If events or changes in
circumstances indicate that specific receivable balances may be impaired,
further consideration is given to the collectiblity of those balances and the
allowance is adjusted accordingly. Past-due receivable balances are written-off
when the Company's internal collection efforts have been unsuccessful in
collecting the amount due.

Property and Equipment

Property and equipment are stated at cost. Improvements or betterments, not
considered to be maintenance and repair, which significantly extend the life of
an asset are capitalized. Expenditures for maintenance and repair costs are
charged to expense as incurred. The cost of assets retired or otherwise disposed
of and the related accumulated depreciation are eliminated from the accounts in
the year of disposal. Gains and losses resulting from disposals of property and
equipment are included in other income (expense). Depreciation is computed using
the straight-line method over the estimated useful lives of the assets or the
lease term, whichever is shorter.

48


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

The estimated useful lives are as follows:

Buildings 20 years
Machinery and equipment 3 - 15 years
Rolling stock 10 years
Containers 5 - 15 years

Landfill Accounting

The discussion below details the Company's accounting policies for landfills
through December 31, 2002. As of January 1, 2003, the Company's practice will
change upon the Company's adoption of SFAS No. 143, Accounting for Asset
Retirement Obligations ("SFAS No. 143"). The Company's adoption of SFAS 143 will
result in a significant change to its accounting policies for landfill closure
and post-closure obligations. See discussion below under "New Accounting
Pronouncements" for additional information and an analysis of the estimated
impact the adoption of SFAS No. 143 will have on its balance sheet and results
of operations for the year ended December 31, 2003.

The Company amortizes certain costs at its landfills using a
units-of-production method as permitted airspace of the landfill is consumed.
Landfill closure and post-closure costs are recorded at net present value and
accreted to reflect the passage of time. The accounting methods discussed below
require the Company to make certain estimates and assumptions. Any changes to
its estimates are applied prospectively.

- - Landfill development costs. Landfill development costs include the costs of
acquisition, construction associated with excavation, liners, site berms,
groundwater monitoring wells and leachate collection systems. The Company
estimates the total costs associated with developing each landfill site to
its final capacity. Total landfill costs include the development costs
associated with "deemed" permitted airspace. Deemed permitted airspace is
addressed below. Landfill development costs are dependent upon future events
and thus actual costs could vary significantly from estimates.

- - Closure and post-closure obligations. The Company reserves for estimated
closure and post-closure maintenance obligations at the landfills it owns
and certain landfills that it operates, but does not own. Accrued closure
and post-closure costs represent an estimate of the current value of the
future obligation associated with closure and post-closure monitoring of
non-hazardous solid waste landfills currently owned and/or operated by the
Company. Closure and post-closure monitoring and maintenance costs represent
the costs related to cash expenditures yet to be incurred when a landfill
facility ceases to accept waste and closes. Accruals for closure and
post-closure monitoring and maintenance requirements in the U.S. consider
site inspection, groundwater monitoring, leachate management, methane gas
control and recovery, and operating and maintenance costs to be incurred
during the period after the facility closes. Certain of these environmental
costs, principally capping and methane gas control costs, are also incurred
during the operating life of the site in accordance with the landfill
operation requirements of Subtitle D and the air emissions standards. Site
specific closure and post-closure engineering cost estimates are prepared
annually for landfills owned and/or operated by the Company for which it is
responsible for closure and post-closure.

Under the Company's historical accounting practice through December 31,
2002, landfill closure and post-closure obligations are calculated by
estimating the total obligation in current dollars, inflating the obligation
based upon the expected date of the expenditure using an inflation rate of
3% and discounting the inflated total to its present value using a 7.5%
discount rate. The resulting obligation is recorded as a long-term liability
with a corresponding increase to landfill site costs. At December 31, 2001
and 2002, respectively, accruals for landfill closure and post-closure costs
(including costs assumed through acquisitions) were $7,683 and $13,749,
respectively. The Company estimates that its closure and post-closure
payment commitments will begin in 2009. Interest is accreted on the recorded
liability using the corresponding discount rate and recorded as a component
of interest expense. The amount recorded to site costs is charged to
depletion expense on a units-of-consumption basis as landfill airspace is
consumed. The impact of changes determined to be changes in estimates, based
on the annual update, are accounted for on a prospective basis. Final
capping costs are generally included in the estimate of the total costs
associated with developing each landfill site to its final capacity and
depleted on a units-of-production basis under the company's current
accounting method as landfill airspace is consumed. Final capping costs are
generally not included in the calculation of closure and post-closure
liabilities. The closure and post-closure liabilities reflect owned
landfills and landfills operated under life-of-site operating agreements
with estimated remaining lives, based on remaining permitted capacity,
probable expansion capacity and projected annual disposal volumes, that
range from approximately 6 to 313 years, with an average remaining life of
approximately 62 years.

49


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

At December 31, 2002, the Company's estimate of total future payments for
closure and post-closure, in current dollars and in accordance with Subtitle
D, is $252,102.


- - Disposal capacity. The Company's internal and third-party engineers perform
surveys at least annually to estimate the disposal capacity at its
landfills. The Company's landfill depletion rates are based on the remaining
disposal capacity, considering both permitted and deemed permitted airspace,
at its landfills. Deemed permitted airspace consists of additional disposal
capacity being pursued through means of an expansion. Deemed permitted
airspace that meets certain internal criteria is included in the estimate of
total landfill airspace. The Company's internal criteria to determine when
deemed permitted airspace may be included as disposal capacity is as
follows:

(1) The land where the expansion is being sought is contiguous to the
current disposal site, and is either owned by the Company or the
Company has a purchase option;
(2) Total development 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.

The Company may be unsuccessful in obtaining permits for disposal capacity
that has been deemed permitted. If the Company is unsuccessful in obtaining
permits for deemed permitted disposal capacity, it will charge the previously
capitalized development costs to expense.

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:

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

- - The Company deems the total remaining airspace of an acquired landfill to be
a tangible asset. Therefore, for acquired landfills, it initially 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 airspace.

- - 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 probable. 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.

50


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

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. Prior
to 2002, goodwill resulting from acquisitions closed prior to June 30, 2001 was
amortized on a straight-line basis over the period of expected benefit of 40
years. In June 2001, the Financial Accounting Standards Board issued SFAS No.
141 and SFAS No. 142, which was initially effective for acquisitions closed on
or after June 30, 2001 and fully effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives are no longer amortized but are subject to annual
impairment tests in accordance with the Statements. Other intangible assets,
including those meeting new recognition criteria under the Statements, 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 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. In 2002, the Company performed the first of the
required impairment tests of goodwill and indefinite-lived intangible assets
based on the carrying values as of January 1, 2002 and September 30, 2002.
Between September 30, 2002 and December 31, 2002, no events or changes in
circumstances occurred that indicated the potential existence of goodwill or
indefinite-lived intangible asset impairment. As a result of performing the
tests for potential impairment, the Company determined that no impairment
existed as of January 1, 2002 or December 31, 2002 and therefore, it was not
necessary to write down any of its goodwill or indefinite-lived intangible
assets. The Company will continue to perform the potential impairment test on an
annual basis during the fourth quarter of its fiscal year.

Net income for the years ended December 31, 2000 and 2001, adjusted for the
nonamortization provisions of SFAS No. 142, was $33,128 and $37,390,
respectively. Basic shares outstanding were 23,301,358 and 27,069,685,
respectively, for the years ended December 31, 2000 and 2001. Diluted shares
outstanding were 23,994,994 and 27,675,639, respectively, for the years ended
December 31, 2000 and 2001.

The Company acquired certain 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 5 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 is included in other non-current assets and
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;

51


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

- - 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, the asset is reviewed to
determine whether there has been an impairment. An impairment loss is recorded
as the difference between the carrying amount and fair value of the asset. 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. 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 funds held in trust, trade payables, debt instruments
and interest rate swaps. As of December 31, 2001 and 2002, the carrying values
of cash, trade receivables, restricted funds held in trust, 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, 2001 and 2002, based on
current incremental borrowing rates for similar types of borrowing arrangements.
The Company's 2006 Convertible Subordinated Notes have a carrying value of
$150,000 and had a fair value of approximately $163,320 at December 31, 2001 and
$186,915 at December 31, 2002, 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 $181,475
at December 31, 2002, 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, 2001 and 2002.

Derivative Financial Instruments

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities", which was amended by SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities (an Amendment of FASB Statement 133)," (collectively "SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS 133 requires the Company to
recognize 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.

52

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

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. The
Company's strategy to achieve that objective involves entering into interest
rate swaps that are specifically designated to certain variable rate instruments
under its credit facility and accounted for as cash flow hedges pursuant to SFAS
133.

The Company adopted SFAS 133 effective January 1, 2001. The Company has
evaluated its derivative instruments, consisting solely of two interest rate
swaps effective through December 2003, and believes these instruments qualify
for hedge accounting pursuant to SFAS 133. Upon adoption of SFAS 133, the
Company recorded the fair value of these interest rate swaps as an obligation of
$3,600, net of taxes of $2,340, with an equal amount recorded as an unrealized
loss in other comprehensive income. The adoption of SFAS 133 did not have a
material effect on the Company's results of operations. Because the relevant
terms of the interest rate swaps and the specific cash flows related to the
debts they have been designated to hedge are virtually identical, there was no
material ineffectiveness recognized in earnings. In addition, there are no
components of the derivative instruments' gain or loss that have been excluded
from the assessment of hedge effectiveness.

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 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.

Stock-Based Compensation

As permitted under the provisions of SFAS No. 123, the Company has elected
to account for stock-based compensation using the intrinsic value method
prescribed by APB 25. 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 for options granted during 2000,
2001 and 2002 are as follows:
2000 2001 2002
---- ---- ----
Exercise prices equal to
market price of stock $ 5.51 $ 10.32 $ 9.40
Exercise prices less than
market price of stock -- 15.73 16.17

Pro forma information regarding net income and earnings per share is
required by SFAS 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, 2000, 2001 and 2002: risk-free
interest rate of 5.8%, 4.5% and 3.5%, respectively; dividend yield of zero;
volatility factor of the expected market price of the Company's common stock of
65%, 45% and 40%, 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 its employee stock options.

53


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

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, 2000, 2001 and 2002:


Year Ended December 31,
2000 2001 2002
---------- ---------- ----------

Net income, as reported $ 28,189 $ 30,528 $ 55,466
Add: stock-based employee compensation expense
included in reported net income, net of related
tax effects 98 24 533
Deduct: total stock-based employee compensation
expense determined under fair value method for
all awards, net of related tax effects (2,256) (3,135) (5,771)
---------- ---------- ----------
Pro forma net income $ 26,031 $ 27,417 $ 50,228
========== ========== ==========
Earnings per share:
Basic - as reported $ 1.21 $ 1.13 $ 2.00
Basic - pro forma 1.12 1.01 1.81

Diluted - as reported 1.17 1.10 1.90
Diluted - pro forma 1.08 0.99 1.75


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, 2000, 2001 and 2002 was $990, $1,160 and $1,403,
respectively.

Insurance Liabilities

During 2002, the Company increased its scope of self-insurance, becoming
primarily self-insured for automobile liability, general liability and workers'
compensation claims. Previously, the Company was primarily self-insured only for
automobile collision and employee group health claims. The Company's
self-insurance accruals are based on claims filed and estimates of claims
incurred but not reported and are developed by the Company's management and by
its third-party claims administrator. The self-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, 2001 and 2002,
the Company's total accrual for self-insurance liabilities was $1,321 and
$4,038, respectively.

Segment Information

The Company identifies its operating segments based on business activities,
management responsibility and geographical location. The Company considers each
of its four operating regions that report stand-alone financial information and
have segment managers that report to the Company's chief operating decision
maker to be an operating segment; however, all operating segments 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, Midwestern and Southeastern United States.

54


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

Comprehensive Income

Comprehensive income, as defined, includes all changes in equity (net
assets) during a period from non-owner sources. The Company recorded in
comprehensive income an unrealized pre-tax loss of $8,144 for the year ended
December 31, 2001 and an unrealized pre-tax gain of $1,751 for the year ended
December 31, 2002, resulting from changes in the fair value of interest rate
swaps that qualify for cash flow hedge accounting (Note 11).

Reclassifications

Certain amounts reported in the Company's prior years' financial statements
have been reclassified to conform with the 2002 presentation.

New Accounting Pronouncements (unaudited)

SFAS No. 143

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
Accounting for Asset Retirement Obligations ("SFAS No. 143"), which outlines
standards for accounting for obligations associated with the retirement of
long-lived assets. SFAS No. 143 is effective beginning January 1, 2003 and will
impact the accounting for landfill retirement obligations, which the Company has
historically referred to as closure and post-closure obligations. The adoption
of SFAS No. 143 will have no impact on the Company's cash requirements.

The Company believes the adoption of SFAS No. 143 will impact the
calculation of landfill retirement obligations, and the classification of
amounts recorded in the financial statements as follows:

(1) Landfill closure and post-closure liabilities will continue to be
calculated by estimating the total obligation in current dollars,
inflating the obligation based upon the expected date of the
expenditure using an inflation rate of 3% and discounting the inflated
total to its present value using an 8.5% discount rate. The 8.5%
discount rate is higher than the 7.5% discount rate historically used
because SFAS No. 143 requires the use of a credit-adjusted risk-free
rate. The resulting closure and post-closure obligation will be
recorded on the balance sheet as the landfill's total airspace is
consumed. Discounting the obligation with a higher discount rate and
recording the liability as airspace is consumed results in a decrease
to the previously recorded closure and post-closure liabilities

(2) Final capping costs will be included in the calculation of closure and
post-closure liabilities. Final capping costs will be estimated using
current dollars, inflated to the expected date of the final capping
expenditures, discounted to a net present value and recorded on the
balance sheet as a component of closure and post-closure liabilities as
landfill airspace is consumed.

(3) Interest accretion will be reduced as a result of the decrease in the
recorded closure and post-closure liabilities and will be reclassified
from interest expense to cost of operations, thus causing a reduction
in income from operations and in increase in net income. However there
will be no change in operating cash flow.

(4) Depletion on the closure and post-closure obligation recorded as a
component of landfill site costs will generally be less during the
early portion of a landfill's operating life and increase thereafter.

Upon adoption, SFAS No. 143 requires a cumulative change in accounting for
landfill obligations retroactively to the date of the inception of the landfill.
Inception of the asset retirement obligation is the date operations commenced or
the date the asset was acquired. Upon adoption of SFAS No. 143 on January 1,
2003, the Company expects a cumulative effect of the change in accounting
principle of $449 ($282, net of tax), a decrease in its closure and post-closure
liability of $9,142 and a decrease in net landfill assets of $8,667.

SFAS No. 144

Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". This Statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. The adoption of SFAS No. 144 did not have a material impact on the
Company's financial statements and related disclosures.

55

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

SFAS No. 145

In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Modifications to Reporting of Extinguishments of Debt and Accounting for
Certain Capital Lease Modifications and Technical Corrections", effective for
transactions occurring after May 15, 2002. SFAS No. 145 requires gains and
losses on extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items. SFAS No. 145 also
requires that certain modifications to capital leases be treated as a
sale-leaseback and modifies the accounting for sub-leases when the original
lessee remains a secondary obligor (or guarantor). The Company elected to adopt
SFAS No. 145 early, which resulted in the reclassification from extraordinary
items to other expenses of $305 of losses incurred during the year ended
December 31, 2001 resulting from early extinguishments of debt.

SFAS No. 146

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities", effective
for transactions occurring after December 31, 2002. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. The
Company's adoption of SFAS No. 146 is not expected to have a material effect on
its financial statements.

SFAS No. 148

In December 2002, the Financial Accounting Standards Board issued FASB
Statement No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition to SFAS No. 123's
fair value method of accounting for stock-based employee compensation. SFAS No.
148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No.
28, "Interim Financial Reporting", to require disclosure in the summary of
accounting policies of the effects of an entity's accounting policy with respect
to stock-based employee compensation on reported net income and earnings per
share in annual and interim financial statements. SFAS No. 148 does not amend
SFAS No. 123 to require companies to account for employee stock options using
the fair value method. The Company adopted the disclosure provisions of SFAS No.
148 and continues to account for stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25").

FIN 45

In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). It clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee, including its
ongoing obligation to stand ready to perform over the term of the guarantee in
the event that the specified triggering events or conditions occur. The
objective of the initial measurement of the liability is the fair value of the
guarantee at its inception. The initial recognition and initial measurement
provisions of FIN 45 are effective on a prospective basis to guarantees issued
after December 31, 2002, and the Company will record the fair value of future
material guarantees, if any.

FIN 46

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"). 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
immediately to variable interest entities created after January 31, 2003 and to
existing variable interest entities beginning after June 15, 2003. The Company
does not expect the adoption of FIN 46 to have a material impact on its
financial statements because, as of December 31, 2002, the Company consolidates
all of its less than 100% owned subsidiaries.

56


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

2. USE OF ESTIMATES AND ASSUMPTIONS

In preparing the Company's 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 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 and asset
impairments, as described below.

The discussion below details the Company's accounting policies for landfills
through December 31, 2002. As of January 1, 2003, the Company's practice will
change upon the Company's adoption of SFAS No. 143. See Note 1 for additional
information.

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

This accounting method requires the Company to make estimates and
assumptions, as described below. Any changes in the Company's estimates will
impact the Company's income from operations prospectively from the date changes
are made.

Landfill costs. The Company estimates the total cost to develop each
landfill site to its final capacity. This includes certain projected landfill
site costs that are uncertain because they are dependent on future events. The
total cost to develop a site to its final capacity includes amounts previously
expended and capitalized, net of accumulated airspace amortization, and
projections of future purchase and development costs, landfill final capping
costs, liner construction costs, operating construction costs, and capitalized
interest costs.

Closure and post-closure costs. The costs for closure and post-closure
obligations at landfills the Company owns or operates are generally estimated
based on interpretations of current requirements and proposed or anticipated
regulatory changes. The estimates for landfill closure and post-closure costs
also consider when the costs would actually be paid and factor in inflation and
discount rates. The possibility of changing legal and regulatory requirements
and the forward-looking nature of these types of costs make any estimation or
assumption less certain.

Available airspace. The Company's engineers determine the remaining capacity
at landfills by estimating the available airspace. This is done by using surveys
and other methods to calculate, based on height restrictions and other factors,
how much airspace is left to fill and how much waste can be disposed of at a
landfill before it has reached its final capacity.

Expansion airspace. The Company will also consider currently unpermitted
airspace in the estimate of remaining capacity in certain circumstances.

It is possible that the Company's estimates or assumptions will ultimately
turn out to be significantly different from actual results. In some cases the
Company may be unsuccessful in obtaining an expansion permit or the Company may
determine that an expansion permit that the Company previously thought was
probable has become unlikely. To the extent that such estimates, or the
assumptions used to make those estimates, prove to be significantly different
than actual results, or the belief that the Company will receive an expansion
permit changes adversely in a significant manner, the costs of the landfill,
including the costs incurred in the pursuit of the expansion, may be subject to
impairment testing, as described below, and lower profitability may be
experienced due to higher amortization rates, higher closure and post-closure
rates, and higher expenses or asset impairments related to the removal of
previously included expansion airspace.

Asset Impairments. Accounting standards require that assets be written down
if they become impaired. If significant events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable, 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

57

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

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 cannot be predicted with any certainty whether or not
they will occur. Estimating future cash flows requires significant judgment and
projections may vary from cash flows eventually realized. Also, there are other
considerations for impairments of landfills and goodwill as discussed in Note 1.

Allowance for Doubtful Accounts. The Company estimates losses for
uncollectible accounts based on the aging of the accounts receivable and the
evaluation of the likelihood of success in collecting the receivable.

Acquisition Accounting. The Company estimates the fair value of assets and
liabilities when allocating the purchase price of an acquisition.

Income Taxes. The Company assumes the deductibility of certain costs in its
income tax filings and estimates the future recovery of deferred tax assets.

Contingent Liabilities. 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.

Self-Insurance Reserves. Through the use of actuarial calculations, the
Company estimates the amounts required to settle asserted and unasserted
insurance claims.

Actual results could differ materially from the estimates and assumptions
that the Company uses in the preparation of its financial statements.

3. ACQUISITIONS

2001 and 2002 Acquisitions

During 2001, the Company acquired 18 non-hazardous solid waste businesses
that were accounted for as purchases. Aggregate consideration, exclusive of debt
and long-term liabilities assumed totaling $65,315, for the acquisitions
consisted of $52,853 in cash, (net of cash acquired), $2,042 in notes payable to
sellers and 337,905 shares of common stock and common stock warrants valued at
$8,742.

During 2002, the Company acquired 17 non-hazardous solid waste businesses
that were accounted for as purchases. Aggregate consideration, exclusive of debt
and long-term liabilities assumed totaling $73,464, for the acquisitions
consisted of $166,626 in cash (net of cash acquired), $2,217 in notes payable to
sellers and common stock warrants valued at $577.

During 2001, the Company sold some of its Utah operations that were deemed
to no longer be of strategic importance. The Company recognized a pre-tax loss
of $4,879 from this sale.

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.
58


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

As of December 31, 2002, the Company had 16 acquisitions for which purchase
price allocations were preliminary, mainly as a result of tax-related
settlements. 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 2001 and preliminary purchase price
allocations for the acquisitions consummated in 2002 is as follows:

2001 2002
Acquisitions Acquisitions
--------- ---------
Acquired assets:
Accounts receivable $ 7,322 $ 10,521
Prepaid expenses and other current assets 345 1,032
Property and equipment 64,039 95,285
Goodwill 71,258 137,218
Indefinite-lived intangible assets 8,695 6,529
Long-term franchise agreements and other 701 11,216
Non-competition agreements 375 764
Other assets 2,727 --
Deferred income taxes 9,494 --
Assumed liabilities:
Deferred revenue (3,184) (5,182)
Accounts payable and accrued liabilities (16,962) (8,777)
Long-term liabilities assumed (65,315) (73,464)
Minority interests (15,858) --
Deferred income taxes -- (5,722)
--------- ---------
$ 63,637 $ 169,420
========= =========

Goodwill acquired in 2001 and 2002 totaling $12,244 and $103,644,
respectively, is expected to be deductible for tax purposes.

In connection with certain acquisitions, the Company is required to pay
contingent consideration to certain former shareholders of the respective
companies, subject to the occurrence of specified events. As of December 31,
2002, the maximum potential contingent payments relating to these acquisitions
total approximately $2,450 in cash and 51,746 shares placed in escrow. The
potential cash payments consist of $2,000 which is triggered by the Company
obtaining an expansion permit for a landfill acquired in 2002 and $450 related
to the Company constructing and operating a transfer station that receives a
certain minimum average daily volume of waste over a defined period. The Company
has included in these financial statements the $2,000 contingent cash payment
because it considers it probable that the expansion permit for the landfill
acquired in 2002 will be obtained. The Company has not included in these
financial statements the $450 potential contingent cash payment related to
constructing and operating the required transfer station as it is too early in
the contingency period to assess its probability. The shares placed into escrow
were to be released to a former shareholder of an acquired company based upon
the achievement of certain targeted earnings. Subsequent to December 31, 2002 it
was determined that the targeted earnings underlying the contingent payment
related to the shares held in escrow did not occur and thus the shares held in
escrow were returned to the Company and reclassified as unissued shares.

The following unaudited pro forma results of operations assume that the
Company's significant acquisitions occurring in 2001 and 2002, accounted for
using the purchase method of accounting, were acquired as of January 1, 2001:

Year Ended December 31,
2001 2002
----------- -----------
Total revenue $ 472,106 $ 534,843
Net income 29,458 56,636
Basic income per share 1.09 2.04
Diluted income per share 1.06 1.93

59


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

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, 2001, nor are they necessarily indicative of future
operating results.

4. INTANGIBLE ASSETS

Intangible assets, exclusive of goodwill, consist of the following at
December 31, 2002:


Weighted-Average
Gross Carrying Accumulated Net Carrying Amortization
Amount Amortization Amount Period in Years
-------- -------- -------- ---------------

Amortizable intangible assets:
Long-term franchise agreements
and contracts $ 14,552 $ (1,064) $ 13,488 38.4
Non-competition agreements 3,622 (1,983) 1,639 5.0
Other, net 2,400 (740) 1,660 15.8
-------- -------- --------
20,574 (3,787) 16,787
Nonamortized intangible assets:
Indefinite-lived intangible assets 16,711 -- 16,711
-------- -------- --------
Intangible assets, exclusive of goodwill $ 37,285 $ (3,787) $ 33,498
======== ======== ========


Intangible assets, exclusive of goodwill, consist of the following at
December 31, 2001:


Weighted-Average
Gross Carrying Accumulated Net Carrying Amortization
Amount Amortization Amount Period in Years
-------- -------- -------- ---------------

Amortizable intangible assets:
Long-term franchise agreements
and contracts $ 3,384 $ (758) $ 2,626 11.1
Non-competition agreements 2,858 (1,410) 1,448 5.0
Other, net 2,229 (236) 1,993 16.5
-------- -------- --------
8,471 (2,404) 6,067
Nonamortized intangible assets:
Indefinite-lived intangible assets 10,181 -- 10,181
-------- -------- --------
Intangible assets, exclusive of goodwill $ 18,652 $ (2,404) $ 16,248
======== ======== ========


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, 2003 $ 1,452
For the year ended December 31, 2004 1,311
For the year ended December 31, 2005 1,175
For the year ended December 31, 2006 987
For the year ended December 31, 2007 778

60


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

Total goodwill amortization expense for the years ended December 31, 2000
and 2001 was $7,857 and $9,581, respectively. Total amortization expense for
intangible assets was $711, $870 and $1,351 for the years ended December 31,
2000, 2001 and 2002, respectively.

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

December 31,
2001 2002
--------- ---------
Landfill site costs $ 325,060 $ 412,226
Land, buildings and improvements 56,994 64,299
Rolling stock 73,121 102,756
Containers 42,257 57,365
Machinery and equipment 41,391 50,926
--------- ---------
538,823 687,572
Less accumulated depreciation and depletion (73,017) (109,532)
--------- ---------
$ 465,806 $ 578,040
========= =========

The Company's landfill depletion expense for the years ended December 31,
2000, 2001 and 2002 was $5,853, $8,008 and $12,123, respectively.

6. OTHER ASSETS

Other assets consist of the following:

December 31,
2001 2002
--------- ---------
Restricted cash $ 8,108 $ 11,314
Loan fees 7,992 12,270
Other 2,668 1,578
--------- ---------
$ 18,768 $ 25,162
========= =========

Restricted cash is included as part of other assets and consists of amounts
on deposit with various banks that support the Company's financial assurance
obligations for its landfill facilities' closure and post-closure costs and
amounts outstanding under the Wasco bond (Note 8).

7. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

December 31,
2001 2002
--------- ---------
Income taxes $ 1,421 $ 11,996
Payroll and payroll-related 4,009 7,137
Interest payable 3,392 4,201
Insurance claims and premiums 1,931 4,597
Acquisition-related 11,381 11,017
Unrealized loss on market value of
interest rate swaps -- 3,996
Other 2,998 2,961
--------- ---------
$ 25,132 $ 45,905
========= =========

61


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

At December 31, 2001, the unrealized loss on market value of interest rate
swaps of $4,935 was recorded in other long-term liabilities. At December 31,
2002, the unrealized loss on market value of interest rate swaps has been
recorded in current accrued liabilities as the interest rate swaps, to which the
loss relates, expire in December 2003.

8. LONG-TERM DEBT

Long-term debt consists of the following:


December 31,
------------------------
2001 2002
--------- ---------

Credit Facility $ 232,500 $ 216,000
2006 Convertible Subordinated Notes 150,000 150,000
2022 Floating Rate Convertible Subordinated Notes -- 175,000
2001 Wasco Bonds 13,600 13,600
Madera Bond 1,800 1,800
Cold Canyon and South County Bonds -- 7,145
Notes payable to sellers in connection with acquisitions,
unsecured, bearing interest at 0% to 7.8%, principal
and interest payments due periodically with due dates
ranging from 2003 to 2012 4,070 5,357
Notes payable to third parties, secured by substantially all
assets of certain subsidiaries of the Company, bearing
interest at 0% to 11.0%, principal and interest payments
due periodically with due dates ranging from 2003 to 2010 19,506 13,225
--------- ---------
421,476 582,127
Less - current portion
(5,305) (3,646)
--------- ---------
$ 416,171 $ 578,481
========= =========


Credit Facility

In 2000, the Company entered into a new revolving credit facility with a
syndicate of banks for which Fleet Boston Financial Corporation acts as agent
(the "Credit Facility"). The maximum amount available under the Credit Facility
is $435,000 (including $40,000 in stand-by letters of credit, of which $1,889
and $23,638 were issued as of December 31, 2001 and 2002, respectively) and the
borrowings bear interest at various variable rates based on a spread over LIBOR
(approximately 4.3% and 3.7% as of December 31, 2001 and 2002, respectively) or
the applicable Base Rate (5.5% and 5.0% as of December 31, 2001 and 2002,
respectively) at the Company's option. The Credit Facility requires the Company
to pay a commitment fee ranging from 0.25% to 0.50% of the unused portion of the
Credit Facility. The Credit Facility requires monthly interest payments and
matures in May 2005. Borrowings under the Credit Facility are secured by
virtually all of the Company's assets. The Credit Facility places certain
business, financial and operating restrictions on the Company relating to, among
other things, the incurrance of additional indebtedness, investments,
acquisitions, asset sales, mergers, dividends, distributions and repurchases and
redemption of capital stock. The Credit Facility also requires that specified
financial ratios and balances be maintained. As of December 31, 2002, the
Company was in compliance with these covenants.

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 are unsecured, rank junior to existing and future Senior
Indebtedness, as defined in the indenture governing the notes, and are
convertible at any time at the option of the holder into common stock at a
conversion price of $38.03 per share. The proceeds from the sale of the 2006
Convertible Subordinated Notes were used to repay a portion of the outstanding
indebtedness and related costs under the Credit Facility.

62


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

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
pari passu with the Company's 2006 Convertible Subordinated Notes and junior to
all other 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 holders may surrender notes for conversion into common stock at a
conversion price of $48.39 per share on or after August 1, 2002, but prior to
the maturity date, only if any of the following conditions are satisfied: (a)
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; (b) 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; (c) if neither Rating
Agency is rating the 2022 Floating Rate Convertible Subordinated Notes; (d)
during the five business day period after 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
multiplied by the number of shares issuable upon conversion of $1 principal
amount of the 2022 Floating Rate Convertible Subordinated Notes; (e) upon the
occurrence of specified corporate transactions; or (f) if the 2022 Floating Rate
Convertible Subordinated Notes have been called for redemption and the
redemption has not yet occurred.

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 at a price of $1 per note in cash plus accrued
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.

The proceeds from the sale of the 2022 Floating Rate Convertible
Subordinated Notes were used to repay a portion of the outstanding indebtedness
and related costs under the Company's credit facility and for general corporate
purposes, including payment for an acquisition.

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 due 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
sinking fund payments to a restricted cash account held by a trustee. The
sinking fund requirement in 2002 was $325. The total future sinking fund
requirements are as follows: $345 in 2003, $370 in 2004, $395 in 2005, $425 in
2006, $455 in 2007 and $11,285 thereafter. These sinking fund payments are
classified as restricted cash and included in other assets in the accompanying
consolidated balance sheet. At December 31, 2002, approximately $1,061 of the
funds from the bond offering are held by a trustee and can be used by the
Company to finance capital expenditures on the Landfill Project. These unused
funds are classified as restricted cash and included in other assets in the
accompanying consolidated balance sheet.

Madera Bond

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
1.1% and 1.8% at December 31, 2001 and 2002, respectively). The bonds are backed
by a letter of credit issued by Fleet Boston Financial Corporation under the
Credit Facility for $1,829.

63


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

Cold Canyon and South County Bonds

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 Cold Canyon and
South County Bonds was $7,145 at December 31, 2002 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 1.8% at December 31, 2002) and
are backed by a letter of credit issued by Fleet Boston Financial Corporation
under the Credit Facility for $7,246.

Interest Rate Swaps

In December 1999, the Company entered into an interest rate swap with Fleet
Boston Financial Corporation. Under the swap agreement, which was effective
through December 2001, the interest rate on a $125,000 LIBOR-based note under
the Credit Facility was effectively fixed with an interest rate of 6.1% plus
applicable margin. This rate remained at 6.1% if LIBOR was less than 7.0%. If
LIBOR exceeded 7.0%, the interest rate under the swap agreement would increase
one basis point for every LIBOR basis point above 7.0%.

In May 2000, the Company entered into another interest rate swap with Union
Bank of California. Under the swap agreement, which was effective through
December 2003, the interest rate on a separate $125,000 LIBOR-based note under
the Credit Facility was effectively fixed with an interest rate of 7.0% plus
applicable margin.

In December 2000, the Company restructured both of the two aforementioned
interest rate swap agreements, extending their maturity through December 2003
and removing the embedded option features of the agreements. As of December 31,
2000, the Fleet Boston swap had a notional amount of $125,000 at a fixed rate of
6.17% plus applicable margin and the Union Bank of California swap had a
notional amount of $125,000 at a fixed rate of 7.01% plus applicable margin. In
March 2001, $110,000 of the notional amount under the Union Bank of California
swap was terminated because the Company used the proceeds from its Convertible
Subordinated Notes offering to repay $110,000 of the LIBOR note the cash flows
of which this swap was designated to hedge. The Company made a cash payment of
$6,337 to terminate the swap prior to its due date.


As of December 31, 2002, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:

2003 $ 3,646
2004 4,474
2005 218,715
2006 153,041
2007 1,669
Thereafter 200,582
-----------
$ 582,127
===========

9. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

Leases

The Company leases its facilities and certain equipment under non-cancelable
operating leases for periods ranging from one to ten years. The Company's total
rent expense under operating leases during the years ended December 31, 2000,
2001 and 2002 was $2,188, $2,699 and $4,493, respectively.

64



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

As of December 31, 2002, future minimum lease payments under these leases,
by calendar year, are as follows:

2003 $ 3,407
2004 3,038
2005 2,711
2006 2,147
2007 1,799
Thereafter 11,365
-----------
$ 24,467
==========

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. As a result of
recent changes in the insurance industry, the Company has experienced less
availability of surety bonds for landfill closure and post-closure requirements.
The Company has generally not experienced significant difficulty in obtaining
surety bonds for performance under its municipal collection contracts or
landfill operating agreements. 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.

The Company's current surety bond underwriters have provided it with
non-binding commitments to issue up to $90,000 of bonds, consisting of $50,000
of bonds for landfill closure and post-closure requirements and $40,000 of bonds
for performance under collection contracts and landfill operating agreements.
These non-binding commitments do not have a stated expiration date; however,
individual bonds issued typically have a term of one year. At December 31, 2002,
the Company had provided customers and various regulatory authorities with
surety bonds in the aggregate amount of approximately $36,300 to secure its
landfill closure and post-closure requirements and $27,800 to secure performance
under collection contracts and landfill operating agreements.

Unconditional Purchase Obligation

The Company has an unconditional obligation to purchase diesel fuel under a
12 month agreement expiring on December 31, 2003. The total minimum amount of
diesel fuel to be purchased under the agreement is $7,802.

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, 2002, the Company is not aware of any significant
environmental liabilities.

Legal Proceedings

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

65

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

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 January 2002, the Oklahoma Department of Environmental Quality Land
Protection Division (the "Department") issued an order to the Company requiring
it to cease accepting more than 200 tons per day of out-of-state waste at its
Red Carpet Landfill in Oklahoma due to its alleged failure to obtain the
Department's prior approval of a disposal plan for that waste. At that time, the
Department assessed the Company a fine of $220 for past violations related to
accepting more than 200 tons per day of out-of-state waste prior to obtaining
the Department's approval of a disposal plan. While seeking the Department's
approval of a disposal plan, the Company continued to accept more than 200 tons
a day of out-of-state waste because it believed, based on the advice of legal
counsel, that the Department did not have the legal right to require the Company
to obtain its approval of a disposal plan prior to accepting more than 200 tons
per day of out-of-state waste. In June 2002, the Department issued an amended
order approving the Company's disposal plan subject to conditions and increasing
the fine assessed against the Company to $2,160 because the Company continued to
accept more than 200 tons per day of out of state waste prior to obtaining the
Department's approval of the Company's plan. The Company objected to some of the
conditions imposed in the order and initiated litigation against the Department
challenging this order. Based on the Company's consideration of the facts
surrounding the order and the advice of its legal counsel, in the event the
matter is not settled and litigation proceeds, the Company believes that it will
prevail. Therefore, the Company believes that any payment resulting from the
order will not materially affect its cash flows, financial condition or results
of operations.

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. However, as of December 31, 2002 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.

Employees

Approximately 238 of the Company's drivers and mechanics are represented by
the Teamsters Union in various locations. These employees are subject to labor
agreements that are subject to renegotiation periodically. In October 2002,
approximately 55 employees who are represented by the Teamsters Union commenced
a strike at the Company's facilities in Pierce County, Washington. The Company
continued to operate these facilities with a combination of existing employees
and strike replacements. The employees have filed a petition to de-certify the
union. In connection with this labor dispute, the Company incurred costs of
approximately $1,389 in the fourth quarter of 2002 relating to travel and costs
for management assistance, replacement workers, security, legal expenses and
other expenses.

The Company is not aware of any other organizational efforts among its
employees and believes that its relations with its employees are good.
Approximately 94 of the Company's drivers and mechanics at its Vancouver, WA
facilities are represented by the Teamsters Union. On January 31, 2003, the
labor agreement with these employees expired and the employees have continued to
work under the terms of the expired labor agreement. The Company is currently
negotiating a new labor agreement with these employees.

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 8 for information on the Wasco tax-exempt
bond balances and maturities.


66



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

10. STOCKHOLDERS' EQUITY

Common Stock

Of the 21,953,465 shares of common stock authorized but unissued as of
December 31, 2002, the following shares were reserved for issuance:

Stock option plans 7,147,878
2006 Convertible Subordinated Notes 3,944,775
2022 Floating Rate Convertible Subordinated Notes 3,616,445
Stock purchase warrants 149,372
Restricted stock plan 95,000
Shares held in escrow 51,746
----------
15,005,216
==========

Restricted Stock

During 2002, the Company's Board of Directors adopted a restricted stock
plan in which selected employees, other than officers and directors, may
participate (the "Restricted Stock Plan"). 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 and become free of the stated restrictions over periods
determined at the date of the grant, subject to continuing employment, the
achievement of particular performance goals and/or the satisfaction of certain
vesting provisions applicable to each award of shares. The Board of Directors
currently administers the 2002 Restricted Stock Plan. The Board of Directors
authorizes the grant of any stock awards and determines the employees to whom
shares are awarded, number of shares to be awarded, award period and other terms
and conditions of the awards. 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 nonsolicition agreements to which that plan participant is
bound (if such plan participant has been terminated without cause). A total of
95,000 shares were reserved for issuance under the Restricted Stock Plan. During
the year ended December 31, 2002, the Company issued 23,003 shares of restricted
stock, with a grant-date fair value of $35.28 per share, to selected employees.
The total fair value of the issued restricted stock was $812 and is being
amortized to expense over the three-year restriction period.

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 3,500,000 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, 2002, options for 44,351 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 2,500,000 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 ten 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
3,000,000 shares of the Company's common stock

67


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

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, 2002, options for 1,759,900 and 2,640,000 shares of common stock
were available for future grants under the 2002 Stock Option Plan and 2002
Senior Management Equity Incentive Plan, respectively.

As of December 31, 2000, 2001 and 2002, a total of 681,560, 521,396 and
690,577 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, 2000, 2001 and 2002 is presented below:

Weighted
Number of Average
Shares (Options) Exercise Price
---------------- --------------
Outstanding as of December 31, 1999 1,744,145 $ 12.57

Granted 221,500 14.01
Forfeited (135,032) 18.65
Exercised (366,362) 6.82
---------
Outstanding as of December 31, 2000 1,464,251 13.65

Granted 1,050,050 25.26
Forfeited (55,597) 20.58
Exercised (556,835) 13.33
---------
Outstanding as of December 31, 2001 1,901,869 20.00

Granted 1,530,589 25.91
Forfeited (112,161) 26.09
Exercised (616,670) 17.12
---------
Outstanding as of December 31, 2002 2,703,627 23.79
=========

The following table summarizes information about stock options outstanding
as of December 31, 2002:


Options Outstanding Options Exercisable
------------------------------------- --------------------------
Weighted
Average
Weighted Remaining Weighted
Average Contractual Average
Exercise Life Exercise
Exercise Range Shares Price (In Years) Shares Price
- ------------------------ ------------- ------------ ---------- ------------ ------------

$3.50 to 5.00 5,489 $ 4.18 8.1 500 $ 5.00
$10.25 to 12.38 298,833 11.14 6.5 259,334 11.25
$15.75 to 23.00 164,598 19.62 7.4 152,499 19.59
$23.87 to 35.62 2,209,457 25.72 8.8 278,244 25.52
$36.21 to 37.75 25,250 37.10 9.8 - -
--------- -------
2,703,627 23.79 8.5 690,577 18.84
========= =======


Stock Purchase Warrants

In 2002, the Company's Board of Directors authorized 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

68


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

Plan generally become exercisable in installments pursuant to a vesting schedule
set forth in each warrant agreement. 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 500,000 shares of the Company's common stock for
future issuance under the Consultant Incentive Plan. The Company issued 700
warrants under the 2002 Consultant Incentive Plan during the year ended December
31, 2002.

The following table summarizes information about warrants outstanding as of
December 31, 2001 and 2002:


Issue Warrants Exercise Fair Value Outstanding at December 31,
Date Issued Range of Warrants 2001 2002
--------------- ------- -------------- ------------ ---------- ----------

Warrants issued in connection
with an acquisition February 1998 200,000 $ 4.00 $ 954 73,333 73,333

Warrants issued to third-party
acquisition consultants Throughout 2000 40,438 10.88 to 27.88 183 5,771 -

Warrants issued to third-party
acquisition consultants Throughout 2001 11,499 28.28 to 33.45 104 11,499 11,429

Warrants issued to third-party
acquisition consultants Throughout 2002 64,610 26.75 to 37.00 577 - 64,610
---------- ----------
90,603 149,372
========== ==========


The warrants are exercisable when granted and expire between 2003 and 2008.

Warrants issued to 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 years. These warrants are recorded as an element of the related cost
of acquisitions.

11. COMPREHENSIVE INCOME

The components of other comprehensive income and related tax effects for
the years ended December 31, 2001 and 2002 are as follows:


Year Ended December 31, 2001
------------------------------------
Gross Tax effect Net of tax
-------- -------- --------

Cumulative effect of accounting change $ (5,940) $ (2,340) $ (3,600)
Amounts reclassified into earnings 9,648 3,801 5,847
Changes in fair value of interest rate swaps (11,852) (4,670) (7,182)
-------- -------- --------
$ (8,144) $ (3,209) $ (4,935)
======== ======== ========

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


In March 2001, the Company determined that the debt, the specific cash flows
of which an interest rate swap was designated to hedge, would be repaid prior to
its due date as a result of the convertible subordinated debt offering (Note 8);
therefore, it was probable that the future variable interest payments under the
related debt (the hedged transactions) would not occur and accordingly,
unrealized losses of $6,337 in other comprehensive income related to the swap
were reclassified to earnings. The interest rate swap was terminated for a cash
payment equal to its then fair value of $(6,337).

69


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

The estimated net amount of the existing losses as of December 31, 2002
(based on the interest rate yield curve at that date) included in accumulated
other comprehensive income expected to be reclassified into earnings as payments
are made under the terms of the interest rate swap agreements within the next 12
months is approximately $6,400. The timing of actual amounts reclassified into
earnings is dependent on future movements in interest rates.

12. INCOME TAXES

The provision for income taxes for the years ended December 31, 2000, 2001
and 2002 consists of the following:

Year Ended December 31,
----------------------------------------
2000 2001 2002
---------- ---------- ----------
Current:
Federal $ 15,971 $ 6,792 $ 21,151
State 2,055 578 1,830
Deferred:
Federal 607 12,388 9,293
State 677 54 839
---------- ---------- ----------
$ 19,310 $ 19,812 $ 33,113
========== ========== ==========

Significant components of deferred income tax assets and liabilities are as
follows as of December 31, 2001 and 2002:

2001 2002
---------- ----------
Deferred income tax assets:
Accounts receivable reserves $ 821 $ 951
Accrued expenses 502 934
State taxes 93 102
Other 10 837
---------- ----------
Total deferred income tax assets: 1,426 2,824
---------- ----------
Deferred income tax liabilities:
Net asset basis difference in
non-taxable acquisitions (54,907) (59,454)
Amortization (5,965) (9,393)
Depreciation (16,976) (26,336)
Other liabilities -- (33)
Prepaid expenses (2,267) (2,151)
---------- ----------
Total deferred income tax liabilities (80,115) (97,367)
---------- ----------
Net deferred income tax liability $ (78,689) $ (94,543)
========== ==========

A reduction in the Company's effective state tax rate in 2001 resulted in
its deferred tax liabilities decreasing by $1,672 during the year ended December
31, 2001.

During the years ended December 31, 2001 and 2002, the Company recognized a
tax benefit of $3,802 and $3,572, respectively, as a result of the exercise of
non-qualified stock options and the disqualifying disposition of incentive stock
options.

70


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

The differences between the Company's provision for income taxes as
presented in the accompanying statements of operations and benefit for income
taxes computed at the federal statutory rate consist of the items shown in the
following table as a percentage of pre-tax income:


Year Ended December 31,
2000 2001 2002
------- ------- -------

Income tax provision at the statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 3.7 2.0 2.2

Goodwill amortization 1.5 1.5 --
Stock compensation expense 0.1 -- --
Other 0.3 0.9 0.2
------- ------- -------
40.6% 39.4% 37.4%
======= ======= =======


13. NET INCOME PER SHARE INFORMATION

The following table sets forth the calculation of the numerator and
denominator used in the computation of basic and diluted net income per share
for the years ended December 31, 2000, 2001 and 2002:


Year Ended December 31,
-------------------------------------------
2000 2001 2002
----------- ----------- -----------

Numerator:
Net income for basic earnings per share $ 28,189 $ 30,528 $ 55,466
Interest expense on 2006 Convertible Subordinated Notes,
net of tax effects -- -- 5,852
----------- ----------- -----------
Net income for diluted earnings per share $ 28,189 $ 30,528 $ 61,318
=========== =========== ===========
Denominator:
Basic shares outstanding 23,301,358 27,069,685 27,750,642
Dilutive effect of 2006 Convertible Subordinated Notes -- -- 3,944,775
Dilutive effect of stock options and warrants 693,636 605,954 628,954
Dilutive effect of restricted stock -- -- 1,253
----------- ----------- -----------
Diluted shares outstanding 23,994,994 27,675,639 32,325,624
=========== =========== ===========


The Company's 2006 Convertible Subordinated Notes are convertible at any
time at the option of the holders into a total of 3,944,775 shares of common
stock. These shares have not been included in the computation of diluted net
income per share for the year ended December 31, 2001 because to have done so
would have been antidilutive. The Company's 2022 Floating Rate Convertible
Subordinated Notes are convertible into 3,616,445 shares of common stock in
accordance with the provisions listed in Note 8 to these financial statements.
These shares have not been included in the computation of diluted net income per
share for the year ended December 31, 2002 because none of the provisions that
would result in conversion of the notes into common stock occurred during 2002.
Additionally, as of December 31, 2001 and 2002, the Company had the following
stock options and warrants that have not been included in the computation of
diluted net income per share because to do so would have been antidilutive:


December 31, 2001 December 31, 2002
----------------------------- ---------------------------------
Number of Exercise Number of Exercise
Shares Price Range Shares Price Range
--------- ------------------- ------------- -------------------

Outstanding options 21,500 $30.74 to $33.37 122,250 $33.06 to $37.75
Outstanding warrants 11,134 $30.40 to $33.45 24,650 $33.30 to $37.00
--------- ---------
32,634 146,900
========= =========


71


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

14. EMPLOYEE BENEFIT PLANS

WCI has a voluntary savings and investment plan (the "WCI 401(k) Plan"). The
WCI 401(k) Plan is available to all eligible, non-union employees of WCI. Under
the WCI 401(k) Plan, WCI's contributions are 40% of the first 5% of the
employee's contributions. The Murrey Companies have a voluntary savings and
investment plan (the "Murrey 401(k) Plan"). The Murrey 401(k) Plan is available
to all eligible, non-union employees of the Murrey Companies. Under the Murrey
401(k) Plan, the Murrey Companies' contributions are at the discretion of
management. During the years ended December 31, 2000, 2001 and 2002, the total
401(k) plan expense for the WCI and Murrey 401(k) plans was approximately $890,
$1,132 and $1,477, respectively.

15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table summarizes the unaudited consolidated quarterly results
of operations as reported for 2001 and 2002:


First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------

Revenues:
2001 as reported $ 85,114 $ 93,967 $ 97,681 $ 100,771
Gross profit:
2001 as reported 38,097 42,103 42,861 44,127
Net income:
2001 as reported 4,712 6,398 10,236 9,183
Basic income per common share:
2001 as reported 0.17 0.24 0.38 0.34
Diluted income per common share:
2001 as reported 0.17 0.23 0.37 0.33
Revenues:
2002 as reported 105,742 128,091 133,487 131,341
Gross profit:
2002 as reported 46,563 56,069 58,339 56,359
Net income:
2002 as reported 12,171 14,342 15,193 13,760
Basic income per common share:
2002 as reported 0.44 0.52 0.55 0.49
Diluted income per common share:
2002 as reported 0.43 0.49 0.51 0.47


In December 2001, the Company recorded a fourth quarter charge of
approximately $1,700 reflecting the write-off of incorrectly billed receivables
in New Mexico, the write-off of the balance of long-term receivables that the
Company settled with two customers in bankruptcy proceedings and the settlement
of outstanding disputes with three former owners.




72


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

PART III

Except as set forth above in Part I under "Executive Officers," the
information required by Part III (Items 10 through 13) has been omitted from
this report, and is incorporated by reference to the captions "Principal
Stockholders," "Election of Directors" and "Executive Compensation" in our
definitive Proxy Statement for the 2003 Annual Meeting of Stockholders, which we
will file with the Commission pursuant to Regulation 14A within 120 days after
the end of our 2002 fiscal year.

PART IV

ITEM 14. CONTROLS AND PROCEDURES

Within the 90 days prior to the filing of this report, our management,
including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act"). Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective, in all material respects, to ensure that
information required to be disclosed in the reports we file and submit under the
Exchange Act is recorded, processed, summarized and reported as and when
required.

There have been no significant changes (including corrective actions with
regard to significant deficiencies and material weaknesses) in our internal
controls or in other factors subsequent to the date management carried out its
evaluation that could significantly affect these controls.

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K

(a) See Index to Financial Statements on page 41. The following Financial
Statement Schedule is filed herewith and made a part hereof:

Schedule II -- Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted.

(b) Reports on Form 8-K

On October 29, 2002, we filed a report on Form 8-K reporting the listing of
our common stock on the New York Stock Exchange as of October 24, 2002, and the
withdrawal of the listing of our common stock from the Nasdaq National Market.

(c) See Exhibit Index immediately following signature pages.



73


SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Waste Connections, Inc.

By: /s/ Ronald J. Mittelstaedt
---------------------------------------
Ronald J. Mittelstaedt
Chairman, President and Chief Executive
Officer

Date: March 19, 2003

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ronald J. Mittelstaedt and Steven F. Bouck,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities to sign any amendments to this
Annual Report on Form 10-K, and to file the same with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

/s/ Ronald J. Mittelstaedt Chairman, President and Chief March 19, 2003
- ------------------------------ Executive Officer (principal
Ronald J. Mittelstaedt executive officer)

/s/ Steven F. Bouck Executive Vice President and March 19, 2003
- ------------------------------ Chief Financial Officer
Steven F. Bouck (principal financial officer)

/s/ Michael R. Foos Chief Accounting Officer and March 19, 2003
- ------------------------------ Vice President - Finance
Michael R. Foos (principal accounting officer)

/s/ Eugene V. Dupreau Director and Regional Vice March 19, 2003
- ------------------------------ President - Western Region
Eugene V. Dupreau

/s/ Michael W. Harlan Director March 19, 2003
- ------------------------------
Michael W. Harlan

/s/ William J. Razzouk Director March 19, 2003
- ------------------------------
William J. Razzouk

/s/ Robert H. Davis Director March 19, 2003
- ------------------------------
Robert H. Davis

74


CERTIFICATIONS

I, Ronald J. Mittelstaedt, certify that:

1. I have reviewed this annual report on Form 10-K of Waste Connections, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: March 19, 2003
/s/ Ronald J. Mittelstaedt
---------------------------------
Ronald J. Mittelstaedt
Chairman, President and
Chief Executive Officer

75


I, Steven F. Bouck, certify that:

1. I have reviewed this annual report on Form 10-K of Waste Connections, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: March 19, 2003

/s/ Steven F. Bouck
-----------------------------------
Steven F. Bouck
Executive Vice President
and Chief Financial Officer

76


WASTE CONNECTIONS, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2000,
2001 and 2002
(in thousands)


Additions
-------------------------- Deductions
Balance at Charged to Charged (Write-offs, Balance
Beginning Costs and to Other Net of at End
Description of Period Expenses Accounts Collections) of Period
- ----------- --------- -------- -------- ------------ ---------

Deducted from asset accounts:
Allowance for doubtful accounts:
Year ended December 31, 2000 $ 1,460 $ 1,264 $ - $ (825) $ 1,899
Year ended December 31, 2001 1,899 1,922 - (1,654) 2,167
Year ended December 31, 2002 2,167 2,809 - (2,467) 2,509
























77

EXHIBIT INDEX

Exhibit Number Description of Exhibits
- -------------- -----------------------
3.1* Amended and Restated Certificate of Incorporation of Waste
Connections, in effect as of the date hereof

3.2* Amended and Restated By-Laws of Waste Connections, in effect
as of the date hereof

4.1* Form of Common Stock Certificate

4.2++# Form of Note for Waste Connections, Inc.'s 5.5% Convertible
Subordinated Notes due April 15, 2006

4.3++#(+) Indenture between Waste Connections, Inc., as Issuer, and
State Street Bank and Trust Company, as Trustee, dated as of
April 4, 2001

4.4++#(+) Purchase Agreement between Waste Connections, Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated dated
March 30, 2001

4.5++#(+) Registration Rights Agreement between Waste Connections,
Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated
dated as of April 4, 2001 Form of Note for Waste
Connections, Inc.'s Floating Rate Convertible Subordinated
Notes Due 2022 4.6++## Indenture between Waste Connections,
Inc., as Issuer, and State Street Bank and Trust Company of
4.7++##(+) California, N.A., as Trustee, dated as of April
30, 2002 Purchase Agreement between Waste Connections, Inc.
and Deutsche Bank Securities Inc. dated April 4.8++##(+) 26,
2002 Registration Rights Agreement between Waste
Connections, Inc. and Deutsche Bank Securities Inc.
4.9++##(+) dated as of April 30, 2002

10.1**### Third Amended and Restating Revolving Credit Agreement,
dated as of May 16, 2000, between Waste Connections and
various banks represented by Fleet National Bank

10.2### Second Amended and Restated 1997 Stock Option Plan

10.3* Form of Option Agreement

10.4* Form of Warrant Agreement

10.5* Warrant Agreement and related Anti-Dilution Agreement issued
to Imperial Bank

10.6* Warrant Agreement and related Anti-Dilution Agreement issued
to BankBoston, N.A.

10.7* Form of Stock Purchase Agreement dated as of September 30,
1997

10.8*** Form of Third Amended and Restated Investors' Rights
Agreement dated as of December 31, 1998

10.9*# First Amended and Restated Employment Agreement between
Waste Connections and Ronald J. Mittelstaedt, dated as of
June 1, 2000

10.10*## Second Amended Employment Agreement between Waste
Connections and Darrell Chambliss, dated as of June 1, 2000

10.11*## Second Amended Employment Agreement between Waste
Connections and Michael Foos, dated as of June 1, 2000

10.12*## Second Amended Employment Agreement between Waste
Connections and Eric Moser, dated as of June 1, 2000

10.13* Employment Agreement between Waste Connections and Steven
Bouck, dated as of February 1, 1998

78


Exhibit Number Description of Exhibits
- -------------- -----------------------

10.14* Employment Agreement between Waste Connections and Eugene V.
Dupreau, dated as of February 23, 1998

10.15* Employment Agreement between Waste Connections and Charles
B. Youngclaus, dated as of February 23, 1998

10.16*(+) Purchase and Sale Agreement, dated as of September 29, 1997,
between Browning-Ferris Industries, Inc., Browning-Ferris
Industries, Inc., and Browning-Ferris Industries of Idaho,
Inc. as Sellers, and Waste Connections, Waste Connections of
Idaho, Inc. and Continental Paper Recycling, LLC as Buyers

10.17*(+) Stock Purchase Agreement, dated as of January 26, 1998,
among Waste Connections, Waste Connections of Idaho, Inc.
and the shareholders of Waste Connections of Idaho, Inc.

10.18*(+) Stock Purchase Agreement, dated as of February 4, 1998,
among Waste Connections and the shareholders of Madera
Disposal Company, Inc.

10.19*(+) Asset Purchase Agreement, dated as of March 1, 1998, among
Waste Connections, Waste Connections of Idaho, Inc., Hunter
Enterprises, Inc. and the shareholder of Hunter Enterprises,
Inc.

10.20* Form of Indemnification Agreement entered into by Waste
Connections and each of its directors and officers

10.21#(+) Asset Purchase Agreement, dated as of June 1, 1998, by and
among Waste Connections, Waste Connections of Utah, Inc.,
Contractor's Waste, L.C., and Brad Kitchen, Heath Johnston,
and R. Scott McQuarrie

10.22##(+) Stock Purchase Agreement, dated as of June 5, 1998, by and
among Waste Connections, B & B Sanitation, Inc., Red Carpet
Landfill, Inc., Darlin Equipment, Inc., Lyle J. Buller,
Larue A. Buller, the Lyle J. Buller Revocable Trust dated
10/11/96 and Larue A. Buller, Trustee of the Larue A. Buller
Revocable Trust dated 10/11/96

10.23++(+) Stock Purchase Agreement dated as of June 17, 1998, by and
among Waste Connections, Arrow Sanitary Service, Inc.,
Steven Giusto, Dennis Giusto, John Giusto, Michael Giusto
and Kenneth Giusto

10.24++(+) Stock Purchase Agreement dated as of June 25, 1998, by and
among Waste Connections, Curry Transfer and Recycling,
Oregon Waste Technology, Petty H. Smart, and A. Lewis Rucker

10.25**(+) Purchase and Sale Agreement dated as of June 25, 1998, by
and between Petty H. Smart and Waste Connections

10.26**(+) Loan Agreement dated as of June 1, 1998 between Madera
Disposal Systems, Inc. and the California Pollution Control
Financing Authority

10.27** Employment Agreement between Waste Connections and David M.
Hall, dated as of July 8, 1998

10.28++(+) Agreement and Plan of Merger, dated as of July 30, 1998, by
and among Waste Connections, WCI Acquisition Corporation,
Shrader Refuse and Recycling Service Company, Duane E.
Shrader, Myrlen A. Shrader, Daniel L. Shrader, Mark S.
Shrader, Michael D. Shrader, and Daren L. Shrader

10.29++(+) Purchase and Sale Agreement dated as of July 31, 1998, by
and between Ambler Vincent Development Company and Shrader
Refuse and Recycling Service Company

79


Exhibit Number Description of Exhibits
- -------------- -----------------------

10.30**(+) Purchase Agreement, dated as of July 31, 1998, by and among
Waste Connections, Waste Connections of Nebraska, Inc., J &
J Sanitation Inc., Big Red Roll Off Inc., Garry L. Jeffords,
Darin L. Mueller, Leslie J. Jeffords, Leland J. Jeffords,
Bradley Rowan, Great Plains Recycling, Inc., Roma L.
Jeffords, Kristie K. Mueller, Sheri L. Jeffords, and Betty
L. Hargis

10.31***(+) Agreement and Plan of Merger dated as of October 22, 1998,
by and among Waste Connections, WCI Acquisition Corporation
I, WCI Acquisition Corporation II, WCI Acquisition
Corporation III, WCI Acquisition Corporation IV, Murrey's
Disposal Company, Inc., American Disposal Company, Inc.,
D.M. Disposal Co., Inc., Tacoma Recycling Company, Inc., the
Murrey Trust UTA August 5, 1993, as amended, the Bonnie L.
Murrey Revocable Trust UTA August 5, 1993, as amended,
Donald J. Hawkins, and Irmgard R. Wilcox

10.32****(+) Purchase Agreement, dated as of December 11, 1998, by and
among Waste Connections, Butler County Landfill, Inc., Kobus
Construction, Inc., Tom Kobus and Debbie Kobus

10.33####(+) Amendment No. 1 to Purchase Agreement, dated as of January
7, 1999, by and among WCI, Butler County Landfill, Inc.,
Kobus Construction, Inc., Tom Kobus and Debbie Kobus

10.34####(+) Amendment No. 2 to Purchase Agreement, dated as of January
8, 1999, by and among WCI, Butler County Landfill, Inc.,
Kobus Construction, Inc., Tom Kobus and Debbie Kobus

10.35(+) Stock Purchase Agreement dated as of November 30, 1998, by
and among Waste Connections, Amador Disposal Service, Inc.,
Mother Lode Sani-Hut, Inc., and Robert N. Grunigen, Carla
Grunigen, Carol Sesser and Gaye Sue Marchini, as Trustees of
the Marchini 1981 Trust, Bennie L. Ratto, Carol Sesser, John
D. Marchini, Gloria Lehman, Sandra Thomas, John H. Tillman
and Jeffrey R. Tillman

10.36^^(+) Amended and Restated Stock Purchase Agreement dated as of
March 31, 1999, by and among Waste Connections, Inc.,
Management Environmental National, Inc., RH Financial
Corporation and The Shareholder listed on Schedule A thereto

10.37^^^(+) Acquisition Agreement dated as of August 11, 1999, by and
among WCI Acquisition Corporation I, Waste Connections,
Inc., International Environmental Industries, Inc., J.O.
Stewart, Jr., Ralner Corporation, JOS Enterprises, Ltd. and
International Environmental Industries Equipment Company,
L.P.

10.38^^^^(+) Asset Purchase Agreement dated as of October 15, 1999, by
and among Waste Connections of Colorado, Inc., Allied Waste
Transportation, Inc., BFI Services Group, Inc. and Allied
Waste Industries, Inc.

10.39^^^^(+) Stock Purchase Agreement dated as of October 15, 1999, by
and among Waste Connections, Inc., Allied Waste Systems
Holdings, Inc. and Allied Waste Industries, Inc.

10.40^^^^(+) Closing Agreement dated as of November 17, 1999, by and
among Waste Connections, Inc., Allied Waste Systems
Holdings, Inc., Allied Waste Industries, Inc. and Denver
Regional Landfill, Inc.

10.41^^^^(+) Agreement dated as of November 17, 1999, among Waste
Connections of Colorado, Inc., Allied Waste Transportation,
Inc., BFI Services Group, Inc. and Allied Waste Industries,
Inc.

10.42*### Employment Agreement between Waste Connections and James M.
Little, dated as of September 13, 1999

10.43*### Employment Agreement between Waste Connections and Jerri L.
Hunt, dated as of October 25, 1999

10.44**##(+) Stock Purchase Agreement dated April 17, 2000, among Waste
Connections, BFI Waste Systems of North America, Inc., and
Allied Waste Industries, Inc.

10.45**##(+) Asset Purchase Agreement dated April 17, 2000, among BFI
Waste Systems of North America, Inc., Allied Waste
Industries, Inc. and Finney County Landfill, Inc.

80


Exhibit Number Description of Exhibits
- -------------- -----------------------

10.46***# Employment Agreement between Waste Connections, Inc. and
Kenneth O. Rose

10.47***# Employment Agreement between Waste Connections, Inc. and
Robert D. Evans

10.48***+ Waste Connections, Inc. 2002 Senior Management Equity
Incentive Plan

10.49***+ Waste Connections, Inc. 2002 Stock Option Plan

10.50***++ Waste Connections, Inc. 2002 Restricted Stock Plan

10.51***+++ Waste Connections, Inc. Consultant Incentive Plan

12.1 Statement regarding computation of ratio of earnings to
fixed charges

21.1 Subsidiaries of Waste Connections

23.1 Consent of Ernst & Young LLP, Independent Auditors

24 Power of Attorney. Reference is made to the signature page
of this Form 10-K.

99.1 Certificate of Chief Executive Officer and Chief Financial
Officer

99.2 Proxy Statement for Waste Connections' 2003 Annual
Stockholders Meeting scheduled to be held May 23, 2003. (To
be filed with the Commission prior to 120 days after
December 31, 2002, and incorporated by reference herein to
the extent indicated in Part III to this Form 10-K.)












81


* Incorporated by reference to the exhibits filed with Waste
Connections' Registration Statement on Form S-1,
Registration No. 333-48029.

** Incorporated by reference to the exhibits filed with Waste
Connections' Registration Statement on Form S-4,
Registration No. 333-59199.

*** Incorporated by reference to the exhibits filed with Waste
Connections' Registration Statement on Form S-4,
Registration No. 333-65615.

**** Incorporated by reference to the exhibits filed with Waste
Connections' Registration Statement on Form S-1,
Registration No. 333-70253.

# Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on June 15, 1998.

## Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on June 22, 1998.

++ Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K Filed on August 11, 1998.

#### Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on January 13, 1999.

^^ Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on April 14, 1999.

^^^ Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on August 25, 1999.

^^^^ Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on November 24, 1999.

### Incorporated by reference to the exhibit filed with Waste
Connections' Form S-8, Registration No. 333-42096.

*## Incorporated by reference to the exhibit filed with Waste
Connections' Form 10-Q filed on November 14, 2000.

*# Incorporated by reference to the exhibit filed with Waste
Connections' Form 10-Q filed on August 7, 2000.

*### Incorporated by reference to the exhibit filed with Waste
Connections' Form 10-K filed on March 13, 2000.

**## Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on May 30, 2000.

++# Incorporated by reference to the exhibit filed with Waste
Connections' Form S-3 filed on June 5, 2001.

**### Incorporated by reference to the exhibit filed with Waste
Connections' Form 10-K/A filed on July 18, 2001.

++## Incorporated by reference to the exhibit filed with Waste
Connections' Form S-3 filed on July 29, 2002.

***# Incorporated by reference to the exhibit filed with Waste
Connections' Form 10-Q filed on August 13, 2002.

***+ Incorporated by reference to the exhibit filed with Waste
Connections' Form S-8 filed on February 21, 2002.

***++ Incorporated by reference to the exhibit filed with Waste
Connections' Form S-8 filed on June 19, 2002.

***+++ Incorporated by reference to the exhibit filed with Waste
Connections' Form S-8 filed on January 8, 2003.

(+) Filed without exhibits and schedules (to be provided
supplementally on request of the Commission).


82