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The following is an excerpt from a 10-K SEC Filing, filed by WASTE CONNECTIONS INC/DE on 3/29/1999.
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Waste Connections is a regional, integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in secondary markets of the Western U.S. We currently own and operate 32 collection operations, nine transfer stations and two Subtitle D landfills and operate an additional seven transfer stations, two Subtitle D landfill and seven recycling facilities. As of March 15, 1999, we served more than 300,000 commercial, industrial and residential customers in ten states: California, Idaho, Kansas, Nebraska, Oklahoma, Oregon, South Dakota, Utah, Washington, and Wyoming. Approximately 75% of our revenues are derived from exclusive arrangements.

Waste Connections was formed in September 1997 to build a leading solid waste services company in the secondary markets of the Western U.S. We have targeted these markets because we believe that: (1) a large number of independent solid waste services companies suitable for acquisition by us are located in these markets; (2) there is less competition in these markets from larger, better-capitalized solid waste services companies; and (3) these markets have strong projected economic and population growth rates. In addition, our senior management team has extensive experience in acquiring, integrating and operating solid waste services businesses in the Western U.S.

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.

Acquisitions have been and are expected to continue to be a principal component of our growth strategy. From our initial public offering in May 1998 to March 15, 1999, we acquired 40 solid waste services businesses, including 24 collection operations, two Subtitle D landfills, 14 transfer stations and six recycling facilities. These acquisitions took Waste Connections into seven new markets in five additional states: Kansas, Nebraska, Oklahoma, Oregon and Utah. Generating internal growth and securing additional exclusive arrangements are also important components of our growth strategy.


Recent Developments

On February 25, 1999, we announced the simultaneous purchase and sale of certain solid waste services assets with Allied Waste Industries, Inc. The transactions include customer contracts, equipment and facilities and represent approximately $7 million in acquired revenues to each party. We sold our collection operations in Issaquah, Washington and Maltby, Washington in exchange for Allied's collection and transfer operations in Norfolk, Nebraska, Fremont, Nebraska and its landfill operating contract in Columbus, Nebraska.

On February 16, 1999, we announced that we had signed a definitive agreement to acquire Columbia Resource Co., L.P. and Finley Buttes L.P. Columbia Resource Co. operates two transfer stations in Clark County Washington. Finley Buttes is one of the largest regional landfills in the Pacific Northwest, with over 200 years of capacity at current rates. Combined annual revenue of the two operations is approximately $23 million. The transaction is structured as all cash for stock purchase, however, terms of the transaction have not been disclosed. Closing is subject to usual and customary closing conditions, including local governmental approval.

On February 4, 1999 we consummated a secondary public offering of approximately four million shares of Common Stock priced at $17.50 per share. Substantially all of the proceeds were used for the payment of debt associated with our acquisition program.

On January 19, 1999, four wholly owned subsidiaries of Waste Connections merged into Murrey's Disposal Company, Inc., American Disposal Company, Inc., D.M. Disposal Co., Inc. and Tacoma Recycling Company, Inc. (together, the "Murrey Companies"), and the Murrey Companies became wholly owned subsidiaries of Waste Connections. The Murrey Companies had revenues for the year ended December 31, 1998 of approximately $28.9 million, of which more than 75% were derived from services provided under exclusive arrangements. The Murrey Companies, which provide solid waste services to more than 65,000 customers in the Seattle-Tacoma, Washington area, own and operate five collection operations and one transfer station and operate two transfer stations and two recycling facilities. The aggregate consideration paid by Waste Connections to the shareholders of the Murrey Companies was 2,888,880 shares of Common Stock. The mergers were accounted for as poolings-of-interests.

On January 8, 1999, a wholly owned subsidiary of Waste Connections merged into Roche & Sons, Inc. As a result of this merger, Roche & Sons, Inc. became a wholly owned subsidiary of Waste Connections that provides solid waste services to approximately 6,000 customers in central Utah. This merger was accounted for as a pooling of interests.

Unless otherwise noted, all descriptions of Waste Connections' business in this Annual Report on Form 10-K are as of March 15, 1998.

Industry Background

According to Waste Age, an industry trade publication, the U.S. solid waste services industry generated estimated revenues of $36.9 billion in 1997. The solid waste services industry has undergone significant consolidation and integration since 1990. We believe that, particularly in the Western 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 and have accelerated consolidation and acquisition activities in the solid waste collection and disposal industry. 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" below. 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 primarily regional in nature and highly fragmented. Based on published industry sources, approximately 27% 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, approximately 41% by publicly traded solid waste companies and approximately 32% by municipal governments that provide collection and disposal services. 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 U.S., for companies with disciplined acquisition programs, decentralized operating strategies and access to financial resources.


Our objective is to build a leading integrated solid waste services company in secondary markets of the Western 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 from 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 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.


- Expansion Through Acquisitions. We intend to expand significantly 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 "tuck in" to existing operations.

We intend to expand into new geographic regions by entering these markets through acquisitions. We use an initial acquisition in a new market as an operating base. Then we 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 are currently examining opportunities in states other than those in which we currently operate and are assessing potential acquisitions of solid waste operations in Colorado, Montana and Texas.

We believe that many "tuck-in" acquisition opportunities exist within our current and targeted market areas. For example, we have identified more than 300 independent entities that provide collection and disposal services in the states where we currently operate. We believe that throughout the Western U.S., many independent entities are suitable for acquisition by Waste Connections and provide opportunities to increase our market share and route density.

- 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.

- 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. Transfer stations are also an important part of our internal growth strategy. They extend our direct-haul reach and link disparate collection operations with disposal capacity that we own, operate or contract. We currently own and/or operate 16 transfer stations. By operating transfer stations, we also engage in direct communications with municipalities and private operators that deliver waste to our transfer stations. This positions us to gain additional business in our markets if a municipality privatizes any solid waste operations it owns or rebids existing contracts, and it increases our opportunities to acquire other private collection operations that use the transfer stations.


- 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 U.S., and makes us an attractive buyer to many potential acquisition candidates. We currently deliver our services from 32 operating locations serving 12 market areas, or districts. Each district has a district manager, who has autonomous service and decision-making authority for that district and is responsible for maintaining service quality, promoting safety in the district's 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 them into our


operations and obtaining the permits and other governmental approvals required for us to operate the acquired business.

- Operating Enhancements. We develop company-wide operating standards, which are tailored for each of our markets based on industry standards and local conditions. Using these standards, we track collection and disposal routing efficiency and equipment utilization. We also implement cost controls and employee training and safety procedures, and establish a sales and marketing plan for each market. We have installed a wide area network, implemented advanced management information systems and financial controls, and consolidated accounting, insurance and employee benefit functions, customer service, productivity reporting and dispatching systems. While district management operates with a high degree of autonomy, our senior officers monitor district operations and require adherence to Waste Connections' 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 acquired businesses as 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 operating efficiencies and increase the volume of solid waste collected by the acquired operations.

Acquisition Program

Waste Connections currently operates in ten states in the Western U.S. We focus our acquisition efforts on markets in the Western U.S. that generally exhibit the characteristics listed below, which we believe provide significant growth opportunities for a well-capitalized market entrant and create economic and operational barriers to entry by new competitors.

- A potential market revenue base of at least $15 million, usually in market areas with a geographically dispersed population of 75,000 or less;

- A fragmented market with additional acquisition candidates;

- The opportunity to acquire a significant market share;

- Strong projected economic or population growth rates;

- The availability of adequate disposal capacity, through acquisition or agreements with third parties; and

- A favorable regulatory environment.

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 a set of financial, geographic and management criteria to evaluate specific acquisition candidates. The factors that we consider in evaluating an acquisition candidate include:

- The candidate's historical and projected financial performance;

- The return on capital invested in a candidate, its margins and capital requirements and its impact on our earnings;

- The experience and reputation of the candidate's management and customer service providers, their relationships with local communities and their willingness to continue as employees of Waste Connections;

- The composition and size of the candidate's customer base and whether the customer base is served under franchise agreements, municipal contracts, governmental certificates or other exclusive arrangements;

- Whether the geographic location of the candidate will enhance or expand our market area or ability to attract other acquisition candidates;

- Whether the acquisition will increase our market share or help protect our existing customer base;

- Any potential synergies that may be gained by combining the candidate with our existing operations; and

- The liabilities of the candidate.

Before completing an acquisition, we perform extensive environmental, operational, engineering, legal, human resources and financial due diligence. Our management evaluates and approves all acquisitions. Ronald J. Mittelstaedt, President, Chief Executive Officer and Chairman of the Board, is authorized to approve acquisitions for consideration of up to $1 million; the Executive Committee of the Board of Directors must approve all other acquisitions. We seek to integrate each acquired business promptly and to minimize disruption to the ongoing operations of both Waste Connections and the acquired business. We believe our senior management team has a proven track record in integrating acquisitions.

The following table sets forth Waste Connections' acquisitions completed from our inception in September 1997 through March 15, 1999:


Brecke Sanitation            January 1999          Collection        Wagner, SD                     Western South Dakota
Murrey Companies             January 1999          Collection        Fife, WA                         Western Washington
Roche & Sons, Inc.           January 1999          Collection        Layton, UT                             Central Utah
Butler County Landfill,      January 1999          Landfill          David City, NE                     Eastern Nebraska
  Inc. and Kobus
  Construction, Inc.
City Sanitation, Inc.        December 1998         Collection        Layton, UT                             Central Utah
Amador Disposal              December 1998         Collection        Ione, CA                   North Central California
  Service, Inc. and
  Mother Lode
  Sani-Hut, Inc.
Heartland Waste              December 1998         Collection        Arkansas City, KA                   Southern Kansas
  Management, Inc.
Columbia Sanitary            November 1998         Collection        Portland, OR                    Northwestern Oregon
  Services, Inc. and                                                                             Southwestern Washington
  and Moreland
  Sanitary Service, Inc
B&G Sanitation               November 1998         Collection        Cottage Grove, OR               Southwestern Oregon
Veneta Garbage Service       November 1998         Collection        Veneta, OR                      Southwestern Oregon
Siuslaw Disposal, Inc.       November 1998         Collection        Florence, OR                    Southwestern Oregon
R&N, LLC                     October 1998          Collection        Mountain Home, ID                Southwestern Idaho
Westlane Disposal            September 1998        Collection        Florence, OR                    Southwestern Oregon
Harrell's Septic Service     September 1998        Septic Services   Crescent City, CA                      Northwestern
California and
                                                                                                     Southwestern Oregon
Evergreen Waste              September 1998        Collection        Washougal, WA                          Southwestern
  Systems, Inc.                                                                                           Washington and
                                                                                                     Northwestern Oregon
Wolff's Trashmasher          September 1998        Collection        Stanton, NE                        Eastern Nebraska
  and Haul It
  All Sanitary Service
Country Garbage              September 1998        Collection        Salt Lake City, UT                     Central Utah
  Services, Inc
Youngclaus Enterprises       September 1998        Collection        Madera, CA                            North Central
Affiliated Waste             September 1998        Collection        Norfolk, NE                        Eastern Nebraska
  Services, L.L.C.                                                                                      Eastern Nebraska
Contractors Waste, Inc.      August 1998           Collection        Salt Lake City, UT                     Central Utah
Big Red Roll Off, Inc.       August 1998           Collection        O'Neill, NE                        Eastern Nebraska
ABC Waste, Inc.              August 1998           Collection        Salt Lake City, UT                     Central Utah
Miller Containers, Inc.      July 1998             Collection        Salt Lake City, UT                     Central Utah
Shrader Refuse and           July 1998             Collection        Papillion, NE                      Eastern Nebraska
  Recycling Service Company
Red Carpet Landfill, Inc.    June 1998             Landfill          Enid, OK                           Western Oklahoma
B&B Sanitation, Inc.         June 1998             Collection        Enid, OK                           Western Oklahoma
Darlin Equipment, Inc.       June 1998             Equipment Leasing Enid, OK                           Western Oklahoma
Oregon Waste Technology      June 1998             Collection        Brookings, OR                   Southwestern Oregon
Curry Transfer and Recycling June 1998             Collection        Brookings, OR                   Southwestern Oregon
Contractor's Waste           June 1998             Collection        Orem, UT                               Central Utah
  Removal, L.C.
Arrow Sanitary Services, Inc.                      June 1998         Collection                             Portland, OR
Northwestern Oregon and
                                                                                                 Southwestern Washington
T&T Disposal, Inc.           May 1998              Collection        Gillette, WY                   Northeastern Wyoming
Sunshine Sanitation          May 1998              Collection        Spearfish, SD                  Western South Dakota
Sower's Sanitation, Inc.     May 1998              Collection        Belle Fourche, SD              Western South Dakota
Jesse's Disposal             April 1998            Collection        Gillette, WY                   Northeastern Wyoming
A-1 Disposal, Inc.           April 1998            Collection        Gillette, WY                   Northeastern Wyoming
Hunter Enterprises, Inc.     March 1998            Collection        Shelley, ID                           Eastern Idaho
Madera Disposal.             February 1998         Collection and    Madera, CA                 North Central California
  Services Inc.                                    Landfill
Waste Connections of Idaho,  January 1998          Collection        Idaho Falls, ID                       Eastern Idaho
Fibres International, Inc.   September 1997        Collection        Issaquah, WA               North Central Washington
and Central Oregon
Browning-Ferris Industries   September 1997        Collection        Clark County, WA           Southwestern Washington
  of Washington, Inc.

* Month in which transaction closed.




Waste Connections serves more than 300,000 commercial, industrial and residential customers. Of these, we serve more than 94,000 under governmental certificates that grant us rights, generally perpetual and exclusive, to provide services within specified areas, more than 26,500 under exclusive franchise agreements with remaining terms ranging from seven to 18 years, and more than 118,500 under exclusive municipal contracts with generally shorter contract terms.

We provide commercial and industrial services not performed under governmental certificates, franchise agreements or municipal contracts under one to five year service agreements. 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 95 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.

We provide residential waste services that we do not 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 base residential contract fees primarily on route density, the frequency and level of service, the distance to the disposal or processing facility, the cost of disposal or processing and prices charged 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.


Waste Connections has an active program to acquire, develop, own and operate transfer stations in markets proximate to our operations. Currently, we operate three transfer stations in California, three transfer stations in Nebraska, four transfer stations in Washington and six transfer stations in Oregon, which receive, compact, and transfer solid waste to be transported by larger vehicles to landfills. We believe that the transfer stations benefit Waste Connections 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 collections personnel and equipment; and

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



Waste Connections seeks to identify solid waste landfill acquisition candidates to achieve vertical integration in markets where the economic and regulatory environment makes such acquisitions attractive. We believe that in some markets, acquiring landfills provides opportunities to vertically integrate our collection, transfer and disposal operations while improving operating margins. We evaluate landfill candidates by determining, among other things, the amount of waste that could be diverted to the landfill in question, whether access to the landfill is economically feasible from Waste Connections' existing market areas either directly or through transfer stations, the expected life of the landfill, the potential for expanding the landfill, and current disposal costs compared to the cost of acquiring the landfill. Where the acquisition of a landfill is not attractive, we pursue long term disposal contracts with facilities, which are typically municipally controlled.

We operate the Fairmead Landfill and own and operate the Red Carpet Landfill and the Butler County Landfill, all of which are Subtitle D landfills.

Fairmead Landfill. We operate the Fairmead Landfill under an operating agreement with Madera County with a remaining term of 18 years. As of January 29, 1999, the Fairmead Landfill consisted of 160 total acres, of which 77 acres were permitted for disposal. As of that date, the Fairmead Landfill had approximately 550,000 tons of unused permitted capacity remaining, with approximately 4.9 million additional tons of capacity in various stages of permitting, and was estimated to have a remaining life of 26 years at current disposal rates. The Fairmead Landfill is currently permitted to accept up to 378 tons per day of municipal solid waste.

Red Carpet Landfill. As of January 29, 1999, the Red Carpet Landfill consisted of 82 total acres, of which 40 acres were permitted for disposal. As of that date, the Red Carpet Landfill had approximately 625,000 tons of unused permitted capacity remaining, with approximately 1.7 million additional tons of capacity in various stages of permitting, and was estimated to have a remaining life of 40 years at current disposal rates. The Red Carpet Landfill is currently permitted to accept up to 350 tons per day of municipal solid waste.

Butler County Landfill. As of January 29, 1999, the Butler County Landfill consisted of approximately 282 acres, of which 84 acres were permitted for disposal. As of that date, the Butler County Landfill had approximately 4.0 million tons of unused permitted capacity remaining, and was estimated to have a remaining life of 28 years at current disposal rates.

We monitor the available permitted in-place disposal capacity of the Fairmead, Red Carpet and Butler County 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 Waste Connections 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 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 operate seven recycling processing facilities and sell other collected recyclable materials to third parties for processing before resale. The profits from our resale of recycled materials are often shared between Waste Connections and the other parties to our recycling contracts. For example, certain of our municipal recycling contracts in Washington and Idaho, 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 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.


We perform a substantial portion of our collection business in Washington 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.

The WUTC and the Washington Legislature have generally construed G certificates as conferring vested property rights that may be defeated, diminished or cancelled only upon the occurrence of specified events of default, the demonstrated lack of fitness of the certificate holder, or municipalities' annexation of territory covered by a certificate. Thus, a certificate holder is entitled to due process in challenging any action that affects its rights. In addition, legislation passed in 1997 requires a municipality that annexes territory covered by a G certificate either to grant the certificate holder an exclusive franchise, generally with a minimum term of seven years, to continue to provide services in the affected area, or to negotiate with the certificate holder some other compensation for the collection rights in the affected area. The statute expressly permits the certificate holder to sue the annexing municipality for measurable damages that exceed the value of a seven-year franchise agreement to provide services in the affected area. Under one of the contracts with a municipality in Washington acquired by a predecessor of Waste Connections, the predecessor purported to waive its rights to compensation or damages under the statute in return for the right to service any current or prospectively annexed areas formerly covered by its G certificate.

In addition to awarding G certificates, the WUTC is required by statute to establish just, reasonable and compensatory rates to customers of regulated solid waste collection companies. The WUTC is charged with balancing the needs of service providers to earn fair and sufficient returns on their investments in plant and equipment against the needs of commercial and residential customers to receive adequate and reasonably priced services. Over the past decade, the WUTC has used a rate making methodology known as the "Lurito-Gallagher" method. This method calculates rates based on the income statements and balance sheets of each service provider, with the goal of establishing rates that reflect the costs of


providing service and that motivate service providers to invest in equipment that improves operating efficiency in a cost-effective manner. The Lurito-Gallagher rate-setting methodology was adjusted in the early 1990's to better reflect the costs of providing recycling services, by accounting for providers' increasing use of automated equipment and adjusting for the cyclicality of the secondary recyclables markets. This has often resulted in more frequent rate adjustments in response to material cost shifts.


In most 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; service providers do not contract directly with individual customers. In addition, because Waste Connections has 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 expect to add 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.


The solid waste services industry is highly competitive and fragmented and requires substantial labor and capital resources. The industry presently includes four large national waste companies: Allied Waste Industries, Inc. (which has announced an impending purchase of Browning-Ferris Industries, Inc.),Browning-Ferris Industries, Inc., Republic Services, Inc., and Waste Management, Inc., Casella Waste Systems, Inc., Superior Services, Inc. and Waste Industries, Inc. are other public companies with annual revenues in excess of $100 million. Certain of the markets in which Waste Connections competes 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 Waste Connections 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.

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.

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. Accordingly, it may become uneconomical for us to make further acquisitions or we maybe 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.

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.



Waste Connections' 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 affecting Waste Connections 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 Waste Connections perpetual and exclusive collection rights in certain areas. Waste Connections is currently in substantial compliance with applicable federal, state and local environmental laws, permits, orders and regulations. We do not currently anticipate any material environmental costs necessary to bring our operations into 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.


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.

The EPA regulations issued under Subtitle C of RCRA impose a comprehensive "cradle to grave" system for tracking the generation, transportation, treatment, storage and disposal of hazardous wastes. The Subtitle C Regulations impose obligations on generators, transporters and disposers of hazardous wastes, and require permits that are costly to obtain and maintain for sites where such material is treated, stored or disposed. Subtitle C requirements include detailed operating, inspection, training and emergency preparedness and response standards, as well as requirements for manifesting, record keeping and reporting, corrective action, facility closure, post-closure and financial responsibility. Most states have promulgated regulations modeled on some or all of the Subtitle C provisions issued by the EPA. Some state regulations impose different, additional and more stringent obligations, and may regulate certain materials as hazardous wastes that are not so regulated under the federal Subtitle C Regulations. From


the date of inception through January 29, 1999, Waste Connections did not, to our knowledge, transport hazardous wastes under circumstances that would subject Waste Connections to hazardous waste regulations under RCRA. Some of our ancillary operations (e.g., vehicle maintenance operations) may generate hazardous wastes. Waste Connections manages these wastes in substantial compliance with applicable laws.

In October 1991, the EPA 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 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 transfer stations or run-off or collected leachate from Waste Connections' owned or operated landfills is discharged into streams, rivers or other surface waters, the Clean Water Act would require Waste Connections 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.

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 Waste Connections were found to be a responsible party for a CERCLA cleanup, the enforcing agency could hold Waste Connections, 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. Waste Connections' 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.


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 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 Waste Connections' 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.


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 Waste Connections operates 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 Waste Connections' 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, Waste Connections' business, financial condition and operating results could be adversely affected.


Each state in which Waste Connections now operates 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 Waste Connections' 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.

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 of certain types of solid wastes, such as yard wastes, leaves and tires, in landfills. The enactment of regulations reducing the volume and types of wastes available for transport to and disposal in landfills could prevent Waste Connections 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.


In many states, public authorities regulate the rates that landfill operators may charge. The rates that Waste Connections may charge at the Fairmead Landfill for the disposal of municipal solid waste are regulated by the Madera County Board of Supervisors. The adoption of rate regulation or the reduction of current rates in states in which Waste Connections owns or operates 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.


Waste Connections maintains 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 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.

We carry a broad range of insurance, which our management considers adequate to protect our assets and operations. The coverage includes general liability, comprehensive property damage, workers' compensation and other coverage customary in the industry. These policies generally exclude coverage for damages associated with environmental conditions. Because of the limited availability and high cost of environmental impairment liability insurance, and in light of our limited landfill operations, we have not obtained such coverage. If Waste Connections were to incur liability for environmental cleanups, corrective action or damage, our financial condition could be materially and adversely affected. We will continue to investigate the possibility of obtaining environmental impairment liability insurance, particularly if we acquire or operate landfills other than the Fairmead Landfill, the Red Carpet Landfill and the Butler County Landfill. We believe that most other landfill operators do not carry such insurance.

Municipal solid waste collection contracts may require performance bonds or other means of financial assurance to secure contractual performance. Certain environmental regulations also require demonstrated financial assurance to meet closure and post-closure requirements for landfills. We have not experienced difficulty in obtaining performance bonds or letters of credit for our current operations. At January 29, 1999, we had provided customers and various regulatory authorities with surety bonds and letters of credit in the aggregate amount of approximately $2.0 million to secure our obligations. Our credit facility provides for the issuance of letters of credit in an amount up to $15 million, but any letters of credit issued reduce the availability of borrowings for acquisitions and other general corporate purposes. If we were unable to obtain surety bonds or letters of credit in sufficient amounts or at acceptable rates, we could be precluded from entering into additional municipal solid waste collection contracts or obtaining or retaining landfill operating permits.


At March 15, 1999, we employed approximately 900 full-time employees, including approximately 40 persons classified as professionals or managers, approximately 730 employees involved in collection, transfer, disposal and recycling operations, and approximately 100 sales, clerical, data processing or other administrative employees.


Approximately 67 drivers and mechanics at our Vancouver, Washington operation are represented by the Teamsters Union, with which Browning-Ferris Industries of Washington, Inc., Waste Connections' predecessor in Vancouver, entered a four-year collective bargaining agreement in January 1997. Approximately 11 drivers at Arrow are currently represented by the Teamsters Union, with which Arrow entered a three-year collective bargaining agreement in March 1998. Approximately 46 drivers at Murrey's Disposal Company and American Disposal Company are represent by the Teamsters Union, with which those companies entered into a three-year collective bargaining agreement in June 1996. We are not aware of any other organizational efforts among our employees and believe that our relations with our employees are good.