Expense Structure
Our cost of operations primarily includes tipping fees and related disposal costs, labor and related benefit costs, equipment maintenance, fuel, vehicle, liability and workers' compensation insurance and landfill capping, closure and post-closure costs. Our strategy is to create vertically integrated operations where possible, using transfer stations to link collection operations with our landfills to increase internalization of our waste volume. Internalization lowers our disposal costs by allowing us to eliminate tipping fees otherwise paid to third party landfill or transfer station operators. We believe that internalization provides us with a competitive advantage by allowing us to be a low cost provider in our markets. We expect that our internalization will gradually increase over time as we develop our network of transfer stations and maximize delivery of collection volumes to our landfill sites.
In markets where we do not have our own landfills, we seek to secure disposal arrangements with municipalities or private owners of landfills or transfer stations. In these markets, our ability to maintain competitive prices for our collection services is generally dependent upon our ability to secure competitive disposal pricing. If owners of third party disposal sites discontinue our arrangements, we would have to seek alternative disposal sites, which could impact our profitability and cash flow. In addition, if third party disposal sites increase their tipping fees and we are unable to pass these increases on to our collection customers, our profitability and cash flow would be negatively impacted.
We believe that the age and condition of our vehicle fleet has a significant impact on operating costs, including, but not limited to, repairs and maintenance, insurance and driver training and retention costs. Through capital investment, we seek to maintain an average fleet age of approximately six to seven years. We believe that this enables us to best control our repair and maintenance costs, safety and insurance costs and employee turnover related costs.
Selling, general and administrative expenses include managerial costs, information systems, sales force, administrative expenses and professional fees.
Depreciation, depletion and amortization includes depreciation of fixed assets over their estimated useful lives using the straight-line method, depletion of landfill costs, including capping, closure and post-closure obligations using the units-of-consumption method, and amortization of intangible assets including customer relationships and contracts and covenants not-to-compete, which are amortized over the expected life of the benefit to be received from such intangibles.
Costs associated with acquisitions are expensed as they are incurred. These costs may include transaction related costs and internal costs, including executive salaries, overhead and travel costs. Prior to January 1, 2009, we capitalized certain third-party costs related to pending acquisitions that are no longer capitalizable.
Recent Developments
Acquisitions and Dispositions
In October 2009, we acquired Republic Services' operations in Miami-Dade County, Florida for $32.0 million in cash plus an adjustment for working capital. We intend to internalize the waste flow from this acquisition into our existing transfer station and landfill facilities. In October 2009, we also acquired a tuck-in hauling operation in the Tampa, Florida area for an aggregate purchase price of $1.1 million.
In September 2009, we acquired the Miami-Dade County, Florida hauling operations of DisposAll of South Florida, Inc. ("DisposAll") for approximately $15.6 million, of which $1.3 million was paid by way of a disposal credit for future fees charged to DisposAll for waste disposed at certain of our transfer station and landfill facilities. We intend to internalize the waste flow from this acquisition into our existing transfer station and landfill facilities.
During the first nine months of 2009, we also acquired four separate "tuck-in" hauling operations in southwest Florida for an aggregate purchase price of $2.6 million. We are internalizing construction and demolition waste volumes associated with these acquisitions into certain of our existing transfer station and landfill facilities.

During July 2009, we entered into an agreement to acquire 875 acres of agricultural land in Hardee County, Florida, subject to the land being permitted for the operation of a Class I landfill. The purchase price, at the seller's option, will be either (i) a lump sum payment of $10.0 million to $11.6 million depending on the timing of the closing of the transaction and payable on closing or (ii) a portion of the lump sum payment at closing, ranging from $1.0 million to $7.0 million, plus a future stream of annual payments calculated as the greater of a specified annual minimum, ranging from $0.2 million to $0.5 million, or a percentage of revenues from the operation of the landfill, until the property ceases to be used for landfill related operations, but not less than twenty years.
In December 2008, we acquired RIP, Inc., the owner of a construction and demolition waste landfill in Citrus Country, Florida, for an aggregate purchase price of $7.7 million. Should the site be permitted as a Class I landfill, Class III landfill, transfer station or a construction and demolition operation, the sellers are entitled to future royalties at varied rates per ton based on the volume and type of waste deposited at the site.
In December 2008, we acquired the assets of Commercial Clean-up Enterprises, Inc. and We Haul of South Florida, Inc., collectively a construction and demolition hauling operation in Fort Myers and Naples, Florida, for a total purchase price of $6.1 million, of which $1.6 million is deferred and is being paid as we collect waste volumes from within the counties of Charlotte, Lee and Collier, Florida. We are internalizing the waste volumes associated with this acquisition to our SLD Landfill in southwest Florida.
In March 2008, we sold our hauling and material recovery operations and a construction and demolition landfill site in the Jacksonville, Florida market to an independent third party. The proceeds from this sale approximated $56.7 million in cash, including working capital. At the time of close, we were actively pursuing an expansion at the landfill. If the construction and demolition landfill site did not obtain certain permits relating to an expansion, we would have been required to refund $10.0 million of the purchase price and receive title to the expansion property. Accordingly, at the time of closing we deferred this portion of the proceeds, net of our $3.0 million cost basis. During December 2008, the permits relating to the expansion were secured and the deferred gain was recognized. Simultaneously with the closing of the sale transaction we entered into an operating lease with the buyer for certain land and buildings used in the Jacksonville, Florida operations, for a term of five years at $0.5 million per year. The lessee had the option to purchase the leased assets for a purchase price of $6.0 million, which it exercised in March 2009 resulting in a gain on sale of $3.3 million in the quarter. The proceeds from the sale of the leased assets were utilized to repay amounts under the revolver portion of our Credit Facilities. At the time of close in March 2008, we utilized $42.5 million of the proceeds to make a prepayment of the term loan under our Senior Secured Credit Facilities. Accordingly, we expensed approximately $0.5 million of unamortized debt issue costs relating to this retirement. For the year ended December 31, 2008, we recognized a pre-tax gain on disposal of $18.4 million ($11.1 million net of tax) relative to the sale of the Jacksonville, Florida operations, of which $11.4 million ($6.9 million net of tax) was realized during the first nine months of 2008. Included in the calculation of the gain on disposal for the Jacksonville, Florida operations was approximately $23.6 million of goodwill. Subsequent to the disposal of the Jacksonville, Florida operations, we adjusted the pre-tax gain on disposal for the settlement of working capital of approximately $0.2 million.
We have presented the net assets and operations of our Jacksonville, Florida operations, as discontinued operations for all periods presented. Revenue from discontinued operations was nil and $4.7 million for the three and nine months ended September 30, 2008, respectively, and pre-tax income from discontinued operations was nil and $0.7 million for the three and nine months ended September 30, 2008, respectively. The transaction to dispose of the Jacksonville, Florida operations was completed in 2008 and accordingly, these operations do not impact our 2009 results.
In April 2007, we completed the acquisition of a roll-off collection and transfer operation, a transfer station development project and a landfill development project in southwest Florida operated by USA Recycling Holdings, LLC, USA Recycling, LLC and Freedom Recycling Holdings, LLC for a total purchase price of $51.2 million. The existing transfer station is permitted to accept construction and demolition waste volume, and we are internalizing this additional volume to our SLD Landfill in southwest Florida. Under the terms of the purchase agreement, $7.5 million is contingent upon the receipt of certain landfill operating permits, $2.5 million is contingent on the receipt of certain operating permits for the transfer station and $18.5 million is due and payable at the earlier of the receipt of all operating permits for the landfill site, or January, 2009, and delivery of title to the property. Through the third quarter of 2008, we had advanced $9.5 million towards the purchase of the landfill development project and incurred design and other third party costs relative to this project totaling $0.8 million. In the fourth quarter of 2008 we determined that the landfill development project was no longer economically viable, and as such we ceased pursuing any further investment in this project. Accordingly, we recognized a charge for the previous advances and capitalized costs of $10.3 million in December 2008. We will have no further obligation relative to the $18.5 million payment or the $7.5 million contingent fee associated with obtaining certain landfill operating permits.

Goodwill
We test for impairment of goodwill annually on December 31 and whenever events or circumstances change between annual tests that would indicate a possible impairment. Examples of such events may include: (i) a significant adverse change in legal factors or in the business climate; (ii) an adverse action or assessment by a regulator; (iii) a more likely than not expectation that a reporting unit or a significant portion thereof will be sold;
(iv) continued or sustained losses at a reporting unit; (v) a significant decline in our market capitalization as compared to our book value or (vi) the testing for recoverability of a significant asset group within the reporting unit. We test for impairment using a two-step process. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. The first step of the goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. During the first three quarters of 2009, our market capitalization declined from that of the fourth quarter of 2008. We considered these declines to be indicators of possible impairment of goodwill. As of March 31, 2009, June 30, 2009 and September 30, 2009, we performed interim step one screens for impairment, which we passed and accordingly, we did not proceed to the second step, and we concluded that our goodwill was not impaired. Consistent with our annual goodwill tests performed in prior years, for these interim impairment tests we defined our reporting units to be consistent with our operating segments: Eastern Canada, Western Canada and Florida. In determining fair value, we have utilized discounted future cash flows. We may compare the results of fair value calculated using discounted cash flows to other fair value techniques including: (i) operating results based on a comparative multiple of earnings or revenues; (ii) offers from interested investors, if any; or (iii) appraisals. There may be instances where these alternative methods provide a more accurate measure or indication of fair value. Significant estimates used in the fair value calculation utilizing discounted future cash flows include, but are not limited to: (i) estimates of future revenue and expense growth by reporting unit (revenue has been projected to grow by approximately 3% to 13% with corresponding operating margins ranging from approximately 20% to 35% over the forecast period); (ii) future estimated effective tax rates, which we estimate to range between 32% and 40%; (iii) future estimated capital expenditures as well as future required investments in working capital; (iv) estimated discount rate, which we estimate to range between 11% and 12%; (v) the ability to utilize certain domestic tax attributes and (vi) the future terminal value of the reporting unit, which is based on its ability to exist into perpetuity and in part on the estimated rate of inflation, which was approximately 2.5%. There were no substantial changes in the methodologies employed, significant assumptions used, or calculations applied in the first step of these interim impairment tests compared to our annual test for 2008. In preparing our interim tests for impairment, we determined that the sum of our reporting unit fair values exceeded our market capitalization. We determined market capitalization as the fair value of our common shares outstanding using the twenty day weighted average to the end of the interim period. We believe one of the primary reconciling differences between fair value and our market capitalization relates to control premium. Control premium is the savings and / or synergies a market participant could realize by obtaining control and eliminating duplicative overhead costs and realizing operating efficiencies from the consolidation of routes and internalization of waste streams. Additionally, we believe there are qualitative factors that externally influence our market capitalization including, but not limited to:
• The fact that, to a significant extent, our shares are held by insiders and affiliates, reducing market liquidity.

• One of our larger shareholders, due to circumstances unrelated to us, is liquidating their position putting pressure on the market price of our shares.

• We believe that in general, the market continues to discount the value of common equity, believing that current leverage ratios are not sustainable and companies will be required to refinance debt at higher rates and / or issue additional equity thereby diluting current shareholders. However, as a result of the October 2008 refinancing of our Senior Secured Credit Facilities and September 2009 additional private placement of $50.0 million aggregate principal of our Senior Subordinated Notes, we believe our capital structure to be stable, but such stability is not reflected in our share price.

We will continue to monitor market trends in our business, the related expected cash flows and our calculation of market capitalization for purposes of identifying possible indicators of impairment. Should our book value per share continue to exceed our market price per share, or we have other indicators of impairment, as previously discussed, we will be required to perform additional interim goodwill impairment analyses, which may lead to the recognition of a goodwill impairment. Additionally, we would then be required to review our remaining long-lived assets for potential impairment.

For the third quarter of 2009, we performed a sensitivity analysis for our interim impairment test. For the September 30, 2009 test, we noted that a 10% decrease in projected operating margins over the forecast period would result in the requirement to perform a step two analysis for the Florida and Western Canada reporting units, but would not require a step two analysis for the Eastern Canada reporting unit. We also performed a sensitivity analysis on the market weighted average cost of capital and noted that for the September 30, 2009 test, a 10% increase in the market weighted average cost of capital would result in the requirement to perform a step two analysis for the Florida reporting unit, but would not require a step two analysis for the Western Canada or Eastern Canada reporting units.
The estimated fair values of our reporting units, as calculated for the September 30, 2009 impairment test, exceeded the carrying values of the reporting units by 4% to 54%. The Florida reporting unit represented the low end of this range due in part to the severity of the recent economic downturn experienced in the Florida market.
Future events, including but not limited to continued declines in economic activity, loss of contracts or a significant number of customers or a rapid increase in costs or capital expenditures, could cause us to conclude that impairment indicators exist and that goodwill associated with the affected reporting units is impaired. Any resulting goodwill impairment loss could have a material adverse impact on our financial condition and results of operations. Results of Operations for the Three and Nine Months Ended September 30, 2009 and 2008
A portion of our operations is domiciled in Canada. For each reporting period we translate the results of operations and financial condition of our Canadian operations into U.S. dollars. Therefore, the reported results of our operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the Canadian dollar strengthens against the U.S. dollar, revenue is favorably affected and conversely expenses are unfavorably affected. Assets and liabilities of our Canadian operations are translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet dates, and revenue and expenses of our Canadian operations are translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of our Canadian operations into U.S. dollars are reported as a separate component of shareholders' equity and are included in comprehensive income or loss. Monetary assets and liabilities are re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of re-measurement are reported currently as a component of net income. Currently, we do not hedge our exposure to changes in foreign exchange rates.
Exchange rates for the Canadian dollar to U.S. dollar that are applicable for the periods covered by the accompanying Unaudited Condensed Consolidated Financial Statements are summarized as follows:

As of:

                      September 30, 2009            $ 0.9340
                      December 31, 2008               0.8210
                      For the three months ended:
                      September 30, 2009            $ 0.9107
                      September 30, 2008              0.9606
                      For the nine months ended:
                      September 30, 2009            $ 0.8548
                      September 30, 2008              0.9818

Our consolidated results of operations for the three and nine months ended September 30, 2009 and 2008 are as follows (in thousands):

                                                   Three Months Ended September 30, 2009
                                   Florida                        Canada                          Total
Revenue                    $ 50,821          100.0 %      $ 61,640          100.0 %      $ 112,461          100.0 %
Operating expenses:
Cost of operations           30,833           60.7 %        40,371           65.5 %         71,204           63.3 %
Selling, general and
administrative
expense                       6,155           12.1 %         6,930           11.2 %         13,085           11.6 %
Depreciation,
depletion and
amortization                  6,317           12.4 %         4,623            7.5 %         10,940            9.8 %
Loss (gain) on sale
of property and
equipment, foreign
exchange and other              (76 )         -0.1 %            69            0.1 %             (7 )          0.0 %

Income from
operations                 $  7,592           14.9 %      $  9,647           15.7 %      $  17,239           15.3 %




                                                   Three Months Ended September 30, 2008
                                   Florida                        Canada                          Total
Revenue                    $ 58,468          100.0 %      $ 67,277          100.0 %      $ 125,745          100.0 %
Operating expenses:
Cost of operations           38,114           65.2 %        44,398           66.0 %         82,512           65.6 %
Selling, general and
administrative
expense                       7,647           13.1 %         7,427           11.0 %         15,074           12.0 %
Depreciation,
depletion and
amortization                  6,509           11.1 %         4,994            7.4 %         11,503            9.1 %
Loss on sale of
property and
equipment, foreign
exchange and other               20            0.0 %           115            0.2 %            135            0.2 %

Income from
operations                 $  6,178           10.6 %      $ 10,343           15.4 %      $  16,521           13.1 %




                                                     Nine Months Ended September 30, 2009
                                   Florida                          Canada                          Total
Revenue                    $ 151,801          100.0 %      $ 163,937          100.0 %      $ 315,738          100.0 %
Operating expenses:
Cost of operations            94,348           62.2 %        109,548           66.8 %        203,896           64.6 %
Selling, general and
administrative
expense                       18,922           12.5 %         20,112           12.3 %         39,034           12.4 %
Depreciation,
depletion and
amortization                  19,039           12.5 %         12,977            7.9 %         32,016           10.1 %
Gain on sale of
property and
equipment, foreign
exchange and other            (2,273 )         -1.5 %           (260 )         -0.2 %         (2,533 )         -0.8 %

Income from
operations                 $  21,765           14.3 %      $  21,560           13.2 %      $  43,325           13.7 %




                                                     Nine Months Ended September 30, 2008
. . .