the consumption of cubic yards of available airspace. These costs include all costs to acquire and construct a
site including excavation, natural and synthetic liners, construction of leachate collection systems, installation
of methane gas collection and monitoring systems, installation of groundwater monitoring wells, and other
costs associated with the acquisition and development of the site. Obligations associated with Ñnal capping,
closure and post-closure are capitalized, and amortized on a units-of-consumption basis as airspace is
consumed.
Cost and airspace estimates are developed annually by engineers. These estimates are used by our
operating and accounting personnel to annually adjust our rates used to expense capitalized costs. Changes in
these estimates primarily relate to changes in available airspace, inÖation and applicable regulations. Changes
in available airspace include changes in design and changes due to the addition of airspace lying in expansion
areas that we believe have a probable likelihood of being permitted.
Our operations are managed and reviewed through Ñve regions which we designate as our reportable
segments. From 2003 to 2004, operating income increased in our Eastern, Southern and Western regions due
to an overall increase in revenue resulting from the successful execution of our growth strategy. In the Central
region, increased revenue was oÅset by weak economic conditions and an increase in costs related to the long-
haul transport of waste by third-party vendors. In the Southwestern region, revenue growth was impeded by
the closure of a landÑll and the completion of a special waste contract during 2003. The decrease in costs for
Corporate Entities from 2003 to 2004 is primarily due to a decrease in self-insurance expense.
2004 Financial Objectives
In January 2004, we publicly announced our objectives for the year. These objectives included the
following:
‚ Generating free cash Öow of approximately $340 million.
‚ Using our free cash Öow to repurchase shares of our common stock under our $200.0 million share
repurchase program approved by our board of directors in October 2003 and continuing to pay
quarterly cash dividends.
‚ Generating diluted earnings per share of $1.50 to $1.55.
‚ Growing revenue from core operations by 3%, with approximately 2% attributable to price increases
and 1% attributable to volume growth.
‚ Purchasing approximately $275 million of property and equipment.
2004 Business Performance
During 2004, we achieved our earnings per share objective and exceeded our internal growth, free cash
Öow and share repurchase objectives.
Our internal growth from core operations for 2004 was 5.9%, with 2.3% from price increases and 3.6%
from volume growth. During 2004, our revenue growth from core pricing beneÑted from a broad-based pricing
initiative which we started during the fourth quarter of 2003. We experienced core volume growth in all lines
of our business, including our residential collection business resulting from the addition of several new
municipal contracts, and our landÑll and transfer station businesses resulting from newly opened sites and new
contracts. Our core volume growth was also positively impacted by the hurricanes. In addition, our geographic
mix of business, which is concentrated in high growth markets, positively impacted our operating results. As a
result, during 2004 we were able to exceed the internal growth objectives we established at the beginning of
the year.
During 2004, our operating margins improved, primarily due to lower self-insurance expense. This beneÑt
was partially oÅset by increased costs for fuel, labor and subcontracting costs associated with the long-haul
transport of waste by third party vendors. The net expansion in our operating margin allowed us to achieve
diluted earnings per share of $1.53 during the year ended December 31, 2004.
24