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  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549****FORM 10-K**   þ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934******For the fiscal year ended December 31, 2006******OR**   o **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934******For the transition period from                      to**                    ****Commission File Number 000-50808****WCA Waste Corporation**(Exact name of registrant as specified in its charter)   **Delaware** **20-0829917**(State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification Number)   **One Riverway, Suite 1400**  **Houston, Texas** **77056**(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: **(713) 292-2400**Securities registered pursuant to Section 12(b) of the Act:   Title of Each Class Name of Each Exchange On Which Registered   Common Stock The NASDAQ Stock Market, LLCSecurities registered pursuant to Section 12(g) of the Act: **None****Common stock, par value $0.01 per share**     Indicate by check mark whether the registrant is a well-known seasoned issuer (as defined inRule 405 of the Securities Act). Yes o No þ     Indicate by check mark if the registrant is not required to file reports pursuant to Section13 or Section 15(d) of the Act. Yes o No þ     Indicate by check mark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes þ No o     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. þ     Indicate by check mark whether the registrant is a large accelerated filer, an acceleratedfiler, or a non-accelerated filer. See definition of “accelerated filer and large acceleratedfiler” in Rule 12b-2 of the Exchange Act. (Check One):Large accelerated filer o            Accelerated filer þ            Non-accelerated filer o     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 ofthe Act). Yes o No þ     The aggregate market value of the voting and non-voting common equity held by non-affiliatesof the registrant as of June 30, 2006 based on the closing sales price as reported on the NasdaqGlobal Market on such date was approximately $86.4 million.     Number of shares of common stock outstanding as of March 1, 2007 : 16,976,154 (excluding17,943 shares of treasury stock) .**DOCUMENTS INCORPORATED BY REFERENCE**     **Portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders areincorporated by reference into Part III of this annual report on****Form 10-K****. Except with respect tothe information specifically incorporated by reference in this****Form 10-K****, the Proxy Statement forthe Annual Meeting of Stockholders is not deemed to be filed as part hereof.**  
 

 
**TABLE OF CONTENTS**       **Page** **PART I**    Item 1. Business  2 Item 1A. Risk Factors  16 Item 1B. Unresolved Staff Comments  26 Item 2. Properties  26 Item 3. Legal Proceedings  27 Item 4. Submission of Matters to a Vote of Security Holders  27 **PART II**    Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities  28 Item 6. Selected Financial Data  30 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations  32 Item 7A. Quantitative and Qualitative Disclosures About Market Risk  53 Item 8. Financial Statements and Supplementary Data  54 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure  90 Item 9A. Controls and Procedures  90 **PART III**    Item 10. Directors and Executive Officers of the Registrant  91 Item 11. Executive Compensation  91 Item 12. Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters  91 Item 13. Certain Relationships and Related Transactions  91 Item 14. Principal Accounting Fees and Services  92 **PART IV**    Item 15. Exhibits and Financial Statement Schedules  93  Form of Stock Option Agreement Form of Executive Officer Restricted Stock Grant Form of Non-Employee Director Restricted Stock Grant Form of Restricted Stock Grant Statement re Computation of Ratio of Earnings to Fixed Charges List of Subsidiaries Consent of KPMG LLP Rule 13a-14(a)/15d-14(a) Certification of CEO Rule 13a-14(a)/15d-14(a) Certification of CFO Section 1350 Certification of CEO Section 1350 Certification of CFO
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**PART I****Item 1. Business.****Introduction**     We are a vertically integrated company providing non-hazardous solid waste collection,transfer, processing, and disposal services in the south and central regions of the United States.As of December 31, 2006, we served approximately 250,000 commercial, industrial and residentialcustomers in Alabama, Arkansas, Colorado, Florida, Kansas, Missouri, New Mexico, North Carolina,South Carolina, Tennessee and Texas. As of December 31, 2006, we owned and/or operated 20landfills, 24 collection operations and 24 transfer stations/materials recovery facilities (MRFs).Of these facilities, three transfer stations and two landfills are fully permitted but not yetopened, and two transfer stations are idle. Additionally, we currently operate but do not own twoof the transfer stations, and we hold certain prepaid disposal rights at landfills in Texas,Oklahoma and Arkansas owned and operated by other parties.     WCA Waste was incorporated as a Delaware corporation in February 2004, and our principaloperating subsidiary, WCA Waste Systems, Inc., was incorporated in Delaware in September 2000,which then acquired 32 separate solid waste management operations from Waste Management, Inc. Fromour formation through December 31, 2006, we have successfully integrated over 75 separate operatinglocations acquired in a total of 29 transactions. For information regarding acquisitions made in2004, 2005 and 2006, please read “—Acquisition History After Our Initial Public Offering” below.Unless the context requires otherwise, references in this Annual Report on Form 10-K to “WCAWaste,” “we,” “us,” or “our” refer to WCA Waste Corporation and its direct and indirectsubsidiaries on a consolidated basis.**Industry Overview**     Based on third party sources, we believe the non-hazardous solid waste industry in the UnitedStates generates approximately $47 billion in annual revenue. We believe that approximately $22.5billion or 48% of the estimated annual industry revenue is generated by the three largest publiccompanies in the industry with other public and privately-held companies representing approximately25% of the estimated annual industry revenue.     The solid waste industry can be divided among collection, transfer and disposal services. Thecollection and transfer operations of solid waste companies typically have lower margins thandisposal service operations. By vertically integrating collection, transfer and disposaloperations, operators seek to capture significant waste volumes and improve operating margins.     During the past three decades, our industry has experienced periods of substantialconsolidation activity, though we believe it remains extremely fragmented. We believe that thereare two factors that lead to consolidation: **•** Stringent industry regulations have caused operating and capital costs to rise. Manylocal industry participants have found these costs difficult to bear and have decided toeither close their operations or sell them to larger operators.  **•** Larger operators are increasingly pursuing economies of scale by vertically integratingtheir operations or by utilizing their facility, asset and management infrastructure overlarger volumes. Larger solid waste collection and disposal companies have become morecost-effective and competitive by controlling a larger waste stream and by gaining accessto significant financial resources to make acquisitions. However, acquisitions by largercompanies generally have less of an impact on their growth rates and revenues becauseacquisitions are small relative to the size of such companies.
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**Our Acquisition Growth Strategy**     *Vertical Integration And Internalization*     Vertical integration is a core element of our operating strategy because it allows us tomanage the waste stream from the point of collection through disposal, thereby maximizing the rateof waste internalization, increasing our operating margins and improving our operating cash flows.Internalization refers to the disposal of collected waste into the landfills we own. All collectedwaste must ultimately be processed or disposed of, with landfills being the main depository forsuch waste. Generally, the most cost efficient collection services occur within a 35-mileoperating radius from the disposal site (up to 100 miles if a transfer station is used).Collection companies that do not own a landfill within such range from their collection routes willusually have to dispose of the waste they collect in landfills owned by third parties. Thus,owning a landfill in a market area provides substantial leverage in the waste management business.     As of December 31, 2006, we owned 20 landfills throughout the regions we serve, two of which,though fully permitted, have not yet commenced operations. We believe that our relatively highnumber of landfills coupled with the geographic locations of those landfills in the regions weserve positions us to maintain relatively high levels of internalization within our existingmarkets. As a result of our vertical integration, for the years ended December 31, 2006 and 2005,we internalized approximately 76% and 78% of the total waste we collected, respectively.     *Acquisition Strategy*     Our acquisition strategy targets operations that we believe will benefit from our coreoperating strategy of maximizing the internalization of waste. We intend to make acquisitions fortwo primary purposes: (i) to expand our operations in market areas we already service (“tuck-in”acquisitions); and (ii) to gain entry into new markets (“strategic” acquisitions). Please read"—Acquisition History After Our Initial Public Offering” below for more information. We intend tofocus our strategic acquisitions in markets that are generally characterized by one or more of thefollowing characteristics: (i) the availability of adequate disposal capacity, either throughacquisitions or through agreements with third parties; (ii) the opportunity for us to acquire asignificant market share; and (iii) steady projected economic or population growth rates.     Since ownership of landfills is essential for internalization of waste, we look foropportunities to enter a new market by acquiring or managing a permitted landfill operation in thatmarket. However, while we generally prefer to use a landfill acquisition as our entry into a newmarket, we, nevertheless, may acquire a collection operation in a new market first if we believe wewill be able to acquire a permitted landfill operation in that market within a relatively shorttime after acquiring the collection operation.     Once we establish a presence in a new market, we intend to expand our presence by tuck-inacquisitions; that is, by acquiring companies that also operate in that market or in adjacentmarkets, especially collection companies and transfer stations that allow us to increaseinternalization of waste into landfills that we own or operate. Effective tuck-in acquisitionsallow growth in revenue and an increase in market share and enable disposal internalization andconsolidation of duplicative facilities and functions to maximize cost efficiencies and economiesof scale.     We have generally targeted markets in the south and central regions of the United Statesbecause we believe that they: (i) are served by a large number of independent non-hazardous solidwaste operations, many of which we believe may be suitable for acquisition by us; (ii) generallyexperience less seasonal fluctuation in the demand for solid waste services than other regions; and(iii) are projected to have steady economic and population growth rates.
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     *Acquisition Opportunities*     Despite ongoing consolidation, the solid waste services industry remains fragmented andregional in nature. As indicated above, we believe private companies and public companies, otherthan the three largest public waste companies, represent approximately 25% of the estimated $47billion in annual revenue generated by the solid waste industry. This condition contributes to thefragmented nature of the industry, with many small operations co-existing with a relatively smallnumber of large organizations. While many of these operations may represent attractive acquisitioncandidates to a company of our size, many are too small to make any material impact on the revenuesof the large companies in our industry and are thus less attractive to them. Accordingly, webelieve that we have a greater opportunity for growth through acquisitions, when calculated as apercentage of revenue, than companies larger than us.     *Management Experience*     We believe that one of the important factors that will enable us to continue ouracquisition-based growth strategy is the experience of our management.     Our management is extremely experienced in the waste industry and in consummating wastecompany acquisitions. Our co-founder and chairman of the board and chief executive officer, Tom J.Fatjo, Jr., has over 40 years of experience in the solid waste industry, beginning withBrowning-Ferris Industries, Inc., or BFI, which he founded in 1966. Our other co-founder,president and chief operating officer, Jerome M. Kruszka, has over 35 years of experience in thesolid waste management industry, beginning with Waste Management, Inc. and its affiliates, where heheld a number of managerial positions during his tenure there. Both Mr. Fatjo, Jr. and Mr. Kruszkahave overseen the acquisition and integration of several hundred solid waste operations duringtheir careers in the industry. Additionally, our other senior executive officers, Charles A.Casalinova and Tom J. Fatjo, III, and our five regional managers have an average of approximately20 years of experience in the industry, in each case involving substantial experience acquiring andintegrating waste management assets and operations.**Acquisition History After Our Initial Public Offering**     In June 2004, we completed an initial public offering of our common stock. We also maintain arevolving credit facility with a banking group and publicly-traded senior notes. These financingactivities enabled us to acquire the following operations from June 2004 through March 1, 2007: **•** In July 2004, we purchased Texas Environmental Waste, a residential and roll-offcollection company in Houston, Texas.  **•** In August 2004, we purchased Ashley Trash Service, a residential collection operation inSeymour, Missouri, and Power Waste, a roll-off collection operation in Birmingham, Alabama.  **•** In September 2004, we acquired Blount Recycling and other related companies, whichincluded a landfill and roll-off collection operation in Trafford, Alabama, a transferstation and roll-off collection operation in Huntsville, Alabama, a transfer station inMidfield, Alabama, and a hauling operation in Tuscaloosa, Alabama.  **•** In September 2004, we acquired Translift, Inc., a commercial and roll-off collectioncompany in Little Rock, Arkansas.  **•** In November 2004, we acquired Rural Disposal, Inc., a residential, commercial androll-off collection company in Willow Springs, Missouri.
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 **•** In November 2004, we purchased Trash Away, Inc., which consisted of a transfer stationand MRF, commercial, residential and roll-off collection company, and a portable toiletoperation in Piedmont, South Carolina.  **•** In January 2005, we acquired Eagle Ridge landfill located approximately 45 milesnorthwest of St. Louis near Bowling Green, Missouri.  **•** In April 2005, we acquired certain assets from MRR Southern consisting of two landfills,two transfer stations and two MRFs in High Point and Raleigh, North Carolina .  **•** In May 2005, we completed two tuck-in acquisitions by acquiring Triad Waste and TriangleEnvironmental, roll-off collection companies in High Point and Raleigh, North Carolina. Wealso purchased Foster Ferguson, a residential and commercial collection operation in ElDorado Springs, Missouri, and Proper Disposal, a commercial and roll-off collectionoperation in Chanute, Kansas.  **•** In October 2005, we acquired Fort Meade landfill located in Fort Meade, Florida, fromWaste Corporation of Central Florida, Inc., a subsidiary of Waste Corporation of America,LLC, a company owned by management and shareholders that were shareholders of ourpredecessor and former parent.  **•** In October 2005, we acquired certain assets from Meyer & Gabbert, which consisted of onelandfill, three transfer stations and a roll-off collection operation in theSarasota/Arcadia, Florida market area.  **•** In October 2005, we purchased Andy’s Hauling, a roll-off collection operation inSarasota, Florida, and Pendergrass, a commercial and residential collection operation inSpringfield, Missouri.  **•** In February 2006, we acquired the membership interests of Transit Waste, LLC, whichconsisted of one landfill located near Durango, Colorado and a commercial, residential androll-off collection operation in Bloomfield, New Mexico area from Waste Corporation ofAmerica, LLC.  **•** In August 2006, we completed the acquisition of Fort Myers transfer station located inFort Myers, Florida, from Waste Corporation of Florida, Inc., a subsidiary of WasteCorporation of America, LLC.  **•** In October 2006, we acquired the membership interests of WCA of St. Lucie, LLC, whichconsisted of one transfer station located in St. Lucie, Florida, from Waste Corporation ofFlorida, Inc., a subsidiary of Waste Corporation of America, LLC.  **•** In December 2006, we purchased certain assets from Sunrise Disposal, LLC consisting ofone commercial and residential collection operation located in Springfield, Missouri.  **•** In January 2007, we acquired the stock of Southwest Dumpster, Inc., a roll-offcollection operation in Fort Myers, Florida.  **•** In February 2007, we purchased American Waste, Inc. and affiliated companies, whichconsists of three landfills and four collection operations located near Oklahoma City,Oklahoma.     Please read “Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Executive Overview—Acquisition Strategy Overview” for more information regarding each ofthe completed acquisitions.     We have integrated all of our completed acquisitions to date into our existing operations.However, it may take up to a year to fully realize operating synergies.
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**Our Operations**     Our operations consist of the collection, transfer, processing and disposal of solid waste.Our revenue mix for the years ended December 31, 2006, 2005 and 2004 is shown in the table below(dollars in thousands):                           **2006**  {2005  **2004**   **$**  **%**  **$**  **%**  **$**  **%** Collection $85,800   57.4% $69,786   61.1% $48,081   65.5%Disposal  39,066   26.1%  30,602   26.8%  20,747   28.2%Transfer and other, net  24,631   16.5%  13,755   12.1%  4,633   6.3%                   Total revenue $149,497   100.0% $114,143   100.0% $73,461   100.0%                        We have a broad and diverse customer base; no single customer accounted for more than 2%of our revenues for any of the years ended December 31, 2006, 2005 or 2004. Please read“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 12to our consolidated financial statements for certain geographic information relating to ouroperations.     *Collection Services*     As of December 31, 2006, we provided solid waste collection services to approximately 250,000industrial, commercial and residential customers in 11 states through 24 collection operations. In2006, our collection revenue consisted of approximately 52% from services provided to industrialcustomers, 18% from services provided to commercial customers and 30% from services provided toresidential customers.     In our commercial collection operations, we supply our customers with waste containers ofvarious types and sizes. These containers are designed so that they can be lifted mechanically andemptied into a collection truck to be transported to a disposal facility. By using thesecontainers, we can service most of our commercial customers with trucks operated by a singleemployee. Commercial collection services are generally performed under service agreements with aduration of one to five years with possible renewal options. Fees are generally determined by suchconsiderations as individual market factors, collection frequency, the type of equipment wefurnish, the type and volume or weight of the waste to be collected, the distance to the disposalfacility and the cost of disposal.     Residential solid waste collection services often are performed under contracts withmunicipalities, which we generally secure by competitive bid and which give us exclusive rights toservice all or a portion of the homes in these municipalities. These contracts usually range induration from one to five years with possible renewal options. Residential solid waste collectionservices may also be performed on a subscription basis, in which individual households orhomeowners’ or similar associations contract directly with us. The fees received for residentialcollection are based primarily on market factors, frequency and type of service, the distance tothe disposal facility and the cost of disposal.     Additionally, we rent waste containers and provide collection services to construction,demolition and industrial sites. We load the containers onto our vehicles and transport them withthe waste to either a landfill or a transfer station for disposal. We refer to this as “roll-off”collection. Roll-off collection services are generally performed on a contractual basis. Contractterms tend to be shorter in length and may vary according to the customers’ underlying projects.
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     *Transfer and Disposal Services*     Landfills are the main depository for solid waste in the United States. Solid waste landfillsare built and operated under stringent regulations. Currently, solid waste landfills in the UnitedStates must be designed, permitted, operated, closed and maintained after closure in compliancewith federal, state and local regulations pursuant to Subtitle D of the Resource Conservation andRecovery Act of 1976, as amended. Operating a solid waste landfill includes excavating,constructing liners, continually spreading and compacting waste and covering waste with earth orother inert material as required, final capping, closure and post-closure. The objectives of theseoperations are to maintain sanitary conditions, to ensure the best possible use of the airspace andto prepare the site so that it can ultimately be used for other purposes.     Access to a disposal facility is a necessity for all solid waste management companies. Whileaccess to disposal facilities owned or operated by third parties can be obtained, we believe it ispreferable to internalize the waste streams. When we internalize waste we collect, we payourselves instead of a third party landfill operator and generally are able to realize higheroperating margins and stronger operating cash flows.     In markets where we have collection operations that may be too far from our nearest landfillto economically haul the waste we collect directly to our nearest landfill, we pursue the use oftransfer stations to effectively extend the distance from our own landfills that such collectionoperations can economically operate without having to utilize the disposal facilities of a thirdparty. A transfer station is a facility located near residential and commercial collection routeswhere collection trucks take the solid waste that has been collected. The waste is unloaded fromthe collection trucks and reloaded onto larger transfer trucks for transportation to a landfill forfinal disposal. In addition to increasing our ability to internalize the waste our collectionoperations collect, using transfer stations reduces the costs associated with transporting waste tofinal disposal sites because the trucks we use for transfer have a larger capacity than collectiontrucks, thus allowing more waste to be transported to the disposal facility in each trip. It alsoincreases the efficiency of our collection personnel and equipment because it allows them to focusmore on collection. The following table reflects the number of transfer stations/MRFs we owned andoperated by state as of December 31, 2006, 2005 and 2004.               **2006** **2005** **2004**Alabama  3   2   2 Arkansas  2(1)  2(1)  2(1)Florida  5   3   — Missouri  8(1)  8(1)  8(1)North Carolina  3   3   — South Carolina  1   1   1 Texas  2   2   —              Total  24   21   13               (1) Includes two transfer stations we operated but did not own, one in Arkansas and onein Missouri.     The fees charged at disposal facilities are based on market factors, as well as the type andweight or volume of solid waste deposited and the type and size of the vehicles used in thetransportation of the waste. The fees charged to third parties who deposit waste at our transferstations are generally based on the type and volume or weight of the waste transferred and thedistance to the disposal site.
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     *Landfills*     As of December 31, 2006, we owned 20 non-hazardous solid waste landfills in 10 states, two ofwhich, though fully permitted, have not yet commenced operations. Additionally, we hold certainprepaid disposal rights at landfills in Texas, Oklahoma and Arkansas owned and operated by otherparties. The following table sets forth certain information as of December 31, 2006 for each ofour landfills. The table does not include information for the landfills acquired after December31, 2006 as discussed in “—Acquisition History After Our Initial Public Offering” above.                                   **Probable**     **Remaining** **Total**      **Permitted** **Expansion** **Total** **Permitted** **Remaining**      **Capacity (1)** **Capacity (2)** **Capacity (3)** **Life (4)** **Life (3)(4)****Landfill** **Location** **Permitted Waste** **(Cu. Yds)** **(Cu. Yds)** **(Cu. Yds)** **(Years)** **(Years)**Oak Grove Arcadia, KS MSW  6,725,415   24,524,000   31,249,415   35.7   165.8 Black Oak Hartville, MO MSW  7,417,482   —   7,417,482   15.3   15.3 Central Missouri Sedalia, MO MSW  6,261,425   3,452,341   9,713,766   26.0   40.4 Eagle Ridge Bowling Green, MO MSW  3,261,896   16,335,000   19,596,896   16.4   98.3 Rolling Meadows Hazen, AR MSW  4,709,096   9,800,000   14,509,096   31.3   96.5 Union County El Dorado, AR MSW  4,048,017   496,100   4,544,117   23.9   26.8 Darrell Dickey(5) Houston, TX MSW  5,239,003   —   5,239,003   N/A(5)  N/A(5)Bondad Durango, CO MSW  3,117,647   —   3,117,647   33.4   33.4 Hardy Road Houston, TX C&D  6,923,312   —   6,923,312   13.7   13.7 Greenbelt Houston, TX C&D  6,202,441   1,400,000   7,602,441   18.1   22.2 Ralston Road Houston, TX C&D  1,165,462   1,325,087   2,490,549   3.6   7.7 Applerock(5) Houston, TX C&D  8,750,000   —   8,750,000   N/A(5)  N/A(5)Shiloh Travelers Rest, SC C&D  1,856,088   —   1,856,088   14.1   14.1 Yarnell Knoxville, TN C&D  1,206,366   —   1,206,366   13.5   13.5 Blount Trafford, AL C&D  4,889,681   38,839,568   43,729,249   21.6   193.5 Fines Alpine, AL C&D/Industrial  1,087,233   6,083,484   7,170,717   13.4   88.5 High Point High Point, NC C&D  4,213,253   —   4,213,253   27.8   27.8 Raleigh Raleigh, NC C&D  7,607,439   6,612,722   14,220,161   30.8   57.5 DeSoto Arcadia, FL C&D  6,200,606   14,904,750   21,105,356   7.3   24.8 Fort Meade Ft Meade, FL C&D  4,794,406   3,635,910   8,430,316   19.7   34.6                          Total      95,676,268   127,408,962   223,085,230   20.3   54.1  (1) Permitted capacity includes the total available airspace approved by local regulatoryagencies for our use. Additional approvals may be required for construction and use ofspecific cells within the permitted area. At any given time, certain landfills may be nearingthe full capacity of existing approved cells. The failure to obtain a consent or approval forconstruction or use of additional cells could have a material effect. If the consent orapproval is not obtained, we will evaluate alternative actions, such as diverting wastestreams and pursuing legal recourse to challenge rulings. See “Risk Factors—Risks Relating toOur Business—We may not be successful in expanding the permitted capacity of our current orfuture landfills, which could restrict our growth, increase our disposal costs, and reduce ouroperating margins.” (2) Probable expansion capacity includes possible expansion capacity that we believe, based onindustry practice and our experience, is likely to be permitted. The criteria we use todetermine if permit expansion is probable include, but are not limited to whether: (i) webelieve that the project has fatal flaws; (ii) the land is owned or controlled by us, or underoption agreement; (iii) we have committed to the expansion; (iv) financial analysis has beencompleted, and the results indicate that the expansion has the prospect of a positivefinancial and operational impact; (v) personnel are actively working to obtain land use,local, and state approvals for an expansion of an existing landfill; (vi) we believe thepermit is likely to be received; and (vii) we believe that the timeframe to complete thepermitting is reasonable. Please read “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and notes 1 and 2 to our consolidated financialstatements for information regarding our landfill accounting and use of estimates. (3) Includes expansions that we classify as “probable.” Please read “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and notes 1 and 2 to ourconsolidated financial statements for information regarding our landfill accounting and use ofestimates. (4) Based on current and estimated future disposal volumes. (5) Fully permitted but has not yet commenced operations, and therefore remaining permitted lifeand total remaining life cannot be calculated.
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     As indicated in the table above, as of December 31, 2006, eight of our landfills werepermitted to accept municipal solid waste. The remaining 12 landfills were permitted to acceptnon-hazardous dry construction and demolition debris, which generally includes bricks, boards,metal, concrete, wall board and similar materials. All of our landfills accept waste frommunicipalities, private sector waste collection companies and the general public.     Based on remaining permitted capacity (including probable expansions) as of December 31, 2006and projected annual disposal volumes, the average remaining landfill life of our 18 operatinglandfills at December 31, 2006 was approximately 54.1 years. Some of our landfills have thepotential for expanded disposal capacity beyond their currently permitted limits. We monitor theavailability of permitted disposal capacity at each of our landfills on an ongoing basis andevaluate whether to pursue an expansion at a given landfill. In making this determination withrespect to a particular landfill, we consider a number of factors, including the estimated futurevolume of waste to be disposed of at the landfill, the estimated future prices for disposal ofwaste at the landfill, the amount of unpermitted acreage included in the landfill, the likelihoodthat we will be able to obtain the required approvals and permits for expansion and the costs ofdeveloping the additional capacity. Please read notes 1 and 2 to our consolidated financialstatements for information regarding our landfill accounting and use of estimates. We alsoregularly consider whether it is advisable, in light of changing market conditions and/orregulatory requirements, to seek to expand or change the permitted waste streams or to seek otherpermit modifications.     We are currently seeking to expand permitted capacity at several of our landfills for which weconsider expansions to be probable. These or other future expansions may not be permitted asdesigned and the average remaining landfill life of our 18 operating landfills as of December 31,2006 may not be approximately 54.1 years when considering remaining permitted capacity, probableexpansion capacity and projected annual disposal volume. Please read “Risk Factors—Risks Relatingto Our Business— We may not be successful in expanding the permitted capacity of our current orfuture landfills, which could restrict our growth, increase our disposal costs, and reduce ouroperating margins.”*Available Airspace*     The following table reflects airspace activity for landfills owned or operated by us for theyears ended December 31, 2006, 2005 and 2004. The table does not include airspace activity for thelandfill acquired after December 31, 2006 as discussed in “—Acquisition History After Our InitialPublic Offering” above.                                                   **Changes in**    **Balance as of** **New** **Landfills**         **Engineering** **Balance as of**  **December 31,** **Expansions** **Acquired, Net** **Permits** **Airspace** **Estimates** **December 31,**  **2005** **Undertaken** **of Divestiture** **Granted** **Consumed** **and Design** **2006**Permitted airspace:                            Cubic yards (inthousands)  92,583   —   3,171   5,204   (4,806)  (476)  95,676 Number of sites  19   —   1   —   —   —   20 Expansion airspace:                            Cubic yards (inthousands)  86,266   46,262   —   (5,204)  —   85   127,409 Number of sites  12   3   —   (3)  —   —   12                              Total availableairspace:                            Cubic yards (inthousands)  178,849   46,262   3,171   —   (4,806)  (391)  223,085                              Number of sites  19       1               20                              
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                                                   **Changes in**    **Balance as of** **New** **Landfills**         **Engineering** **Balance as of**  **December 31,** **Expansions** **Acquired, Net** **Permits** **Airspace** **Estimates** **December 31,**  **2004** **Undertaken** **of Divestiture** **Granted** **Consumed** **and Design** **2005**Permitted airspace:                            Cubic yards (inthousands)  73,109   —   23,923   —   (3,854)  (595)  92,583 Number of sites  14   —   5   —   —   —   19 Expansion airspace:                            Cubic yards (inthousands)  39,986   —   46,138   —   —   142   86,266 Number of sites  8   —   4   —   —   —   12                              Total availableairspace:                            Cubic yards (inthousands)  113,095   —   70,061   —   (3,854)  (453)  178,849                              Number of sites  14       5               19                                                                                 **Changes in**    **Balance as of** **New** **Landfills**         **Engineering** **Balance as of**  **December 31,** **Expansions** **Acquired, Net** **Permits** **Airspace** **Estimates** **December 31,**  **2003** **Undertaken** **of Divestiture** **Granted** **Consumed** **and Design** **2004**Permitted airspace:                            Cubic yards (inthousands)  56,863   —   5,400   15,075   (2,623)  (1,606)  73,109 Number of sites  13   —   1   —   —   —   14 Expansion airspace:                            Cubic yards (inthousands)  20,669   28,170   —   (15,075)  —   6,222   39,986 Number of sites  5   5   —   (2)  —   —   8                              Total availableairspace:                            Cubic yards (inthousands)  77,532   28,170   5,400   —   (2,623)  4,616   113,095                              Number of sites  13       1               14                              **Risk Management, Insurance and Financial Assurances**     Our environmental risk management program includes evaluating existing facilities andpotential acquisitions for environmental compliance. We do not presently expect environmentalcompliance costs to increase materially above current levels, but we cannot predict whether recentand future acquisitions will cause such costs to increase. We also maintain a worker safetyprogram that encourages safe practices in the workplace. Operating practices at all of ourfacilities emphasize minimizing the possibility of environmental contamination and liability.     The nature of our business exposes us to the risk of liabilities arising out of ouroperations, including possible damages to the environment. Such potential liabilities couldinvolve, for example: (i) claims for remediation costs, personal injury, property damage and damageto the environment in cases where we may be held responsible for the escape of harmful materials;(ii) claims of employees, customers or third parties for personal injury or property damageoccurring in the course of our operations; or (iii) claims alleging negligence in the planning orperformance of work. We could also be subject to fines and civil and criminal penalties inconnection with alleged violations of regulatory requirements. Because of the nature and scope ofthe possible environmental damages, liabilities imposed in environmental litigation can besignificant. Our solid waste operations have third party environmental liability insurance withlimits in excess of those required by permit regulations, subject to certain limitations andexclusions, which we believe are customary in the industry. However, the limits of suchenvironmental liability insurance may be inadequate in the event of a major loss. Further, we maybe unable to continue to carry excess environmental liability insurance should market conditions inthe insurance industry make such coverage prohibitively expensive.
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     We have property insurance, general liability, automobile physical damage and liability,employment practices liability, pollution liability, directors and officers liability, fiduciaryliability, workers’ compensation and employer’s liability coverage, as well as umbrella liabilitypolicies to provide excess coverage over the underlying limits contained in our primary generalliability, automobile liability and employer’s liability policies. Each of our insurance policiescontains a per occurrence or per loss deductible for which we are responsible. Our deductiblesrange from $5,000 per loss under our property insurance coverage to $100,000 for general liabilityand $250,000 per occurrence or loss under our automobile liability and workers’ compensation andemployer’s liability coverages. In addition, we have a $500,000 per loss deductible under ourpollution liability coverage. Accordingly, we are effectively self-insured for these amounts withrespect to claims covered by our insurance policies, as well as with respect to amounts that exceedour policy limits (including our umbrella policy limits, where applicable). In the future, we maybe exposed to uninsured liabilities which could have a material adverse effect on our financialcondition, results of operations or cash flows. Please read note 13(e) to our consolidatedfinancial statements.     In the normal course of business, we are required to post performance bonds, insurancepolicies, letters of credit and/or cash deposits in connection with the performance of municipalresidential collection contracts, the operation, closure or post-closure of landfills, certainenvironmental permits and certain business licenses and permits. Bonds issued by surety companiesoperate as a financial guarantee of our performance. We have satisfied financial responsibilityrequirements by obtaining bank letters of credit, insurance policies, performance bonds or makingcash deposits.     As of December 31, 2006, we obtained performance bonds in an aggregate amount of approximately$39.5 million and letters of credit in an aggregate amount of approximately $9.9 million,supporting performance of landfill closure and post-closure requirements, insurance contracts,municipal contracts and other financial assurance obligations. If in the future we are unable toobtain such instruments in sufficient amounts or at acceptable rates, we could be precluded fromentering into additional municipal solid waste collection contracts or obtaining or retaininglandfill or transfer station operating permits. Please read “—Risk Factors—Risks Relating To OurBusiness—We may be unable to obtain financial assurances necessary for our operations, which couldresult in the closure of landfills or the termination of collection contracts.”**Competition**     The solid waste collection and disposal industry is highly competitive and fragmented andrequires substantial labor and capital resources. The industry presently includes three large,publicly-held, national waste companies, Waste Management, Inc., Allied Waste Industries, Inc., andRepublic Services, Inc., as well as other public and privately-held waste companies. As indicatedabove in “Business—Industry Overview,” we believe that these three companies account forapproximately 48% of the estimated $47 billion of annual revenue generated by the industry.Certain of the markets in which we compete or will likely compete are served by one or more ofthese companies, as well as by numerous privately-held regional and local solid waste companies ofvarying sizes and resources, some of which have accumulated substantial goodwill in their markets.We also compete with operators of alternative disposal facilities and with counties, municipalitiesand solid waste districts that maintain their own waste collection and disposal operations. Publicsector operations may have financial advantages over us because of their access to user fees andsimilar charges, tax revenues and tax-exempt financing.     We compete for collection, transfer and disposal volume based primarily on geographic locationand the price and quality of our services. From time to time, our competitors may reduce the priceof their services in an effort to expand their market shares or service areas or to wincompetitively bid municipal contracts. These practices may cause us to reduce the price of ourservices or, if we elect not to do so, to lose business.     The solid waste collection and disposal industry has undergone significant consolidation, andwe encounter competition in our efforts to acquire landfills, transfer stations and collectionoperations. Intense competition exists not only for collection, transfer and disposal volume butalso for acquisition candidates. We generally compete for acquisition candidates withpublicly-owned waste management companies, as well as numerous privately-held regional and localsolid waste companies of varying sizes and resources. Competition in the disposal industry may
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also be affected by the increasing national emphasis on recycling and other waste reductionprograms, which may reduce the volume of waste deposited in landfills. Accordingly, it may becomeuneconomical for us to make further acquisitions or we may be unable to locate or acquire suitableacquisition candidates at price levels and on terms and conditions that we consider appropriate,particularly in markets we do not already serve.**Non-Competition Agreements**     We were a party to a mutual non-competition agreement with Waste Corporation of America, LLC,a company owned by management and shareholders that were shareholders of our predecessor and formerparent. In 2005 and 2006, we acquired Waste Corporation of Central Florida, Inc., Transit Waste,LLC, Fort Myers transfer station and WCA of St. Lucie, LLC from Waste Corporation of America, LLCand, in connection with such acquisitions, we were released from the non-competition agreement infavor of Waste Corporation of America, LLC. However, Waste Corporation of America, LLC (which doesnot currently have any significant operations), remains subject to a non-competition agreement infavor of us, which precludes it and its subsidiaries from acquiring or operating any wasteoperations within 50 miles of any of our or our subsidiaries’ operations in Alabama, Arkansas,Kansas, Missouri, South Carolina, Tennessee or Texas through June 2009.**Sales and Marketing**     We focus our marketing efforts on continuing and expanding business with existing customers,as well as attracting new customers. Our sales and marketing strategy is to provide prompt, highquality, comprehensive solid waste collection, transfer and disposal services to our customers atcompetitive prices. We target potential customers of all sizes, from small quantity generators tolarge companies and municipalities. Because the waste collection and disposal business is a verylocalized business, most of our marketing activity is local in nature. However, we do have a vicepresident of sales who is responsible for overseeing our sales and marketing efforts, includingassisting in hiring and setting compensation programs.**Government Contracts**     We are parties to contracts with municipalities and other associations and agencies. Many ofthese contracts are or will be subject to competitive bidding. We may not be the successfulbidder, or we may have to substantially lower prices in order to be the successful bidder. Inaddition, some of our customers may terminate their contracts with us before the end of thecontract term.     Municipalities may annex unincorporated areas within counties where we provide collectionservices, and as a result, our customers in annexed areas may be required to obtain service fromcompetitors who have been franchised or contracted by the annexing municipalities to provide thoseservices. Some of the local jurisdictions in which we currently operate grant exclusive franchisesto collection and disposal companies, others may do so in the future, and we may enter marketswhere franchises are granted by certain municipalities.**Regulation**     Our business is subject to extensive and evolving federal, state and local environmental,health, safety and transportation laws and regulations. These laws and regulations areadministered by the U.S. Environmental Protection Agency, or EPA, and various other federal, stateand local environmental, zoning, air, water, transportation, land use, health and safety agencies.Many of these agencies regularly inspect our operations to monitor compliance with these laws andregulations. Governmental agencies have the authority to enforce compliance with these laws andregulations and to obtain injunctions or impose civil or criminal penalties in cases of violations.We believe that regulation of the waste industry will continue to evolve, and we will adapt tofuture legal and regulatory requirements to ensure compliance.     Our operation of landfills subjects us to certain operational, monitoring, site maintenance,closure, post-closure and other obligations which could give rise to increased costs for complianceand corrective measures. In connection with our acquisition of landfills and continued operationor expansion of our landfills, we must often
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spend considerable time to increase the capacity of these landfills. We may be unable toobtain or maintain necessary governmental approvals. Once obtained, operating permits are subjectto modification and revocation by the issuing agency. Compliance with these and any futureregulatory requirements could require us to make significant capital and operating expenditures.However, most of these expenditures are made in the normal course of business and do not place usat any competitive disadvantage.     Our operations are subject to extensive regulation, principally under the federal statutesdescribed below.     *The Resource Conservation and Recovery Act of 1976, as amended, or RCRA.*RCRA regulates thehandling, transportation and disposal of hazardous and non-hazardous wastes and delegates authorityto states to develop programs to ensure the safe disposal of solid wastes. On October 9, 1991, theEPA promulgated Solid Waste Disposal Facility Criteria for non-hazardous solid waste landfillsunder Subtitle D of RCRA. Subtitle D includes location standards, facility design and operatingcriteria, closure and post-closure requirements, financial assurance standards and groundwatermonitoring, as well as corrective action standards, many of which had not commonly been in place orenforced at landfills. Subtitle D applies to all solid waste landfill cells that received wasteafter October 9, 1991, and, with limited exceptions, required all landfills to meet theserequirements by October 9, 1993. All states in which we operate have EPA-approved programs whichimplemented at least the minimum requirements of Subtitle D.     *The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended,or CERCLA.*CERCLA, which is also known as Superfund, addresses problems created by the release orthreatened release of hazardous substances (as defined in CERCLA) into the environment. CERCLA’sprimary mechanism for achieving remediation of such problems is to impose strict, joint and severalliability for cleanup of disposal sites on current owners and operators of the site, former siteowners and operators at the time of disposal and parties who arranged for disposal at the facility(*i.e.*, generators of the waste and transporters who select the disposal site). The costs of aCERCLA cleanup can be substantial. Liability under CERCLA is not dependent on the existence orintentional disposal of “hazardous wastes” (as defined under RCRA), but can also be based upon therelease or threatened release, even as a result of lawful, unintentional and non-negligent action,of any one of the more than 700 “hazardous substances” listed by the EPA, even in minute amounts.     *The Federal Water Pollution Control Act of 1972, as amended, or the Clean Water Act.*This actestablishes rules regulating the discharge of pollutants into streams and other waters of theUnited States (as defined in the Clean Water Act) from a variety of sources, including solid wastedisposal sites. If runoff from our landfills or transfer stations may be discharged into surfacewaters, the Clean Water Act requires us to apply for and obtain discharge permits, conduct samplingand monitoring and, under certain circumstances, reduce the quantity of pollutants in thosedischarges. In 1990, the EPA issued additional rules under the Clean Water Act, which establishstandards for management of storm water runoff from landfills and which require landfills thatreceive, or in the past received, industrial waste to obtain storm water discharge permits. Inaddition, if a landfill or transfer station discharges wastewater through a sewage system to apublicly-owned treatment works, the facility must comply with discharge limits imposed by thetreatment works. Also, if development of a landfill may alter or affect “wetlands,” the owner mayhave to obtain a permit and undertake certain mitigation measures before development may begin.This requirement is likely to affect the construction or expansion of many solid waste disposalsites.     *The Clean Air Act of 1970, as amended, or the Clean Air Act.*The Clean Air Act provides forincreased federal, state and local regulation of the emission of air pollutants. The EPA hasapplied the Clean Air Act to solid waste landfills and vehicles with heavy duty engines, such aswaste collection vehicles. Additionally, in March 1996, the EPA adopted New Source PerformanceStandards and Emission Guidelines (the “Emission Guidelines”) for municipal solid waste landfillsto control emissions of landfill gases. These regulations impose limits on air emissions fromsolid waste landfills. The Emission Guidelines impose two sets of emissions standards, one ofwhich is applicable to all solid waste landfills for which construction, reconstruction ormodification was commenced before May 30, 1991. The other applies to all municipal solid wastelandfills for which construction, reconstruction or modification was commenced on or after May 30,1991. The Emission Guidelines are being implemented by the states after the EPA approves theindividual state’s program. These guidelines, combined with the new permitting programsestablished under the Clean Air Act, subject solid waste landfills to significant
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permitting requirements and, in some instances, require installation of gas recovery systemsto reduce emissions to allowable limits. The EPA also regulates the emission of hazardous airpollutants from municipal landfills and has promulgated regulations that require measures tomonitor and reduce such emissions.     *The Occupational Safety and Health Act of 1970, as amended, or OSHA.*OSHA establishes certainemployer responsibilities, including maintenance of a workplace free of recognized hazards likelyto cause death or serious injury, compliance with standards promulgated by the Occupational Safetyand Health Administration and various record keeping, disclosure and procedural requirements.Various standards, including standards for notices of hazards, safety in excavation and demolitionwork and the handling of asbestos, may apply to our operations.     *Flow Control/Interstate Waste Restrictions.*Certain permits and approvals, as well as certainstate and local regulations, may limit a landfill or transfer station to accepting waste thatoriginates from specified geographic areas, restrict the importation of out-of-state waste orwastes originating outside the local jurisdiction or otherwise discriminate against non-localwaste. These restrictions, generally known as flow control restrictions, are controversial, andsome courts have held that some flow control schemes violate constitutional limits on state orlocal regulation of interstate commerce. From time to time, federal legislation is proposed thatwould allow some local flow control restrictions. Although no such federal legislation has beenenacted to date, if such federal legislation should be enacted in the future, states in which weown landfills could limit or prohibit the importation of out-of-state waste or direct that wastesbe handled at specified facilities. Such state actions could adversely affect our landfills.These restrictions could also result in higher disposal costs for our collection operations. If wewere unable to pass such higher costs through to our customers, our business, financial conditionand operating results could be adversely affected.     Certain state and local jurisdictions may also seek to enforce flow control restrictionsthrough local legislation or contractually. In certain cases, we may elect not to challenge suchrestrictions. These restrictions could reduce the volume of waste going to landfills in certainareas, which may adversely affect our ability to operate our landfills at their full capacityand/or reduce the prices that we can charge for landfill disposal services. These restrictions mayalso result in higher disposal costs for our collection operations. If we were unable to pass suchhigher costs through to our customers, our business, financial condition and operating resultscould be adversely affected.     *State and Local Regulation.*Each state in which we now operate or may operate in the futurehas laws and regulations governing the generation, storage, treatment, handling, transportation anddisposal of solid waste, occupational safety and health, water and air pollution and, in mostcases, the siting, design, operation, maintenance, closure and post-closure maintenance oflandfills and transfer stations. State and local permits and approval for these operations may berequired and may be subject to periodic renewal, modification or revocation by the issuingagencies. In addition, many states have adopted statutes comparable to, and in some cases morestringent than, CERCLA. These statutes impose requirements for investigation and cleanup ofcontaminated sites and liability for costs and damages associated with such sites, and some providefor the imposition of liens on property owned by responsible parties. Furthermore, manymunicipalities also have ordinances, local laws and regulations affecting our operations. Theseinclude zoning and health measures that limit solid waste management activities to specified sitesor activities, flow control provisions that direct or restrict the delivery of solid wastes tospecific facilities, laws that grant the right to establish franchises for collection services andthen put such franchises out for bid and bans or other restrictions on the movement of solid wastesinto a municipality.     Permits or other land use approvals with respect to a landfill, as well as state or local lawsand regulations, may specify the quantity of waste that may be accepted at the landfill during agiven time period and/or specify the types of waste that may be accepted at the landfill. Once anoperating 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 wastereduction and recycling and to prohibit or restrict the disposal in landfills of certain types ofsolid wastes, such as yard wastes, beverage containers, unshredded tires, lead-acid batteries,paper, cardboard and household appliances. The
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enactment of regulations reducing the volume and types of wastes available for transport toand disposal in landfills could prevent us from operating our facilities at their full capacity.     Many states and local jurisdictions have enacted “bad boy” laws that allow the agencies thathave jurisdiction over waste services contracts or permits to deny or revoke these contracts orpermits based on the applicant’s or permit holder’s compliance history. Some states and localjurisdictions go further and consider the compliance history of the parent, subsidiaries oraffiliated companies, in addition to that of the applicant or permit holder. These laws authorizethe agencies to make determinations of an applicant’s or permit holder’s fitness to be awarded acontract to operate and to deny or revoke a contract or permit because of unfitness unless there isa showing that the applicant or permit holder has been rehabilitated through the adoption ofvarious operating policies and procedures put in place to assure future compliance with applicablelaws and regulations.     Some state and local authorities enforce certain federal laws in addition to state and locallaws and regulations. For example, in some states, RCRA, OSHA, parts of the Clean Air Act and partsof the Clean Water Act are enforced by local or state authorities instead of the EPA, and in somestates those laws are enforced jointly by state or local and federal authorities.     *Public Utility Regulation.*In many states, public authorities regulate the rates thatlandfill operators may charge. The adoption of rate regulation or the reduction of current ratesin states in which we own landfills could adversely affect our business, financial condition andoperating results.**Seasonality**     Based on our industry and our historic trends, we expect our operations to vary seasonally.Typically, revenue will be highest in the second and third calendar quarters and lowest in thefirst and fourth calendar quarters. The fluctuation is primarily due to lower volumes of waste.We also expect that our operating expenses may be higher during the winter months due to periodicadverse weather conditions that can slow the collection of waste, resulting in higher labor andoperational costs. Please read “—Risk Factors—Risks Relating To Our Operations and CorporateOrganization—Seasonal fluctuations will cause our business and results of operations to vary amongquarters, which could adversely affect our stock price.”**Employees**     As of December 31, 2006, we had approximately 850 full-time employees. A group of 18employees at one of our locations is represented by a union. In 2006, we negotiated with the unionfor a new collective bargaining agreement which has a term extending until March 2011. We have notexperienced a significant work stoppage, and we believe our relations with our employees are good.**Available Information**     As an accelerated filer, we electronically file certain documents with the Securities andExchange Commission (the SEC). We file annual reports on Form 10-K; quarterly reports on Form10-Q; and current reports on Form 8-K (as appropriate); along with any related amendments andsupplements thereto. From time-to-time, we may also file registration statements and relateddocuments in connection with equity or debt offerings. You may read and copy any materials we filewith the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You mayobtain information regarding the Public Reference Room by calling the SEC at 1-800-SEC-0330. Inaddition, the SEC maintains an internet website at www.sec.gov that contains reports andother information regarding registrants that file electronically with the SEC.     Our Internet website is www.wcawaste.com. We make available through the “InvestorRelations-SEC Filings” section of our internet website our annual report on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed orfurnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, assoon as reasonably practicable after we electronically file such material with, or furnish it to,the Securities and Exchange Commission.
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**Item 1A. Risk Factors.****Risks Relating to Our Acquisition Program**     ***We may be unable to identify, complete or integrate future acquisitions, which may harm ourprospects.***     We may be unable to identify appropriate acquisition candidates. If we do identify anappropriate acquisition candidate, we may not be able to negotiate acceptable terms or finance theacquisition or, if the acquisition occurs, effectively integrate the acquired business into ourexisting business. Negotiations of potential acquisitions and the integration of acquired businessoperations require a disproportionate amount of management’s attention and our resources. Even ifwe complete additional acquisitions, continued financing may not be available or available onreasonable terms, any new businesses may not generate revenues comparable to our existingbusinesses, the anticipated cost efficiencies or synergies may not be realized and these businessesmay not be integrated successfully or operated profitably or accretive to our earnings.     ***We compete for acquisition candidates with other purchasers, some of which have greaterfinancial resources and may be able to offer more favorable terms, thus limiting our ability togrow through acquisitions.***     Other companies in the solid waste services industry also have a strategy of acquiring andconsolidating regional and local businesses. We expect that as the consolidation trend in ourindustry continues, the competition for acquisitions will increase. Competition for acquisitioncandidates may make fewer acquisition opportunities available to us or make those opportunitiesmore expensive.     ***In connection with financing acquisitions, we may incur additional indebtedness, or may issueadditional equity including common stock or preferred stock which would dilute the ownershippercentage of existing stockholders.***     We intend to finance acquisitions with available cash, borrowings under our credit facility,our equity including common stock or preferred stock, or a combination of these means. As aresult, we may incur additional indebtedness or issue additional equity which would dilute theownership percentage of existing stockholders. Our credit facility contains covenants restricting,among other things, the amount of additional indebtedness. We may offer equity as some or all ofthe consideration for certain acquisitions. Our ability to do so will depend in part on theattractiveness of our equity. This attractiveness may depend largely on the capital appreciationprospects of our equity compared to the equity of our competitors.     ***Businesses that we acquire may have unknown liabilities and require unforeseen capitalexpenditures, which would adversely affect our financial results.***     We may acquire businesses with liabilities that we fail to discover, including liabilitiesarising from non-compliance with environmental laws by prior owners for which we may be responsibleas the successor owner. Moreover, as we integrate a new business, we may discover that requiredexpenses and capital expenditures are greater than anticipated, which would adversely affect ourfinancial results.     ***Rapid growth may strain our management, operational, financial and other resources, whichwould adversely affect our financial results.***     Executing our acquisition strategy will require significant time from our senior management.We may also be required to expand our operational and financial systems and controls and ourmanagement information systems capabilities. We may also need to attract and train additionalsenior managers, technical professionals and other employees. Failure to do any of these couldrestrict our ability to maintain and improve our profitability while continuing to grow.
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     ***Our acquisition strategy has resulted and is expected to continue to result in significantgoodwill and other intangible assets, which may need to be written down if performance is not asexpected.***     As of December 31, 2006, we had approximately $78.4 million of goodwill and other intangibleassets, representing approximately 21.1% of our total assets. If we complete acquisitions atprices greater than the fair value of the assets acquired, we would generate additional goodwill.We are required to test our goodwill at least annually for impairment, which would require us toincur a charge if we determine there is a reduction in value. Any such charge would reduce ourassets and earnings.     ***We may incur charges related to acquisitions, which could lower our earnings.***     We capitalize some expenditures and advances relating to acquisitions and pendingacquisitions, but expense indirect acquisition costs, including general corporate overhead, as theyare incurred. We charge against earnings any unamortized capitalized expenditures and advances(net of any amount that we estimate we will recover, through sale or otherwise) that relate to anypending acquisition that is not consummated. We, therefore, may incur charges in future periods,which could lower our earnings.**Risks Relating To Our Business**     ***Changes in interest rates may affect our profitability.***     Our acquisition strategy could require us to incur substantial additional indebtedness in thefuture, which will increase our interest expense. Further, to the extent that these borrowings aresubject to variable rates of interest, increases in interest rates will increase our interestexpense, which will affect our profitability. In connection with the restructuring of ourlong-term debt in July 2006, we entered into a new swap agreement effective July 11, 2006, where weagreed to pay a fixed-rate of 5.64% in exchange for three-month floating rate LIBOR which was 5.51%at the time the swap was entered. With the placement of this swap agreement, we bear exposure to,and are primarily affected by, changes in LIBOR rates on $150 million. A 100 basis point increasein LIBOR interest rates would result in interest income on the swap agreement of approximately $1.5million annually while a 100 basis point decrease in interest rates would result in $1.5 million inswap expense, in addition to any mark to market effect on the fair value of the swap.     ***We may not be successful in expanding the permitted capacity of our current or futurelandfills, which could restrict our growth, increase our disposal costs, and reduce our operatingmargins.***     Our ability to meet our growth objectives depends in part on our ability to expand landfillcapacity, whether by acquisition or expansion. Exhausting permitted capacity at a landfill wouldrestrict our growth, and reduce our financial performance in the market served by the landfillsince we would be forced to dispose of collected waste at more distant landfills or at landfillsoperated by our competitors, thereby increasing our waste disposal expenses. Although we havereceived final permits on expansions at our existing landfills, there may be challenges, comments,or delays regarding the construction of specific cells that could have an adverse effect on ouroperations in these markets. Obtaining required permits and approvals to expand landfills hasbecome increasingly difficult and expensive, requiring numerous hearings and compliance withvarious zoning, environmental and regulatory laws and drawing resistance from citizens,environmental or other groups. Even if permits are granted, they may contain burdensome terms andconditions or the timing required may be extensive and could affect the remaining capacity at thelandfill. We may choose to delay or forego tuck-in acquisitions in markets where the remaininglives of our landfills are relatively short because increased volumes would further shorten thelives of these landfills.     ***We are subject to environmental and safety laws, which restrict our operations and increaseour costs.***     We are subject to extensive federal, state and local laws and regulations relating toenvironmental protection and occupational safety and health. These include, among other things,laws and regulations governing the use, treatment, storage and disposal of wastes and materials,air quality, water quality and the remediation of
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contamination associated with the release of hazardous substances. Our compliance withexisting regulatory requirements is costly, and continued changes in these regulations couldincrease our compliance costs. Government laws and regulations often require us to enhance orreplace our equipment and to modify landfill operations and may, in the future, require us toinitiate final closure of a landfill. We are required to obtain and maintain permits that aresubject to strict regulatory requirements and are difficult and costly to obtain and maintain. Wemay be unable to implement price increases sufficient to offset the cost of complying with theselaws and regulations. In addition, regulatory changes could accelerate or increase expendituresfor closure and post-closure monitoring at solid waste facilities and obligate us to spend sumsover the amounts that we have accrued.     ***We may become subject to environmental clean-up costs or litigation that could curtail ourbusiness operations and materially decrease our earnings.***     The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended,or CERCLA, and analogous state laws provide for the remediation of contaminated facilities andimpose strict joint and several liability for remediation costs on current and former owners oroperators of a facility at which there has been a release or a threatened release of a hazardoussubstance. This liability is also imposed on persons who arrange for the disposal of and whotransport such substances to the facility. Hundreds of substances are defined as hazardous underCERCLA and their presence, even in small amounts, can result in substantial liability. The expenseof conducting a cleanup can be significant. Notwithstanding our efforts to comply with applicableregulations and to avoid transporting and receiving hazardous substances, we may have liabilitybecause these substances may be present in waste collected by us or disposed of in our landfills,or in waste collected, transported or disposed of in the past by companies that we acquire even ifwe did not collect or dispose of the waste while we owned the landfill. The actual costs for theseliabilities could be significantly greater than the amounts that we might be required to accrue onour financial statements from time to time.     In addition to the costs of complying with environmental regulations, we may incur costs todefend against litigation brought by government agencies and private parties. As a result, we maybe required to pay fines or our permits and licenses may be modified or revoked. We may in thefuture be a defendant in lawsuits brought by governmental agencies and private parties who assertclaims alleging environmental damage, personal injury, property damage and/or violations of permitsand licenses by us. A significant judgment against us, the loss of a significant permit or licenseor the imposition of a significant fine could curtail our business operations and may decrease ourearnings.     ***Our accruals for landfill closure and post-closure costs may be inadequate, and our earningswould be lower if we are required to pay or accrue additional amounts.***     We are required to pay closure and post-closure costs of any disposal facilities that we ownor operate. We accrue for future closure and post-closure costs of our owned landfills, generallyfor a term of up to 30 years, based on engineering estimates of future requirements associated withthe final landfill design and closure and post-closure process. Please read “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Critical AccountingEstimates and Assumptions.” Our obligations to pay closure and post-closure costs, including formonitoring, may exceed the amount we accrued, which would adversely affect our earnings.Expenditures for these costs may increase as a result of any federal, state or local governmentregulatory action, including changes in closing or monitoring activities, types and quantities ofmaterials used or the period of required post-closure monitoring. These factors couldsubstantially increase our operating costs and therefore impair our ability to invest in ourexisting facilities or new facilities. The amount of our accruals is based upon estimates bymanagement and engineers and accountants. We review at least annually our estimates for closure andpost-closure costs, and any change in our estimates could require us to accrue additional amounts.
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     ***A general downturn in U.S. economic conditions may reduce our business prospects and decreaseour revenue and cash flows.***     Our business is affected by general economic conditions. Any extended weakness in the U.S.economy could reduce our business prospects and could cause decreases in our revenue and operatingcash flows. In addition, in a down-cycle economic environment, we would likely experience thenegative effects of increased competitive pricing pressure and customer turnover.     ***We may be unable to obtain financial assurances necessary for our operations, which couldresult in the closure of landfills or the termination of collection contracts.***     We are required to provide financial assurances to governmental agencies under applicableenvironmental regulations relating to landfill closure and post-closure obligations, our landfilloperations, and other collection and disposal contracts. We satisfy these financial assurancesrequirements by providing performance bonds, letters of credit, insurance policies or trustdeposits. During the past several years, the costs associated with bonding and insurance haverisen dramatically, the financial capacity and other requirements imposed by bonding and insurancecompanies have become more difficult to comply with than in prior years, and the number of thesebonding and insurance companies has decreased.     ***Our business is capital intensive, requiring ongoing cash outlays that may strain or consumeour available capital and force us to sell assets, incur debt, or sell equity on unfavorable terms.***     Our ability to remain competitive, grow and maintain operations largely depends on our cashflow from operations and access to capital. Maintaining our existing operations and expanding themthrough internal growth or acquisitions requires large capital expenditures. As we undertake moreacquisitions and further expand our operations, the amount we expend on capital, closure andpost-closure and remediation expenditures will increase. These increases in expenditures may resultin lower levels of working capital or require us to finance working capital deficits. We intend tocontinue to fund our cash needs through cash flow from operations and borrowings under our creditfacility, if necessary. However, we may require additional equity or debt financing to fund ourgrowth.     We do not have complete control over our future performance because it is subject to generaleconomic, political, financial, competitive, legislative, regulatory and other factors. It ispossible that our business may not generate sufficient cash flow from operations, and we may nototherwise have the capital resources, to allow us to make necessary capital expenditures. If thisoccurs, we may have to sell assets, restructure our debt or obtain additional equity capital, whichcould be dilutive to our stockholders. We may not be able to take any of the foregoing actions,and we may not be able to do so on terms favorable to us or our stockholders.     ***Increases in the costs of disposal may reduce our operating margins.***     We dispose of approximately one-fourth of the waste that we collect in landfills operated byothers, but that rate may increase in the future. We may incur increases in disposal fees paid tothird parties or in the costs of operating our own landfills. Failure to pass these costs on toour customers may reduce our operating margins.     ***Increases in the costs of labor may reduce our operating margins.***     We compete with other businesses in our markets for qualified employees. The labor market iscurrently tight in many of the areas in which we operate. A shortage of qualified employees wouldrequire us to enhance our wage and benefits packages to compete more effectively for employees orto hire more expensive temporary employees. Labor is our second largest operating cost, and evenrelatively small increases in labor costs per employee could materially affect our cost structure.Failure to attract and retain qualified employees, to control our labor costs, or to recover anyincreased labor costs through increased prices we charge for our services or otherwise offset suchincreases with cost savings in other areas may reduce our operating margins.
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     ***Increases in the costs of fuel may reduce our operating margins.***     The price and supply of fuel needed to run our collection and transfer trucks and our landfillequipment is unpredictable and fluctuates based on events outside our control, includinggeopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gasproducers, war and unrest in oil producing countries, regional production patterns andenvironmental concerns. During both 2006 and 2005, we experienced increases in the cost of dieselfuel as a percentage of revenue of 6.5%. Any significant price escalations or reductions in thesupply could increase our operating expenses or interrupt or curtail our operations. Failure tooffset all or a portion of any increased fuel costs through increased fees or charges would reduceour operating margins.     ***Increases in costs of insurance would reduce our operating margins.***     One of our largest operating costs is for insurance coverage, including general liability,automobile physical damage and liability, property, employment practices, pollution, directors andofficers, fiduciary, workers’ compensation and employer’s liability coverage, as well as umbrellaliability policies to provide excess coverage over the underlying limits contained in our primarygeneral liability, automobile liability and employer’s liability policies. Changes in ouroperating experience, such as an increase in accidents or lawsuits or a catastrophic loss, couldcause our insurance costs to increase significantly or could cause us to be unable to obtaincertain insurance. Increases in insurance costs would reduce our operating margins. Changes in ourindustry and perceived risks in our business could have a similar effect.     ***We may not be able to maintain sufficient insurance coverage to cover the risks associatedwith our operations, which could result in uninsured losses that would adversely affect ourfinancial condition.***     Integrated non-hazardous waste companies are exposed to a variety of risks that are typicallycovered by insurance arrangements. However, we may not be able to maintain sufficient insurancecoverage to cover the risks associated with our operations for a variety of reasons. Increases ininsurance costs and changes in the insurance markets may, given our resources, limit the coveragethat we are able to maintain or prevent us from insuring against certain risks. Large orunexpected losses may exceed our policy limits, adversely affecting our results of operations, andmay result in the termination or limitation of coverage, exposing us to uninsured losses, therebyadversely affecting our financial condition.     ***Our failure to remain competitive with our numerous competitors, some of which have greaterresources, could adversely affect our ability to retain existing customers and obtain futurebusiness.***     Our industry is highly competitive. We compete with large companies and municipalities, manyof which have greater financial and operational resources. The non-hazardous solid wastecollection and disposal industry is led by three large national, publicly-traded waste managementcompanies that we believe account for approximately 48% of the estimated $47 billion of annualindustry revenue. The industry also includes numerous regional and local companies. Additionally,many counties and municipalities operate their own waste collection and disposal facilities andhave competitive advantages not available to private enterprises. We also encounter competitionfrom alternatives to landfill disposal, such as recycling and incineration, that benefit from staterequirements to reduce landfill disposal. If we are unable to successfully compete against ourcompetitors, our ability to retain existing customers and obtain future business could be adverselyaffected.     ***We may lose contracts through competitive bidding, early termination or governmental action,or we may have to substantially lower prices in order to retain certain contracts, any of whichwould cause our revenue to decline.***     We are parties to contracts with municipalities and other associations and agencies. Many ofthese contracts are or will be subject to competitive bidding. We may not be the successfulbidder, or we may have to substantially lower prices in order to be the successful bidder. Inaddition, some of our customers may terminate their contracts with us before the end of thecontract term. If we were not able to replace revenue from contracts lost through
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competitive bidding or early termination or from lowering prices or from the renegotiation ofexisting contracts with other revenue within a reasonable time period, our revenue could decline.     Municipalities may annex unincorporated areas within counties where we provide collectionservices, and as a result, our customers in annexed areas may be required to obtain service fromcompetitors who have been franchised or contracted by the annexing municipalities to provide thoseservices. Some of the local jurisdictions in which we currently operate grant exclusive franchisesto collection and disposal companies, others may do so in the future, and we may enter marketswhere franchises are granted by certain municipalities. Unless we are awarded a franchise by thesemunicipalities, we will lose customers which will cause our revenue to decline.     ***Comprehensive waste planning programs and initiatives required by state and local governmentsmay reduce demand for our services, which could adversely affect our waste volumes and the price ofour landfill disposal services.***     Many of the states in which we operate landfills require counties and municipalities toformulate comprehensive plans to reduce the volume of solid waste disposed of in landfills throughwaste planning, recycling, composting or other programs. Some state and local governments mandatewaste reduction at the source and prohibit the disposal of certain types of wastes, such as yardwastes, at landfills. These actions may reduce the volume of waste going to landfills in certainareas, and therefore our landfills may not continue to operate at currently estimated volumes orthey may be unable to charge current prices for landfill disposal services.     ***Efforts by labor unions to organize our employees could divert management attention andincrease our operating expenses.***     Labor unions have in the past attempted to organize our employees, and these efforts willlikely continue in the future. At its 2003 national meeting, the International Brotherhood ofTeamsters announced that our industry is one in which it will begin focusing its efforts. In March2001, a group of employees chose to be represented by a union, and we negotiated a collectivebargaining agreement with them which expired on March 3, 2006. In 2006, we negotiated with theunion for a new collective bargaining agreement which has a term extending until March 2011. As ofDecember 31, 2006, there were 18 employees in that group. Additional groups of employees may seekunion representation in the future, and the negotiation of collective bargaining agreements coulddivert management attention and result in increased operating expenses and lower net income. If weare unable to negotiate acceptable collective bargaining agreements, we might have to wait through“cooling off” periods, which are often followed by union-initiated work stoppages, includingstrikes. Depending on the type and duration of these work stoppages, our operating expenses couldincrease significantly.     ***Current and proposed laws may restrict our ability to operate across local borders which couldaffect our manner, cost and feasibility of doing business.***     For the year ended December 31, 2006, approximately $3.2 million, or 2.1%, of our revenue wasearned from the disposal of waste that is generated in a state other than the state where it isdisposed. These operations could increase in the future. Some states have imposed restrictions oncollection routes and disposal locations. Our collection, transfer and landfill operations mayalso be affected in the future by proposed “flow control” legislation that would allow state andlocal governments to direct waste generated within their jurisdictions to a specific facility fordisposal or processing. Moreover, in the future, our operations may be affected by proposed federallegislation authorizing states to regulate, limit or perhaps even prohibit interstate shipments ofwaste. If this or similar legislation is enacted, state or local governments with jurisdictionover our landfills could act to limit or prohibit disposal or processing of out-of-state waste inour landfills, whether collected by us or by third parties which could affect our manner, cost andfeasibility of doing business.
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**Risks Relating to Our Operations and Corporate Organization**     ***Poor decisions by our regional and local managers could result in the loss of customers or anincrease in costs, or adversely affect our ability to obtain future business.***     We manage our operations on a decentralized basis. Therefore, regional and local managershave the authority to make many decisions concerning their operations without obtaining priorapproval from executive officers. Poor decisions by regional or local managers could result in theloss of customers or an increase in costs, or adversely affect our ability to obtain futurebusiness.     ***We are vulnerable to factors affecting our local markets, which could adversely affect ourstock price relative to our competitors.***     The non-hazardous waste business is local in nature. Accordingly, our business in one or moreregions or local markets may be adversely affected by events and economic conditions relating tothose regions or markets even if the other regions of the country are not affected. As a result,our financial performance may not compare favorably to our competitors with operations in otherregions, and our stock price could be adversely affected.     ***Seasonal fluctuations will cause our business and results of operations to vary amongquarters, which could adversely affect our stock price.***     Based on historic trends experienced by the businesses we have acquired, we expect ouroperating results to vary seasonally, with revenue typically lowest in the first quarter, higher inthe second and third quarters, and again lower in the fourth quarter. This seasonality generallyreflects the lower volume of waste during the winter months. Adverse weather conditions negativelyaffect waste collection productivity, resulting in higher labor and operational costs. The generalincrease in precipitation during the winter months increases the weight of collected waste,resulting in higher disposal costs, as costs are often calculated on a per ton basis. Because ofthese factors, we expect operating income to be generally lower in the winter months. As a result,our operating results may be negatively affected by these variations. Additionally, severe weatherduring any time of the year can negatively affect the costs of collection and disposal and maycause temporary suspensions of our collection and disposal services. Long periods of inclementweather may interfere with collection and landfill operations, delay the construction of landfillcapacity and reduce the volume of waste generated by our customers. Any of these conditions canadversely affect our business and results of operations, which could negatively affect our stockprice.     ***Failure to maintain effective internal controls in accordance with Section 404 of theSarbanes-Oxley Act could have a material adverse effect on our business and stock price.***     As part of our program of compliance with Section 404 of the Sarbanes-Oxley Act, we mayidentify deficiencies in our internal controls over financial reporting. Failure to maintain aneffective internal control environment could have a material adverse effect on our business and ourstock price.     ***Our success depends on key members of our senior management, the loss of any of whom coulddisrupt our customer and business relationships and our operations.***     We believe that our continued success depends in large part on the sustained contributions ofour chairman of the board and chief executive officer, Mr. Tom J. Fatjo, Jr., our president andchief operating officer, Mr. Jerome M. Kruszka, and other members of our senior management. Werely on them to identify and pursue new business opportunities and acquisitions and to executeoperational strategies. The loss of services of Messrs. Fatjo, Jr. or Kruszka or any other seniormanagement member could significantly impair our ability to identify and secure new contracts andotherwise disrupt our operations. We do not maintain key person life insurance on any of oursenior executives. We have entered into employment agreements with our executive officers thatcontain non-compete
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and confidentiality covenants. Despite these agreements, we may not be able to retain theseofficers and may not be able to enforce the non-compete and confidentiality covenants in theiremployment agreements.     ***A controlling interest in our voting stock is held by one fund and a small number ofindividuals (including management), which when combined with various agreements and rights of thefund, may discourage a change of control transaction and may exert control over our strategicdirection.***     As of March 1, 2007, **•** Ares Corporate Opportunities Fund II L.P (Ares) held preferred shares convertible intoour common stock at a price of $9.60 per share. The preferred shares carry a 5%payment-in-kind (PIK) dividend payable semi-annually. As of March 1, 2007, the preferred            shares were immediately convertible into 8,045,521 shares of our common stock (representingapproximately 32.4% of the outstanding common stock on a post-conversion basis). Dividendsare solely PIK for the first five years — that is, they are payable solely by adding theamount of dividends to the stated value of each share. At the end of five years thepreferred shares would be convertible into approximately 10,000,661 shares of common stock,which based on the currently outstanding shares would represent approximately 37.3% of thepost-conversion shares outstanding. In the event that one of the “acceleration events”,including a change of control transaction, were to occur prior to the end of the fifth year,dividends would accelerate so that a total of five years of dividends will have been paid.Ares is entitled to vote its preferred shares as if converted (subject to contractualrestrictions with us), is entitled to elect two directors, and is entitled to othercontractual rights. Please read “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity and Capital Resources—Private Placement ofPreferred Stock” for a description of the various arrangements with Ares.  **•** Our executive officers, directors and their related entities owned or controlledapproximately 12.2% of the outstanding shares of our common stock.  **•** The Esping Family and other related entities beneficially owned approximately 12.6% ofour common stock. Additionally, these entities continue to own approximately 60.2% of theequity interests of Waste Corporation of America, LLC, our former parent and aprivately-held solid waste company with which we have had various arrangements and fromwhich we have acquired operations in Florida and Colorado. Mr. Ballard O. Castleman, who isa member of our board of directors, has an ownership position in and is employed by suchentities.     Accordingly, these parties collectively held a controlling vote and will have the ability tosignificantly influence our management and affairs. This concentration of ownership and thepotential ability to significantly influence our management and affairs may have the effect ofpreventing or discouraging transactions involving a potential change of control or otherwiseadversely affect us.     ***Provisions in our amended and restated certificate of incorporation, our amended and restatedbylaws and Delaware law could prohibit a change of control that our stockholders may favor andwhich could negatively affect our stock price.***     Provisions in our amended and restated certificate of incorporation and our amended andrestated bylaws and applicable provisions of the Delaware General Corporation Law may make it moredifficult and expensive for a third party to acquire control of us even if a change of controlwould be beneficial to the interests of our stockholders. These provisions could discouragepotential takeover attempts and could adversely affect the market price of our common stock. Ouramended and restated certificate of incorporation and our amended and restated bylaws: **•** authorize the issuance of blank check preferred stock that could be issued by our boardof directors to thwart a takeover attempt;
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 **•** prohibit cumulative voting in the election of directors, which would otherwise allowholders of less than a majority of stock to elect some directors;  **•** require super-majority voting to effect amendments to provisions of our amended andrestated bylaws concerning the number of directors;  **•** limit who may call special meetings;  **•** prohibit stockholder action by written consent, requiring all actions to be taken at ameeting of the stockholders;  **•** establish advance notice requirements for nominating candidates for election to the boardof directors or for proposing matters that can be acted upon by stockholders at stockholdersmeeting; and  **•** require that vacancies on the board of directors, including newly-created directorships,be filled only by a majority vote of directors then in office.     In addition, Section 203 of the Delaware General Corporation Law may discourage, delay orprevent a change in control by prohibiting us from engaging in a business combination with aninterested stockholder for a period of three years after the person becomes an interestedstockholder.     ***We do not anticipate paying cash dividends on our common stock in the foreseeable future, soyou can only realize a return on your investment by selling your shares of our common stock.***     We do not anticipate paying cash dividends on our common stock in the foreseeable future. Anypayment of cash dividends will depend upon our financial condition, capital requirements, earningsand other factors and are prohibited by the terms of our credit facility. Please read “Market forRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities—Dividend Policy.” Accordingly, for the foreseeable future you can only realize a returnon your investment by selling your shares of our common stock.     ***We may issue preferred stock that has a liquidation or other preference over our common stockwithout the approval of the holders of our common stock, which may affect those holders rights orthe market price of our common stock.***     Our board of directors is authorized to issue series of shares of preferred stock without anyaction on the part of our stockholders. Our board of directors also has the power, withoutstockholder approval, to set the terms of any such series of shares of preferred stock that may beissued, including voting rights, dividend rights, preferences over our common stock with respect todividends or if we liquidate, dissolve or wind up our business and other terms. If we issuepreferred stock in the future that has preference over our common stock with respect to the paymentof dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stockwith voting rights that dilute the voting power of our common stock, the rights of holders of ourcommon stock or the market price of our common stock could be adversely affected.     On July 13, 2006, our stockholders approved the issuance of 750,000 shares of convertiblepreferred stock at $100.00 per share in the private placement with Ares. The shares were issued onJuly 27, 2006 and a portion of the net proceeds were used to completely repay the amountsoutstanding under our credit facility. Issuance costs, including a 1% discount to Ares and othertransaction costs, totaled approximately $3.1 million. The preferred stock is convertible intoshares of our common stock at a price of $9.60 per share and carries a 5% PIK dividend payablesemi-annually.     The preferred shares were convertible into 7,812,500 shares of our common stock on theissuance date and with the effect of the cumulative PIK dividends at the end of five years would beconvertible into 10,000,661 shares of common stock. Under the terms of the preferred agreement,under certain circumstances, all five years’ worth of
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cumulative PIK dividends would accelerate and become payable to the preferred holder. Thepreferred shareholder holds certain preferential rights, including the appointment of twodirectors.**Risks Associated with Our Indebtedness**     ***We have a substantial amount of debt which could adversely affect our operations and financialperformance.***     As of March 1, 2007, we had approximately $167.2 million of consolidated total indebtednessoutstanding and approximately $165.1 million of additional borrowing capacity available under ourcredit agreement.     Our substantial debt could have important consequences. For example, it could: **•** make it more difficult for us to satisfy our obligations with respect to our debt;  **•** increase our vulnerability to general adverse economic and industry conditions;  **•** limit our ability to obtain additional financing for future working capital, capitalexpenditures, mergers and other general corporate purposes;  **•** require us to dedicate a substantial portion of our cash flow from operations to paymentson our debt, thereby reducing the availability of our cash flow for operations and otherpurposes;  **•** limit our flexibility in planning for, or reacting to, changes in our business and theindustry in which we operate;  **•** make us more vulnerable to increases in interest rates; and  **•** place us at a competitive disadvantage compared to our competitors that have less debt.     In addition, we may incur substantial additional debt in the future. If new debt is added toour current debt levels, these related risks could increase. We may not maintain sufficientrevenue and cash flow to meet our capital expenditure requirements and our financial obligations,including our debt service obligations.     Our ability to make scheduled payments or to refinance our obligations with respect to ourdebt will depend on our financial and operating performance, which, in turn, is subject toprevailing economic conditions and to certain financial, business, and other factors beyond ourcontrol. If our cash flow and capital resources are insufficient to fund our debt serviceobligations, we may be forced to reduce or delay scheduled expansion and capital expenditures, sellmaterial assets or operations, obtain additional capital or restructure our debt.     ***The provisions in our debt instruments impose restrictions on us that may limit the discretionof management in operating our business.***     The indenture governing the senior notes and our new credit agreement contains variousrestrictive covenants that limit management’s discretion in operating our business. In particular,these covenants will limit our ability to, among other things: **•** incur additional debt or issue additional preferred stock;  **•** make certain investments or pay dividends or distributions on our capital stock orsubordinated indebtedness or purchase or redeem or retire capital stock;  **•** sell or transfer assets, including capital stock of our restricted subsidiaries;
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 **•** restrict dividends or other payments by restricted subsidiaries;  **•** incur liens;  **•** enter into transactions with affiliates; and  **•** consolidate, merge, sell or lease all or substantially all of our assets.     The credit agreement also requires us to maintain specified financial ratios and satisfycertain financial tests. Our ability to maintain or meet such financial ratios and tests may beaffected by events beyond our control, including changes in general economic and businessconditions, and we cannot assure you that we will maintain or meet such ratios and tests or thatthe lenders under the credit agreement will waive any failure to meet such ratios or tests.     These covenants could materially and adversely affect our ability to finance our futureoperations or capital needs. Furthermore, they may restrict our ability to expand, to pursue ourbusiness strategies and otherwise to conduct our business. Our ability to comply with thesecovenants may be affected by circumstances and events beyond our control, such as prevailingeconomic conditions and changes in regulations. A breach of these covenants could result in adefault under the indenture governing the senior notes and/or the credit agreement. If there werean event of default under the indenture governing the senior notes and/or the credit agreement, theaffected creditors could cause all amounts borrowed under these instruments to be due and payableimmediately. Additionally, if we fail to repay indebtedness under our credit agreement when itbecomes due, the lenders under the credit agreement could proceed against the assets which we havepledged to them as security. Please read “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity and Capital Resources—Bank Credit Facility.”     We are a holding company and do not conduct any business operations of our own. Our principalassets are the equity interests we own in our operating subsidiaries, either directly orindirectly. As a result, we are dependent upon cash dividends, distributions or other transfers wereceive from our subsidiaries in order to make dividend payments to our stockholders, to repay anydebt we may incur, and to meet our other obligations. The ability of our subsidiaries to paydividends and make payments to us will depend on their operating results and may be restricted by,among other things, applicable corporate, tax and other laws and regulations and agreements ofthose subsidiaries, as well as by the terms of the credit agreement and the indenture governing thenotes.**Item 1B. Unresolved Staff Comments.**     None.**Item 2. Properties.**     Our principal executive offices are located at One Riverway, Suite 1400, Houston, Texas 77056,where we currently lease 14,360 square feet of office space. Currently, we also own or leasefield-based administrative offices in Alabama, Arkansas, Colorado, Florida, Kansas, Missouri, NewMexico, North Carolina, Oklahoma, South Carolina, Tennessee and Texas.     Our principal property and equipment consist of land (primarily landfills, transfer stationsand bases for collection operations), buildings, and vehicles and equipment, including wastecollection and transportation vehicles, related support vehicles, carts, containers and heavyequipment used in landfill operations, all of which are encumbered by liens in favor of ourlenders. As of December 31, 2006, we owned and/or operated 20 landfills, 24 collection operationsand 24 transfer stations/MRFs. Of these facilities, three transfer stations and two landfills arefully permitted but not yet opened, and two transfer stations are idle. We also operated but didnot own two of the transfer stations as of December 31, 2006. For a description of our landfills,please read “Business—Our Operations—Landfills.”
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**Item 3. Legal Proceedings.**     Information regarding our legal proceedings can be found in note 13(d) to our consolidatedfinancial statements included elsewhere in this report.**Item 4. Submission of Matters to a Vote of Security Holders.**     No matters were submitted to a vote of security holders, through the solicitation of proxiesor otherwise, during the fourth quarter of 2006.
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**PART II****Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities.****Market for Common Stock**     Our common stock is traded on the NASDAQ Global Market under the symbol “WCAA.” As of March1, 2007, there were approximately 125 holders of record of our common stock. This number does notinclude any beneficial owners for whom shares of common stock may be held in “nominee” or “street”name. The following table sets forth the range of high and low closing sales prices per share forour common stock as reported by NASDAQ for the periods indicated.           **High** **Low**2005        First Quarter $10.50  $9.08 Second Quarter $9.79  $8.53 Third Quarter $8.79  $7.90 Fourth Quarter $8.89  $7.34          2006        First Quarter $7.90  $6.52 Second Quarter $8.25  $6.36 Third Quarter $8.20  $5.51 Fourth Quarter $8.05  $5.65          2007        First Quarter (through March 9, 2007) $8.18  $6.39      On March 9, 2007, the closing sales price of our common stock was $7.51.**Dividend Policy**     We have never declared or paid any cash dividends on our common stock and do not intend todeclare or pay any cash dividends on our common stock in the foreseeable future. We currentlyintend to retain our earnings, if any, to finance the development and expansion of our business andfor general corporate purposes. Furthermore, our debt agreements prohibit payment of cashdividends or other payments or advances by our primary operating subsidiary to us (or anyintermediary) under all circumstances, meaning we have very limited sources of cash. Our onlysource of cash to pay dividends to our stockholders would be distributions or other payments oradvances from our subsidiaries, which, as discussed above, is prohibited by the terms of our debtagreements. Please read “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations—Liquidity and Capital Resources—Bank Credit Facility.” Any future dividends declaredwould be subject to a relaxation of this prohibition, would be at the discretion of our board ofdirectors and would depend on our financial condition, results of operations, capital requirements,contractual obligations, the other terms of our credit facility and other financing agreements atthe time a dividend is considered, and other relevant factors. For a discussion of the PIKdividends accrued under our preferred stock, please read “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Liquidity and Capital Resources— Private Placement ofPreferred Stock.”
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**Purchases of Equity Securities by Company and Affiliates**                               **(d)**          **(c)** **Maximum number**          **Total number of** **(or approximate**          **shares (or units)** **dollar value) of**  **(a)** **(b)** **purchased as** **shares (or units) that**  **Total number of** **Average price** **part of publicly** **may yet be**  **shares (or units)** **paid per share** **announced plans** **purchased under the****Period** **purchased** **(or unit)** **or programs** **plans or programs**October 1 - October 31, 2006  —   —   —   — November 1 - November 30, 2006  59  $5.91   —   — December 1 - December 31, 2006  —   —   —   — Total  59 (1) $5.91   —   —  (1) Represents shares of WCA Waste Corporation’s common stock surrendered to satisfy taxwithholding obligations on the vesting of restricted stock.
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     **Item 6. Selected Financial Data.**     The following tables set forth certain selected historical consolidated financial data derivedfrom our consolidated financial statements included elsewhere in this report (in thousands exceptper share data). The information set forth below should be read in connection with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” and our consolidatedfinancial statements and related notes included elsewhere in this report. The followinginformation may not be indicative of our future operating results.                       **Year Ended December 31,**   **2006**  **2005**  **2004**  **2003**  **2002** **Consolidated Statements of Operations Data:**                    Revenue $149,497  $114,143  $73,461  $64,226  $62,162 Expenses:                    Cost of services (1),(2)  95,991   73,933   50,387   41,666   38,336 Depreciation and amortization  19,070   14,795   8,828   7,812   6,229 General and administrative (3)  11,010   8,311   16,283   5,142   4,432                 Total expenses  126,071   97,039   75,498   54,620   48,997                 Operating income (loss)  23,426   17,104   (2,037)  9,606   13,165                 Other income (expense):                    Interest expense, net (2)  (15,632)  (10,366)  (4,453)  (5,220)  (6,979)Write-off of deferred financing costs and debtdiscount (4)  (3,240)  (1,308)  (618)  —   (2,487)Net gain on terminated interest rate swap  3,980   —   —   —   — Unrealized loss on interest rate swap  (3,393)  —   —   —   — Other income (expense), net  192   286   268   28   20                 Other income (expense)  (18,093)  (11,388)  (4,803)  (5,192)  (9,446)                Income (loss) from continuing operations beforeincome taxes and cumulative effect of change inaccounting principle  5,333   5,716   (6,840)  4,414   3,719 Income tax (provision) benefit  (2,313)  (2,248)  2,476   (1,753)  (1,727)                Income (loss) from continuing operations beforecumulative effect of change in accountingprinciple  3,020   3,468   (4,364)  2,661   1,992 Discontinued operations, net of tax  —   —   —   93   (816)                Income (loss) before cumulative effect of changein accounting principle  3,020   3,468   (4,364)  2,754   1,176 Cumulative effect of change in accountingprinciple, net of tax (5)  —   —   —   2,324   —                 Net income (loss)  3,020   3,468   (4,364)  5,078   1,176 Accrued payment-in-kind dividend on preferredstock  (1,603)  —   —   —   —                 Net income (loss) available to commonstockholders $1,417  $3,468  $(4,364) $5,078  $1,176                 Per Share Data — basic and diluted:                    Income (loss) from continuing operations beforecumulative effect of change in accountingprinciple $0.19  $0.22  $(0.38) $0.33  $0.25 Discontinued operations, net of tax  —   —   —   0.01   (0.10)                Income (loss) before cumulative effect of changein accounting principle  0.19   0.22   (0.38)  0.34   0.15 Cumulative effect of change in accountingprinciple net of tax  —   —   —   0.29   —                 Net income (loss)  0.19   0.22   (0.38)  0.63   0.15 Accrued payment-in-kind dividend on preferredstock  (0.10)  —   —   —   —                 Net income (loss) available to common stockholders $0.09  $0.22  $(0.38) $0.63  $0.15                                      Weighted average shares outstanding — basic  16,360   15,579   11,599   8,000   8,000 Weighted average shares outstanding — diluted  16,385   15,641   11,599   8,000   8,000 **Other Financial Data:**                    Capital expenditures $29,110  $18,003  $14,589  $7,721  $9,886                        **As of December 31,**  **2006** **2005** **2004** **2003** **2002****Consolidated Balance Sheet Data:**                    Property and equipment, net $207,441  $186,299  $90,521  $70,726  $67,555 Total assets  371,249   291,538   163,767   116,685   122,668 Current maturities of long-term debt  916   1,910   1,429   4,004   3,602 Long-term debt, less current maturities and discount  165,958   174,353   71,814   78,696   78,466 Total stockholders’ equity  167,779   91,707   74,573   18,567   17,734 
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 (1) We acquired prepaid disposal rights in connection with our acquisition of assets fromWaste Management, Inc. in 2000. Additionally in each of the years 2006 and 2005, we paid$1,000 to acquire prepaid disposal rights from Waste Services, Inc. During the years endedDecember 31, 2006, 2005, 2004, 2003 and 2002, we recorded $2,383, $1,834, $377, $302 and $97,respectively, for the use of such disposal rights as a component of cost of services. Pleaseread note 3 to our consolidated financial statements. Prior to August 2003, we utilized theprepaid disposal rights in our west Texas operations, which we sold during 2003 and arereflected as discontinued operations. During the years ended December 31, 2003 and 2002, weutilized $1,307 and $1,902, respectively, of prepaid disposal rights in discontinuedoperations. It is anticipated that all remaining prepaid disposal rights with WasteManagement, Inc. will be fully utilized in 2007. (2) We have material financial commitments for the costs associated with our future obligationsfor final closure and post-closure maintenance of the landfills we own and operate. During theyears ended December 31, 2006, 2005, 2004, 2003 and 2002, we have recorded $284, $159, $257,$207 and $146, respectively, as a non-cash component of cost of services and $0, $0, $0, $0and $107, respectively, as a non-cash component of interest expense for the provision andaccretion expense relating to these future obligations. Although these are non-cash expensesfor the periods presented, the ultimate liability will be settled in cash. Please read“Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Critical Accounting Estimates and Assumptions—Landfill Accounting” for furtherdiscussion of landfill accounting and the adoption of SFAS No. 143 “Accounting for AssetRetirement Obligations.” (3) General and administrative expenses include stock-based compensation expense of $1,118, $509,$11,532, $1,220 and $0 during the years ended December 31, 2006, 2005, 2004, 2003 and 2002.The stock-based compensation expense during the years ended December 31, 2006 and 2005 relatesto earned compensation under the 2004 WCA Waste Corporation Incentive Plan. The stock-basedcompensation expense during the years ended December 31, 2004 and 2003 represents acompensation charge in connection with stock options outstanding as of December 31, 2003.Prior to an internal reorganization in 2004 described in note 1 to our consolidated financialstatements, our predecessor and former parent had options and warrants outstanding. As part ofan internal reorganization with us and our predecessor and former parent, we assumed theobligation to issue shares upon the exercise of such options and warrants. Subsequently, weextinguished approximately 90% of such outstanding stock options and warrants by issuing1,330,056 shares (after giving effect to a merger and reverse stock split prior to our initialpublic offering in June 2004) of our common stock. We recognized a compensation charge of$11.5 million in connection with the cancellation of these options and warrants and subsequentissuance of common stock in 2004. (4) The $3,240 write-off of deferred financing costs and debt discount in 2006 reflects thewrite-off of costs associated with our first and second lien credit agreements that wererepaid and retired in connection with our financing transactions in July 2006. The $1,308write-off of deferred financing costs and debt discount in 2005 is associated with therestructuring of our credit facility in April 2005 as well as the repayment of theEnvironmental Facilities Revenue Bonds in June 2005. In December 2004, we wrote off $618 ofdeferred financing costs related to the amendment of our credit facility. We also wrote off$2,008 of deferred financing costs and $479 of debt discount due to the early repayment of theterm loan of the credit facility in 2002. (5) The $2,324 (net of $1,425 tax expense) cumulative effect of change in accounting principlefor the year ended December 31, 2003 relates to our adoption of SFAS No. 143 “Accounting forAsset Retirement Obligations.”
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**Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.**     *The following discussion of our financial condition and results of operations should be readtogether with the historical consolidated financial statements and the related notes includedelsewhere in this report. This discussion contains forward-looking statements that involve risks,uncertainties and assumptions.. For additional information regarding some of the risks anduncertainties that affect our business and the industry in which we operate, please read“Business—Risk Factors” included elsewhere in this report and “—Cautionary Statement AboutForward-Looking Statements” below.***Executive Overview**     ***General Overview of Our Business***     *Revenue*. Our operations consist of the collection, transfer, processing and disposal ofnon-hazardous solid waste. Our revenue is generated primarily from our landfill disposal servicesand our collection operations provided to residential, commercial and roll-off customers. Roll-offservice is the hauling and disposal of large waste containers (typically between 10 and 50 cubicyards) that are loaded on to and off of the collection vehicle. The following table reflects ourtotal revenue by source for the previous three years (dollars in thousands):                           **2006** **2005** **2004**  **$** **%** **$** **%** **$** **%**Collection:                        Residential  25,385   17.0%  19,128   16.8%  12,615   17.2%Commercial  15,876   10.6%  13,847   12.1%  12,002   16.3%Roll-off  44,539   29.8%  36,811   32.2%  22,878   31.2%Other  —   —    %  —   —    %  586   0.8%                         Total collection  85,800   57.4%  69,786   61.1%  48,081   65.5%                         Disposal  60,767       48,817       30,536     Less intercompany  21,701       18,215       9,789                              Disposal, net  39,066   26.1%  30,602   26.8%  20,747   28.2%                         Transfer and other  37,872       24,309       11,575     Less intercompany  13,241       10,554       6,942                              Transfer and other, net  24,631   16.5%  13,755   12.1%  4,633   6.3%                         Total revenue  149,497   100.0%  114,143   100.0%  73,461   100.0%                              ***2006 Financial Objectives***     The following 2006 financial objectives were established in March 2006: **•** Revenue in excess of $140 million (a 23% increase over 2005 reported revenue);  **•** Operating income in excess of $21 million (a 24% increase over 2005); and  **•** EBITDA in excess of $40 million (a 25% increase over 2005).     ***2006 Business Performance***     During 2006, our revenue was $149.5 million, which represents a 31.0% increase over 2005. Ouroperating income in 2006 was $23.4 million, a 37.0% increase over 2005. EBITDA for the year was$42.7 million, an increase of 32.6% over 2005. Net income available to common stockholders pershare was $0.09. In July 2006, we implemented our new capital plan which includes the issuance of$150 million of new unsecured senior notes, a new $175 million revolving credit facility and $75million of convertible preferred stock as well as the repayment and retirement of our first andsecond lien credit agreements. In connection with the implementation of the capital plan, weterminated our old interest rate swap agreement and realized $2.5 million (net of tax provision)from the swap counter-party. Shortly thereafter, we entered into a new swap agreement effectiveJuly 11, 2006, where we agreed to pay a fixed-rate of 5.64% in exchange for three-month floatingrate LIBOR which was 5.51% at the time
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the swap was entered. We recognized unrealized loss on the new swap agreement of $2.1million (net of tax provision) as of December 31, 2006. Our net income also included a charge of$2.0 million (net of tax provision) for the write-off of deferred financing costs and debt discountdue to the restructuring of our long-term debt.     We have been able to maintain our operating margins throughout the period of growth. Ouradjusted operating profit margins were 15.7% in 2006, 15.0% in 2005 and 12.9% in 2004. We believeour operating margins are among the highest in the industry. Our operating margins are high inpart because of the proportionally high number of landfills we have and the amount of waste weinternalize into those landfills. We internalized approximately 76% and 78% of the waste wecollected in 2006 and 2005, respectively.     ***Long-term Goals***     We anticipate 2007 to be a year with mixed operating results which include strong increases inrevenue and EBITDA and a short-term decrease in earnings per share prior to the effect of potentialacquisitions as a result of a higher average interest rate on our new borrowings and a 5% PIKpreferred dividend. We also expect to selectively invest at least $100 million on acquisitionsduring 2007.     We believe that the newly-implemented capital structure will enable us to achieve long-termstrategic goals. We think that a three to four-year forecast is more appropriate than a one-yearforecast for a growth company. During the three to four years following 2007, we expect toaccomplish the following goals: **•** Revenue to increase from approximately $200 million to $400 million;  **•** EBITDA to increase from approximately $60 million to $120 million; and  **•** Company-owned landfills to increase to 35.     In addition, as we have previously reported, we intend to review price increase opportunitiesto recover cost increases and improve operating margins. As we have in the past, we also will lookfor opportunities to improve operating margins by reducing operating costs. Those opportunitiesmay involve a variety of initiatives, including improvements to systems and programs and evaluationof location specific operating results. As we discuss in “—Liquidity and Capital Resources—CashFlows” below, we expect capital expenditures related to our existing operations for 2007 to beapproximately 13% of our revenue, which would include expenditures for vehicles, heavy equipment,containers, landfill cell development, and certain systems and program improvements. Please notethat these financial objectives are all forward-looking statements that involve risks,uncertainties and assumptions. For additional information regarding some of the risks anduncertainties that affect our business and the industry in which we operate, please read“Business—Risk Factors” and “—Cautionary Statement About Forward-Looking Statements” includedelsewhere in this report.     ***Non-GAAP Measures***     Our management evaluates our performance based on non-GAAP measures, of which the primaryperformance measure is EBITDA. EBITDA consists of earnings (net income or loss) available tocommon stockholders before preferred stock dividend, interest expense (including gains (losses) oninterest rate swap agreements as well as write-off of deferred financing costs and debt discount),income tax expense, depreciation and amortization. We also compute EBITDA before the cumulativeeffect of change in accounting principle and before considering the effect of discontinuedoperations as the effect of these items is not relevant to our ongoing operations. We also usethese same measures when evaluating potential acquisition candidates.     We believe EBITDA is useful to an investor in evaluating our operating performance because:
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 **•** it is widely used by investors in our industry to measure a company’s operatingperformance without regard to items such as interest expense, depreciation and amortization,which can vary substantially from company to company depending upon accounting methods andbook value of assets, financing methods, capital structure and the method by which assetswere acquired;  **•** it helps investors more meaningfully evaluate and compare the results of our operationsfrom period to period by removing the impact of our capital structure (primarily interestcharges from our outstanding debt and the impact of our interest rate swap agreements andPIK dividend) and asset base (primarily depreciation and amortization of our landfills andvehicles) from our operating results; and  **•** it helps investors identify items that are within our operational control. Depreciationcharges, while a component of operating income, are fixed at the time of the asset purchasein accordance with the depreciable lives of the related asset and as such are not a directlycontrollable period operating charge.     Our management uses EBITDA: **•** as a measure of operating performance because it assists us in comparing our performanceon a consistent basis as it removes the impact of our capital structure and asset base fromour operating results;  **•** as one method we use to estimate a purchase price (often expressed as a multiple ofEBITDA) for solid waste companies we intend to acquire. The appropriate EBITDA multiplewill vary from acquisition to acquisition depending on factors such as the size of theoperation, the type of operation, the anticipated growth in the market, the strategiclocation of the operation in its market as well as other considerations;  **•** in presentations to our board of directors to enable them to have the same consistentmeasurement basis of operating performance used by management;  **•** as a measure for planning and forecasting overall expectations and for evaluating actualresults against such expectations;  **•** in evaluations of field operations since it represents operational performance and takesinto account financial measures within the control of the field operating units;  **•** as a component of incentive cash bonuses paid to our executive officers and other employees;  **•** to assess compliance with financial ratios and covenants included in our credit agreements; and  **•** in communications with investors, lenders, and others, concerning our financial performance.     The following presents a reconciliation of our total EBITDA to net income (loss) available tocommon stockholders (in thousands):               **2006**  **2005**  **2004** Total EBITDA $42,688   32,185   7,059 Depreciation and amortization  (19,070)  (14,795)  (8,828)Interest expense, net  (15,632)  (10,366)  (4,453)Write-off of deferred financing costs and debt discount  (3,240)  (1,308)  (618)Net gain on terminated interest rate swap  3,980   —   — Unrealized loss on interest rate swap  (3,393)  —   — Income tax (provision) benefit  (2,313)  (2,248)  2,476 Accrued payment-in-kind dividend on preferred stock  (1,603)  —   —           Net income (loss) available to common stockholders $1,417   3,468   (4,364)          
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     In considering EBITDA results, our management also takes various adjustments (especially fornon-operational expenses) into account in evaluating performance in order to provide it with whatit believes to be a better view of ongoing operational performance. Thus, for example, in ourevaluations we exclude the stock-based compensation charge of $11.5 million ($7.5 million net oftax benefit) incurred during 2004 as these are non-cash charges related to our former parentcompany’s outstanding stock option plan. We do not, however, exclude stock-based compensationexpense related to our restricted share plan as it is a recurring expense. We make similaradjustments in evaluating acquisition candidates for non-recurring items. The following presents areconciliation of EBITDA to Adjusted EBITDA (in thousands):               **2006**  **2005**  **2004** Total EBITDA, per above $42,688   32,185   7,059 Stock-based compensation expense  —   —   11,532           Adjusted EBITDA $42,688   32,185   18,591                Our EBITDA and Adjusted EBITDA, as we define them, may not be comparable to similarly titledmeasures employed by other companies and are not measures of performance calculated in accordancewith generally accepted accounting principles (GAAP). EBITDA and Adjusted EBITDA should not beconsidered in isolation or as substitutes for operating income, net income or loss, cash flowsprovided by operating, investing and financing activities, or other income or cash flow statementdata prepared in accordance with GAAP.     ***Other Considerations***     Costs of services include, but are not limited to, labor, fuel and other operating expenses,equipment maintenance, disposal fees paid to third-party disposal facilities, insurance premiumsand claims expense, selling expenses, wages and salaries of field personnel located at operatingfacilities, third-party transportation expense and state and local waste taxes. We areself-insured for a portion of our general liability, workers’ compensation and automobileliability. The frequency and amount of claims or incidents could vary significantly fromquarter-to-quarter and/or year-to-year, resulting in increased volatility of our costs of services.     General and administrative expenses include the salaries and benefits of our corporatemanagement, certain centralized reporting, information technology and cash management costs andother overhead costs associated with our corporate office.     Depreciation and amortization expense includes depreciation of fixed assets over theirestimated useful lives using the straight-line method and amortization of landfill costs and assetretirement costs based on the consumption of airspace.     We capitalize third-party expenditures related to pending acquisitions, such as legal,engineering, and accounting expenses, and certain direct expenditures such as travel costs. Weexpense indirect acquisition costs, such as salaries, commissions and other corporate services, aswe incur them. We routinely evaluate all capitalized costs, and expense those related to projectsthat we believe are not likely to succeed. As of December 31, 2006, we had $0.1 million ofcapitalized costs relating to pending acquisitions.     The integration expenses associated with our acquisitions include expenses related to: (i)incorporating new truck fleets into our preventative maintenance program, (ii) the testing of newemployees to comply with Department of Transportation regulations, (iii) implementing our safetyprogram, (iv) re-routing trucks and equipment to assure maximization of routing efficiencies anddisposal internalization, and (v) conversion of customers to our billing system. In theshort-term, as expected, the cost of acquiring and integrating companies will continue to putpressure on operating results. While some synergies from tuck-in acquisitions can take as long as12 months to be realized, we have integrated all of our completed acquisitions to date into ourexisting operations.     Goodwill represents the excess of the purchase price over the fair value of the net assets ofthe acquired entities. In allocating the purchase price of an acquired company among its assets, wefirst assign value to the tangible
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assets, followed by intangible assets such as covenants not-to-compete and any remainingamounts are then allocated to goodwill.     ***Acquisition Strategy Overview***     As we discussed in “Business— Our Acquisition Growth Strategy” our acquisition strategy willtarget operations that will benefit from our core operating strategy of maximizing theinternalization of waste. In markets where we already own a landfill, we intend to focus onexpanding our presence by tuck-in acquisitions. Tuck-in acquisitions will allow growth in revenueand increase market share and enable disposal internalization and consolidation of duplicativefacilities and functions to maximize cost efficiencies and economies-of-scale. We will typicallyseek to enter a new market by acquiring a permitted landfill operation in that market. Uponacquiring a landfill in a new market, we then intend to expand our operations by acquiringcollection and/or transfer operations and internalizing waste into the landfill.     We intend to pursue our acquisition strategy primarily with cash on hand and availablecapacity under our $175 million revolving credit facility entered into in July 2006. We may alsoissue shares of common stock in connection with acquisitions.     Since completing our initial public offering in June 2004 through the year ended December 31,2006, we have completed 21 acquisitions. The purchase price for these acquisitions consisted of$132.6 million of cash, $4.5 million of convertible debt, $11.9 million of assumed debt (net of$0.5 million of debt discount), $4.4 million of assumed deferred tax liabilities and 1,726,336shares of our common stock.     We completed four acquisitions during the year ended December 31, 2006. Three of theseacquisitions were from Waste Corporation of America, LLC, a company owned by management andshareholders that were shareholders of our predecessor and former parent. Total consideration forthese four acquisitions was approximately $12.9 million, including $7.6 million of cash, $5.3million of debt assumed (net of $0.1 million of debt discount). Subsequently, we repaid $1.3million of the assumed debt associated with one of these acquisitions. Information concerning ouracquisitions may be found in our previously filed periodic and current reports and in note 3 to ourconsolidated financial statements.     The following sets forth additional information regarding the acquisitions since our initialpublic offering through December 31, 2006:       **Company** **Location** **Completion Date** **Operations**Texas Environmental Waste Houston, TX July 13, 2004 CollectionAshley Trash Service Springfield, MO August 17, 2004 CollectionPower Waste Birmingham, AL August 31, 2004 CollectionBlount Recycling Birmingham, AL September 3, 2004 Collection, Landfill & Transfer StationTranslift, Inc. Little Rock, AR September 17, 2004 CollectionRural Disposal, Inc. Willow Springs, MO November 12, 2004 CollectionTrash Away, Inc. Piedmont, SC November 30, 2004 Collection & Transfer StationGecko Investments (Eagle Ridge) St. Louis, MO January 11, 2005 Collection & LandfillMRR Southern, LLC High Point/Raleigh, NC April 1, 2005 Landfill, Transfer Station & MRFTriangle Environmental Raleigh, NC May 16, 2005 CollectionFoster Ferguson El Dorado Springs, MO May 16, 2005 CollectionTriad Waste High Point, NC May 31, 2005 CollectionProper Disposal Chanute, KS May 31, 2005 CollectionFort Meade Landfill Fort Meade, FL October 3, 2005 LandfillMeyer & Gabbert Sarasota/Arcadia, FL October 3, 2005 Collection, Landfill & Transfer StationPendergrass Refuse Springfield, MO October 4, 2005 CollectionAndy’s Hauling Sarasota, FL October 21, 2005 CollectionTransit Waste Durango, CO/Bloomfield, NM February 10, 2006 Collection & LandfillFort Myers Transfer Station Fort Myers, FL August 10, 2006 Transfer StationWCA of St. Lucie, LLC St. Lucie, FL October 2, 2006 Transfer StationSunrise Disposal, LLC Springfield, MO December 28, 2006 Collection
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     After giving effect to these acquisitions, at December 31, 2006, we owned and/or operateda total of 20 landfills, 24 collection operations and 24 transfer stations/MRFs, had approximately278 routes and handled approximately 11,000 landfill tons per day at our landfills.     On January 3, 2007, we acquired the stock of Southwest Dumpster, Inc., a roll-off collectionoperation in Fort Myers, Florida. The purchase price for this acquisition was approximately $6.3million of cash. On February 21, 2007, we purchased American Waste, Inc. and affiliated companies,which consisted of three landfills and four collection operations located near Oklahoma City,Oklahoma. The consideration for this acquisition was approximately $39 million of cash. Of thispurchase price, approximately $5 million relates to Pauls Valley Landfill. This landfill isawaiting an expansion permit and volumes there have been regulated (and will continue to be) untilsuch permit is obtained. Together with the two acquisitions, we have made 23 acquisitions totaling$90.4 million in estimated annual “run rate” revenue since completing our initial public offeringin June 2004, and own and/or operate 23 landfills, 29 collection operations and 24 transferstations/ MRFs.     For a description of our accounting for acquisitions and acquisition-related expenses, pleaseread “—Executive Overview—Other Considerations” above and notes 1 and 3 to the consolidatedfinancial statements. After an acquisition is completed, we incur integration expenses related to(i) incorporating newly acquired truck fleets into our preventative maintenance program, (ii) thetesting of new employees to comply with Department of Transportation regulations, (iii)implementing our safety program, (iv) re-routing trucks and equipment to assure maximization ofrouting efficiencies and disposal internalization, and (v) conversion of customers to our billingsystem. We generally expect that the costs of acquiring and integrating an acquired business willbe incurred primarily during the first 12 months after acquisition. Synergies from tuck-inacquisitions can also take as long as 12 months to be realized.**Results of Operations**     The following table sets forth items in our consolidated statement of operations in thousandsand as a percentage of revenues for the years ended December 31, 2006, 2005 and 2004:                           **Years Ended December 31,**   **2006**  2005  2004   **$**  **%**  **$**  **%**  **$**  **%** Revenue $149,497   100.0  $114,143   100.0  $73,461   100.0 Cost of services  95,991   64.2   73,933   64.8   50,387   68.6 Depreciation and amortization  19,070   12.7   14,795   13.0   8,828   12.0 General and administrative  11,010   7.4   8,311   7.2   16,283   22.2                    Operating income (loss)  23,426   15.7   17,104   15.0   (2,037)  (2.8)Interest expense, net  (15,632)  (10.5)  (10,366)  (9.1)  (4,453)  (6.1)Write-off of deferred financing costsand debt discount  (3,240)  (2.2)  (1,308)  (1.1)  (618)  (0.8)Net gain on terminated interest rate swap  3,980   2.7   —   —   —   — Unrealized loss on interest rate swap  (3,393)  (2.3)  —   —   —   — Other income, net  192   0.1   286   0.2   268   0.4 Income tax (provision) benefit  (2,313)  (1.5)  (2,248)  (2.0)  2,476   3.4                    Net income (loss)  3,020   2.0   3,468   3.0   (4,364)  (5.9)Accrued payment-in-kind dividend onpreferred stock  (1,603)  (1.1)  —   —   —   —                    Net income (loss) available to commonstockholders $1,417   0.9  $3,468   3.0  $(4,364)  (5.9)                   ***Year Ended December 31, 2006 Compared to Year Ended December 31, 2005***     *Revenue.*Total revenue for the year ended December 31, 2006 increased $35.4 million, or31.0%, to $149.5 million from $114.1 million for the year ended December 31, 2005. Acquisitionscontributed $22.1 million of the increase while internal volume growth contributed $7.5 million,operational price increases contributed $2.8 million, and pricing from fuel surcharges added $3.0million.
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     *Cost of services.*Total cost of services for the year ended December 31, 2006 increased $22.1million, or 29.8%, to $96.0 million from $73.9 million for the year ended December 31, 2005.Increases in labor, insurance, fuel, disposal, repairs and maintenance costs accounted for amajority of the increased cost of services mainly as a result of acquisitions since October 2005.While cost of services increased in total, they have decreased to 64.2% of revenue from 64.8% lastyear. Reductions in operating costs as a percentage of revenue were achieved related to certainlicenses and fees, landfill site expenses and field administrative costs which are semi-fixed anddo not increase proportionally with revenue. Fuel costs as a percentage of revenue remainedconsistent at 6.5% for the years ended December 31, 2006 and 2005. While our fuel surchargescontinue to cover a portion of the increase in fuel costs, fuel costs have a dilutive effect onoperating margins. Other than volatility in fuel prices, inflation has not materially affected ouroperations.     *Depreciation and amortization.*Depreciation and amortization expenses for the year endedDecember 31, 2006 increased $4.3 million, or 28.9%, to $19.1 million from $14.8 million for theyear ended December 31, 2005. These increases can be attributed to acquisitions, capitalexpenditures, and increased amortization corresponding with increased landfill volume usage.     *General and administrative.*Total general and administrative expense increased $2.7 million,or 32.5%, to $11.0 million for the year ended December 31, 2006 from $8.3 million for the yearended December 31, 2005. The increase is primarily attributable to increases in payroll-relatedcosts, insurance costs and the write-off of acquisition costs as well as costs associated withoperating the company airplane, partially offset by a reduction in legal expenses. The general andadministrative expense also includes a $0.6 million increase in stock-based compensation expenserecognized in each year related to earned compensation from restricted stock grants under the 2004WCA Waste Corporation Incentive Plan.     *Interest expense, net.*Interest expense, net for the year ended December 31, 2006 increasedby 50.8%, to $15.6 million from $10.4 million for the year ended December 31, 2005. As apercentage of revenue, interest expense increased to 10.5% for the year ended December 31, 2006from 9.1% for the year ended December 31, 2005. The increase relates to the higher averageinterest rate and the higher average debt balance outstanding as a result of debt assumed inconnection with acquisitions as well as the issuance of our 9.25% senior notes in July 2006. Ouraverage borrowing rate increased from 7.90% at the end of 2005 to 9.29% at the end of 2006 mainlydue to the higher interest rate associated with our senior notes.     *Write-off of deferred financing costs and debt discount.*The $3.2 million write-off ofdeferred financing costs and debt discount in 2006 reflects the write-off of costs associated withour first and second lien credit agreements that were repaid and retired in connection with ourfinancing transactions in July 2006. The $1.3 million write-off in 2005 is related to therestructuring of our credit facility in April 2005 as well as the repayment of our EnvironmentalFacilities Revenue Bonds in June 2005.     *Net gain on terminated interest rate swap.*With the restructuring of our long-term debt andthe termination of the interest rate swap in July 2006, we recognized and realized the entire gainof $4.0 million related to the interest rate swap agreement from the swap counter-party.     *Unrealized loss on interest rate swap.*The $3.4 million loss is attributable to therecognition of the unrealized loss as of December 31, 2006 of the new interest rate swap agreementwe entered into in July 2006. At the time we entered into the swap, we had no floating rate debtand no such floating rate interest payments were probable of being incurred in the near future. Asa result, the swap transaction can not be designated as a hedging transaction and any changes inthe unrealized fair value of the new swap will be recognized in the statement of operations. If,in the future, we have outstanding borrowings that have floating interest rate payments, we willconsider designating all or part of this swap agreement as a hedge.     *Income tax provision.*Income tax provision in the year ended December 31, 2006 as apercentage of pre-tax income was 43.4% as compared to 39.3% for the year ended December 31, 2005.The increase in tax rate is primarily due to the impact of non-deductible expenses in the currentyear.
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     *Accrued payment-in-kind dividend on preferred stock.*The $1.6 million in accrued PIK dividendon preferred stock relates to the accretion of the 5% PIK dividend on our Series A ConvertiblePreferred Stock from its date of issuance (July 27, 2006) to December 31, 2006. Please read“—Liquidity and Capital Resources—Private Placement of Preferred Stock.”***Year Ended December 31, 2005 Compared to Year Ended December 31, 2004***     *Revenue.*Total revenue for the year ended December 31, 2005 increased by 55.4%, to $114.1million from $73.5 million for the year ended December 31, 2004. Acquisitions contributed $32.0million of the increase while internal volume growth contributed $3.0 million, operational priceincreases contributed $3.7 million, and pricing from fuel surcharges achieved the remainingincreases.     *Cost of services.*Total cost of services for the year ended December 31, 2005 increased $23.5million, or 46.7%, to $73.9 million from $50.4 million for the year ended December 31, 2004.Acquisitions and integration costs accounted for a majority of the increased cost of services.While cost of services increased in total, they have decreased to 64.8% of revenue from 68.6% lastyear. This decrease can be attributed to decreases in insurance costs associated with improvedclaim history. Further reductions in operating costs as a percentage of revenue were achievedrelated to certain licenses and fees, landfill site expenses and field administrative costs whichare semi-fixed and do not increase proportional with revenue. These improvements were partiallyoffset by fuel costs that increased as a percentage of revenue from 4.9% for the year endedDecember 31, 2004 to 6.5% for the year ended December 31, 2005.     *Depreciation and amortization.*Depreciation and amortization expenses for the year endedDecember 31, 2005 increased $6.0 million, or 67.6%, to $14.8 million from $8.8 million for the yearended December 31, 2004. These increases can be attributed to acquisitions and increasedamortization corresponding with increased landfill volumes.     *General and administrative.*Total general and administrative expense increased $3.1 million,or 64.2%, to $7.8 million for the year ended December 31, 2005 from $4.7 million for the year endedDecember 31, 2004. The increase is primarily attributable to increased administrative costsassociated with being a public company, including legal, accounting, compliance with theSarbanes-Oxley Act of 2002, printing, travel, insurance and other costs, including costs associatedwith our ongoing acquisition program. The general and administrative expense also includesstock-based compensation charge. The stock-based compensation expense during the year endedDecember 31, 2005 relates to earned compensation from restricted stock grants under the 2004 WCAWaste Corporation Incentive Plan. We recognized a compensation charge of $11.5 million during theyear ended December 31, 2004. Prior to our internal reorganization, our former parent, WasteCorporation of America, had options and warrants outstanding. As part of the internalreorganization, we assumed the obligation to issue shares upon the exercise of such options andwarrants. Subsequently, we extinguished approximately 90% of such outstanding stock options andwarrants by issuing 1,330,056 shares (after giving effect to a merger and reverse stock split priorto our initial public offering in June 2004) of our common stock. This restructuring led to the$11.5 million compensation charge prior to our initial public offering that occurred in June 2004based on the estimated fair value of the stock issued in cancellation of the options and warrants.     *Interest expense, net.*Interest expense, net for the year ended December 31, 2005 increased$5.9 million, or 132.8%, to $10.4 million from $4.5 million for the year ended December 31, 2004.As a percentage of revenue, interest expense increased to 9.1% for the year ended December 31, 2005from 6.4% for the year ended December 31, 2004. The increase relates to the higher averageinterest rate, the higher average debt balance outstanding as a result of additional borrowingsunder our credit facilities as well as seller notes issued and debt assumed in connection withacquisitions. Our average borrowing costs went from 4.56% at the end of 2004 to 7.90% at the endof 2005.     *Write-off of deferred financing costs and debt discount.*The $1.3 million write-off ofdeferred financing costs and debt discount incurred during 2005 is associated with therestructuring of our credit facility in April 2005 as
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well as the repayment of the Environmental Facilities Revenue Bonds in June 2005. The $0.6million write-off of deferred financing costs for 2004 is associated with the amendment of ourcredit facility in December 2004     *Income tax (provision) benefit.*Income tax (provision) benefit in the year ended December 31,2005 as a percentage of pre-tax income (loss) was 39.3% as compared to 36.2% for the year endedDecember 31, 2004. The rate in the prior year reflects the lower tax benefit applied to the $11.5million stock-based compensation charge, as well as the impact of non-deductible expenses reducingour net loss for tax purposes.**Liquidity and Capital Resources**     Our business and industry is capital intensive, requiring capital for equipment purchases,landfill construction and development, and landfill closure activities in the future. Our plannedacquisition strategy also requires significant capital. We plan to meet our future capital needsprimarily through cash on hand, cash flow from operations and borrowing capacity under our newcredit facility. Additionally, our acquisitions may use seller notes, equity issuances and debtfinancings. We expect these sources will be adequate to fund our future capital needs andacquisition strategy for the foreseeable future.     During July 2006, we implemented a new capital plan consisting of the issuance of $150 millionof new unsecured senior notes, a new $175 million revolving credit facility and $75 million ofconvertible preferred stock as described below. As a result of the implementation of the capitalplan, as of December 31, 2006, we had approximately $167.3 million in debt and $53.5 million incash on hand and restricted cash, resulting in net debt of $113.8 million. With equity at $167.8million as of December 31, 2006, we had a net debt-to-total capitalization ratio of 40.4% as ofthat date. During the first two months of 2007, we used approximately $45 million of the cash onhand at year-end to complete two acquisitions.     As of December 31, 2006, we had total outstanding long-term debt of approximately $167.3million, consisting of $150 million of senior notes, approximately $7.1 million of various sellernotes, approximately $9.2 million of assumed tax-exempt Environmental Facilities Revenue Bondsassociated with acquisitions, and approximately $1.0 million of equipment notes. This representeda decrease of $9.3 million over our total debt outstanding as of December 31, 2005. The decreasein outstanding debt since December 31, 2005 was primarily due to the repayment of approximately$162 million related to the old credit agreements, partially offset by the issuance of $150 millionof senior notes and debt assumed in connection with acquisitions. The old credit agreements wererepaid with proceeds from the issuance of senior notes and convertible preferred stock in July 2006as discussed below. As of December 31, 2006, we had approximately $9.9 million in letters ofcredit issued under our new credit facility, leaving $165.1 million in availability under thefacility.     On July 7, 2006, we entered into a new interest rate swap agreement effective July 11, 2006,where we agreed to pay a fixed-rate of 5.64% in exchange for three-month floating rate LIBOR whichwas 5.51% at the time the swap was entered. We did not enter into the interest rate swapagreements for trading purposes. The swap agreement was intended to limit our exposure to a risingrate interest environment. At the time we entered into the swap, we had no floating rate LIBORdebt and no such floating rate interest payments were probable of being incurred in the nearfuture. As a result, the swap transaction can not be designated as a hedging transaction and anychanges in the unrealized fair value of the new swap will be recognized in the statement ofoperations. If, in the future, we have outstanding borrowings that have floating interest ratepayments, we will consider designating all or part of this swap agreement as a hedge.     ***9.25% Senior Notes Due 2014***     On July 5, 2006, we issued $150 million aggregate principal amount of 9.25% senior notes due2014. The net proceeds of the offering were $145.7 million after deducting $3.75 million ininitial purchasers’ discounts and other issuance costs. The proceeds were applied to certain debtoutstanding under our first and second lien credit agreements as well as outstanding borrowings onthe revolving note payable. The senior notes pay interest semi-annually on June 15 and December15, commencing December 15, 2006 with the following redemption provisions:
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 **•** At any time before June 15, 2009, we may redeem up to 35% of the notes with net cashproceeds of certain equity offerings at a redemption price of 109.25% of the par value ofthe notes redeemed, plus accrued and unpaid interest and liquidated damages, if any, to theredemption date, as long as we redeem the notes within 180 days of the offering and at least65% of the aggregate principal amount of the notes issued pursuant to the indenture remainsoutstanding after the redemption;  **•** Prior to June 15, 2010, we may redeem all or part of the notes by paying a make-wholepremium, plus accrued and unpaid interest, and, if any, liquidated damages; and  **•** The notes may be callable beginning on June 15, 2010, 2011, and 2012 and thereafter atredemption prices of 104.625%, 102.313% and 100% of the principal amount plus accruedinterest.     The senior notes are senior unsecured obligations and rank equally with our existing andfuture senior unsecured indebtedness and senior to any of our existing and future subordinatedindebtedness. The senior notes will be effectively subordinated to any existing or future securedindebtedness, to the extent of the assets securing such indebtedness. The senior notes areguaranteed by all of our subsidiaries. The guarantees are senior unsecured obligations of theguarantors. The guarantees rank equally with all existing and future senior unsecured indebtednessof the guarantors and senior to any existing and future subordinated indebtedness of theguarantors. The guarantees are effectively subordinated to any existing or future securedindebtedness of the guarantors to the extent of the assets securing such indebtedness.     The senior notes were issued under an indenture between WCA Waste and The Bank of New YorkTrust Company, N.A., as Trustee. The indenture contains covenants including, among otherprovisions, limitations on our ability to incur additional indebtedness, make capital expenditures,create liens, sell assets and make dividend and other payments. As of December 31, 2006, we werein compliance with all covenants under the senior notes indenture.     ***Bank Credit Facility***     Additionally, on July 5, 2006, we entered into a new $100 million revolving secured creditfacility with Comerica Bank maturing July 5, 2011. On July 28, 2006, Comerica syndicated thecredit facility to a group of banks and we agreed to increase the capacity of the revolving creditfacility to $175 million. The credit commitment available under the credit facility includessub-facilities for standby letters of credit in the aggregate principal amount of up to $50.0million and a swing-line feature for up to $10.0 million for same day advances. The new creditfacility replaced the existing $100 million revolving credit facility with Wells Fargo BankNational Association as administrative agent. The new revolving credit facility includes covenantssimilar to the expiring facility with reduced interest margins associated with various leverageratios. Applicable fees and margins are determined based on our leverage ratio for the trailing12-month reporting period on each quarterly reporting date. The following table highlights therevised margins:               **LIBOR** **Prime** **Commitment****Leverage Ratio** **Margin** **Margin** **Fee**Less than 3.0x  1.500   —   0.250 Equal to or greater than 3.0and less than 3.5x  1.750   0.250   0.250 Equal to or greater than 3.5and less than 4.0x  2.000   0.500   0.250 Equal to or greater than 4.0and less than 4.5x  2.250   0.750   0.375 Equal to or greater than 4.5x  2.500   1.000   0.500      Our obligations under the credit facility are secured by the capital stock of our subsidiariesand all tangible (including real estate) and intangible assets belonging to us and oursubsidiaries. The obligations are also guaranteed by certain material subsidiaries. Obligationsunder the credit facility are recourse obligations and are subject to cancellation and/oracceleration upon the occurrence of certain events, including, among other things, a change ofcontrol (as defined in the credit facility), nonpayment, breaches of representations, warrantiesand
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covenants (subject to cure periods in certain instances), bankruptcy or insolvency, defaultsunder other debt arrangements, failure to pay certain judgments and the occurrence of eventscreating material adverse effects.     Other covenants in the credit agreement limit our ability and certain of our subsidiaries to,among other things, create, incur, assume or permit to exist certain liens; make certaininvestments, loans and advances; enter into any sale-leaseback transactions; materially change thenature of their businesses; create, incur, assume or permit to exist certain leases; merge into orwith or consolidate with any other person; sell, lease or otherwise dispose of all or substantiallyall of their properties or assets; discount or sell any of their notes or accounts receivable;transact business with affiliates unless in the ordinary course of business and on arm’s lengthbasis; make certain negative pledges; or amend, supplement or otherwise modify the terms of anydebt or prepay, redeem or repurchase any subordinated debt. Please read “Risk Factors—RisksAssociated with Our Indebtedness.” As of December 31, 2006, we were in compliance with allcovenants under the credit facility agreement.     ***Private Placement of Preferred Stock***     On June 12, 2006, we entered into a privately negotiated Preferred Stock Purchase Agreement(the Purchase Agreement) with Ares Corporate Opportunities Fund II L.P., which provided for us toissue and sell 750,000 shares (Preferred Shares) of Series A Convertible Preferred Stock, par value$0.01 per share (Preferred Stock), to Ares. The purchase price per Preferred Share was $100.00, foran aggregate purchase price of $75 million. The Preferred Stock is convertible into our commonstock, par value $0.01 per share (Common Stock), at a price of $9.60 per share and carries a 5% PIKdividend payable semi-annually. The closing of the sale and issuance of the full amount ofPreferred Shares pursuant to the Purchase Agreement was completed on July 27, 2006.     The Preferred Shares are immediately convertible at Ares’ discretion into 8,045,521 shares ofour Common Stock, which would represent approximately 32.4% of the outstanding Common Stock on apost-conversion basis as of March 1, 2007. Dividends are solely PIK for the first five years —that is, they are payable solely by adding the amount of dividends to the stated value of eachshare. At the end of five years, the Preferred Shares would be convertible into approximately10,000,661 shares of Common Stock, which, based on the currently outstanding shares, wouldrepresent approximately 37.3% of the post-conversion shares outstanding.     Other material terms of the Preferred Stock are as follows: **•** all dividends that would otherwise be payable through the fifth anniversary of issuanceshall automatically be accelerated and paid in kind immediately prior to the occurrence ofany of the following acceleration events: **•** liquidation  **•** bankruptcy  **•** closing of a public offering of Common Stock pursuant to an effective registrationstatement (except for Form S-4, solely for sales by third parties, or pursuant to Ares’own registration rights agreement)  **•** the average of the closing price of the Common Stock for each of 20 consecutivetrading days exceeds $14.40 per share  **•** fundamental transaction, including a “group” (defined in the Securities Exchange Actof 1934, as amended (the Exchange Act)) acquiring more than 35% of outstanding votingrights; replacement of more than one-half of the directors without approval of theexisting board of directors; a merger, consolidation, sale of substantially all assets,going-private transaction, tender offer, reclassification, or other transaction thatresults in the transfer of a majority of voting rights; **•** Ares can convert the Preferred Stock into Common Stock at any time at a conversion priceof $9.60 per share, with conversion being calculated by taking the stated value (initially$100.00 per share) plus any
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   amount added to stated value by way of dividends, then dividing by $9.60 to produce the numberof shares of Common Stock issuable;  **•** We can force a conversion into Common Stock following either (i) the average of theclosing price of the Common Stock for each of 20 consecutive trading days exceeding $14.40per share or (ii) a fundamental transaction that Ares does not treat as a liquidation;  **•** after the fifth anniversary of issuance, we can redeem for cash equal to the liquidation preference;  **•** after the fifth anniversary of issuance, we can pay dividend in cash at our discretion;  **•** upon a liquidation of WCA Waste, prior to any holder of Common Stock or other juniorsecurities, Ares shall receive in cash the greater of (i) the stated value plus any amountadded by way of dividends (accelerated to include a full five years) or (ii) the amount itwould receive if all shares of Preferred Stock were converted into Common Stock (calculatedto include dividends accelerated to include a full five years);  **•** Ares can elect to treat any fundamental transaction (defined above) as a liquidation andreceive its liquidation preference as described in the preceding bullet point. However, ifcommon shares of another company are issued as consideration in a fundamental transaction,WCA Waste has the option of requiring Ares to accept such common shares to satisfy theliquidation preference if shares are then quoted on the Nasdaq Stock Market or listed on theNew York Stock Exchange, the value of such shares is determined at 98% of the closing priceon the trading day preceding the transaction and the shares are freely transferable withoutlegal or contractual restrictions;  **•** the Preferred Stock voting as a separate class elects (i) two directors to our board ofdirectors for so long as Ares continues to hold Preferred Stock representing at least 20% ofour “post-conversion equity” (outstanding Common Stock assuming conversions into commonshares of all securities, including the Preferred Stock and assuming Preferred Stockdividends accelerated to include a full five years), (ii) one director for so long as itcontinues to hold at least 10% of post-conversion equity, and (iii) no directors below 10%;  **•** the Preferred Stock voting as a separate class must approve (i) any alteration in itspowers, preferences or rights, or in the certificate of designation, (ii) creation of anyclass of stock senior or pari passu with it, (iii) any increase in the authorized shares ofPreferred Stock, and (iv) any dividends or distribution to Common Stock or any juniorsecurities, except for pro rata dividends on Common Stock paid in Common Stock. Theseprotective rights terminate on the first date on which there are outstanding less than 20%of the number of shares of Preferred Stock outstanding on the date the Preferred Stock isfirst issued; and  **•** except for the election of directors and special approvals described above, the PreferredStock votes on all matters and with the Common Stock on an as-converted basis.     In connection with the issuance and sale of the Preferred Shares, we also entered into otheragreements as contemplated by the Purchase Agreement, including a Stockholder’s Agreement, aRegistration Rights Agreement, and a Management Rights Letter. The Purchase Agreement, theStockholder’s Agreement, the Registration Rights Agreement, the Management Rights Letter and theCertificate of Designation pursuant to which the Preferred Shares were created, are described inour current report on Form 8-K filed on June 16, 2006.     ***Tax-Exempt Bonds***     In February 2006, we assumed $3.0 million of tax-exempt Environmental Facilities Revenue Bondsas part of the debt assumed in the Transit Waste acquisition. We repaid $0.1 million of theassumed debt in June 2006. Asof December 31, 2006, including bonds assumed in prior acquisitions, we had $9.2 million oftax-exempt bonds outstanding.
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     ***Contractual Obligations***     As of December 31, 2006, we had the following contractual obligations (in thousands). Thecontractual obligations do not include interest payments on long-term debt due to the variableinterest rates under our credit facility and the varying amounts outstanding under our creditfacility during the year. The contractual interest rate for our credit facility is the LIBOR baserate plus a stipulated margin, which also fluctuates based on our leverage ratio. For the yearended December 31, 2006, our cash paid for interest expense was $15.8 million. Please read note 7to our consolidated financial statements for balances and terms of our credit facility at December31, 2006.                       **Payments Due By Period**       **Less**          **More**       **Than 1**          **Than 5** **Contractual Obligations** **Total**  **Year**  **1-3 Years**  **4-5 Years**  **Years** Long-term debt principal amount outstanding (1) $167,333  $916  $4,276  $5,071  $157,070 Closure and post-closure costs (2)  110,344   —   444   —   109,900 Operating lease  5,331   778   1,496   1,303   1,754 Note payable  3,335   3,335   —   —   —                 Total $286,343  $5,029  $6,216  $6,374  $268,724                  (1) Related interest obligations have been excluded from this maturity schedule. (2) The closure and post-closure costs amounts included reflect the amounts recorded in ourconsolidated balance sheet as of December 31, 2006, without the impact of discounting andinflation. We believe the amount and timing of these activities are reasonably estimable.The cost in current dollars is inflated (2.5% at December 31, 2006) until the expected time ofpayment, and then discounted to present value (8.5% at December 31, 2006). Accretion expenseis then applied to the closure and post-closure liability based on the effective interestmethod and is included in cost of services. Our recorded closure and post-closure liabilitieswill increase as we continue to place additional volumes within the permitted airspace at ourlandfills.     ***Other Commitments***     As of December 31, 2006, we had the following other commitments (in thousands):                       **Commitment Expiration By Period**       **Less**          **More**       **Than 1**          **Than 5** **Other Commitments** **Total**  **Year**  **1-3 Years**  **4-5 Years**  **Years** Financial surety bonds(1) $39,475  $39,475  $—  $—  $— Standby letters of credit(2)  9,853   9,853   —   —   —                 Total $49,328  $49,328  $—  $—  $—                  (1) We use financial surety bonds for landfill closure and post-closure financial assurancerequired under certain environmental regulations and may use other mechanisms includinginsurance, letters of credit and restricted cash deposits. These surety bonds are renewed onan annual basis. We have experienced less availability of surety bonds for landfill closureand post-closure requirements and increased costs including the direct fees associated withthe bonds, increased levels of standby letters of credit or personal guarantees provided tothe surety bond underwriters. Our commitments for financial surety bonds are not recorded inour financial statements. Our surety bonds relate to closure and post-closure obligationsrelating to our landfills and would not create debt unless and until we closed such landfillsand were unable to satisfy closure and post-closure obligations. (2) We provide standby letters of credit to the surety bond underwriters as discussed in note (1)above. As of December 31, 2006, $4.7 million had been provided to the surety bondunderwriters. We also provide standby letters of credit and restricted cash deposits to ourinsurance underwriters for the self insured portion ofoutstanding claims. As of December 31, 2006, we had provided $5.2 million in standby letters ofcredit. All of these standby letters of credit are renewed on an annual basis. Our commitmentsfor standby letters of credit
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  are not recorded in our financial statements. The standby lettersof credit relate to the portion of claims covered by insurance policies as to which we hadretained responsibility and would not create debt unless we were unable to satisfy such claimsfrom our operating income. However, we currently satisfy such claims from our cash flows fromoperations.     If our current surety bond underwriters are unwilling to renew existing bonds upon expiration,or are unwilling to issue additional bonds as needed, or if we are unable to obtain surety bondsthrough new underwriters as such needs arise, we would need to arrange other means of financialassurance, such as restricted cash deposits or a letter of credit. While such alternate assurancehas been available, it may result in additional expense or capital outlays.     We accrue claims related to our self-insurance programs based on claims filed, estimated openclaims and claims incurred but not reported based on actuarial-based loss development factors. Asof December 31, 2006, we had accrued approximately $2.0 million for these claims. If we experienceinsurance claims or costs above or below our limited history, our estimates could be materiallyaffected.     ***Cash Flows***     The following is a summary of our cash balances and cash flows for the years ended December31, 2006, 2005 and 2004 (in thousands):               **Years Ended December 31,**  **2006** **2005** **2004**Cash and cash equivalents at the end of the period $52,207  $678  $272 Net cash provided by operating activities $36,876  $19,562  $12,568 Net cash used in investing activities $(36,537) $(111,381) $(45,963)Net cash provided by financing activities $51,190  $92,225  $33,562      Net cash provided by operating activities for the years ended December 31, 2006, 2005 and 2004was $36.9 million, $19.6 million and $12.6 million, respectively. The changes in cash flows fromoperating activities are primarily due to changes in the components of working capital from year toyear. Other items impacting operating cash flows include depreciation and amortization, write-offof deferred financing costs and debt discount, interest rate swap, prepaid disposal usage as wellas stock-based compensation, all of which were non-cash expenses. Additionally in 2006, werealized $4.0 million from the termination of an interest rate swap agreement.     Net cash used in investing activities consist primarily of cash used for capital expendituresand the acquisition of businesses. Cash used for capital expenditures, including acquisitions, was$36.7 million, $111.6 million and $45.9 million for the years ended December 31, 2006, 2005 and2004, respectively. The fluctuation is mainly caused by acquisitions over the years. We spentsubstantially more in acquisitions in 2005. During 2006 we reduced our pace for acquisitions andfocused on implementing a new capital plan to provide us with more funds to pursue futureacquisitions. On the other hand, capital expenditures related to our existing operations haveincreased steadily as our revenue grows. We expect maintenance capital expenditures for 2007,excluding acquisitions, to be approximately 13% of our revenue. In addition, we expect to incuradditional capital expenditures for acquisitions that have further growth potential. Theseexpenditures, together with maintenance capital expenditures, include the cost of vehicles, heavyequipment, containers, landfill cell development and certain information systems and programimprovements. Furthermore, in connection with the execution of our acquisition strategy, we expectto make substantial capital expenditures. Because of their nature, we cannot accurately predictthe amount and timing of these acquisition expenditures. We believe that we will have thenecessary financial sources available to fund our capital expenditures and our acquisition program.These sources include the use of borrowings under our existing credit facility, seller notes, andthe issuance of new debt or equity.     Net cash provided by financing activities during the years ended December 31, 2006, 2005 and2004 was $51.2 million, $92.2 million and $33.6 million, respectively. Net cash provided byfinancing activities during the years ended December 31, 2006, 2005 and 2004 mainly includes acombination of the issuance of equity includingcommon stock and preferred stock, the issuance of our senior notes, borrowings under ourcredit facilities, repayments of debt, and financing costs associated with our credit facilities inall periods, and distributions to our
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former parent in 2004. Proceeds from financing during 2006included the net proceeds from the issuance of Preferred Stock and our senior notes. Proceeds fromfinancing during 2005 included the net proceeds from the use of our credit facilities and sellernotes. The significant increase in net cash from investing activities in 2005 reflects the amountsborrowed related to our ongoing acquisition program.**Critical Accounting Estimates and Assumptions**     We make several estimates and assumptions during the course of preparing our financialstatements. Since some of the information that we must present depends on future events, it cannotbe readily computed based on generally accepted methodologies, or may not be appropriatelycalculated from available data. Some estimates require us to exercise substantial judgment inmaking complex estimates and assumptions and, therefore, have the greatest degree of uncertainty.This is especially true with respect to estimates made in accounting for landfills, environmentalremediation liabilities and asset impairments. We describe the process of making such estimatesand other significant accounting policies in notes 1 and 2 to our consolidated financialstatements.     ***Landfill Accounting***     *Capitalized Landfill Costs*     At December 31, 2006, we owned 20 landfills. Two of these landfills are fully permitted butnot constructed and had not commenced operations as of December 31, 2006.     Capitalized landfill costs include expenditures for the acquisition of land and airspace,engineering and permitting costs, cell construction costs and direct site improvement costs. As ofDecember 31, 2006, no capitalized interest was included in capitalized landfill costs. However, inthe future interest could be capitalized on landfill construction projects but only during theperiod the assets are undergoing activities to prepare them for their intended use. Capitalizedlandfill costs are amortized ratably using the units-of- production method over the estimateduseful life of the site as airspace of the landfill is consumed. Landfill amortization rates aredetermined periodically (not less than annually) based on aerial and ground surveys and otherdensity measures and estimates made by our internal and/or third-party engineers.     Total available airspace includes the total of estimated permitted airspace plus an estimateof probable expansion airspace that we believe is likely to be permitted. Where we believe permitexpansions are probable, the expansion airspace, and the projected costs related to developing theexpansion airspace are included in the airspace amortization rate calculation. The criteria we useto determine if permit expansion is probable include, but are not limited to, whether: **•** we believe that the project has fatal flaws;  **•** the land is owned or controlled by us, or under option agreement;  **•** we have committed to the expansion;  **•** financial analysis has been completed, and the results indicate that the expansion hasthe prospect of a positive financial and operational impact;  **•** personnel are actively working to obtain land use, local, and state approvals for anexpansion of an existing landfill;  **•** we believe the permit is likely to be received; and  **•** we believe that the timeframe to complete the permitting is reasonable.
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     We may be unsuccessful in obtaining expansion permits for airspace that has been consideredprobable. If unsuccessful in obtaining these permits, the previously capitalized costs will becharged to expense. As of December 31, 2006, we have included 127 million cubic yards of expansionairspace with estimated development costs of approximately $91.4 million in our calculation of therates used for the amortization of landfill costs.     *Closure and Post-Closure Obligations*     We have material financial commitments for the costs associated with our future obligationsfor final closure, which is the closure of the landfill, the capping of the final uncapped areas ofa landfill and post-closure maintenance of those facilities, which is generally expected to be fora period of up to 30 years for municipal solid waste (MSW) facilities and up to five years forconstruction and demolition debris (C&D) facilities.     On January 1, 2003, we adopted SFAS No. 143, “Accounting for Asset Retirement Obligations”(SFAS No. 143), which provides standards for accounting for obligations associated with theretirement of long-lived assets and the associated asset retirement costs. Generally, therequirements for recording closure and post-closure obligations under SFAS No. 143 are as follows: **•** Landfill closure and post-closure liabilities are calculated by estimating the totalobligation in current dollars. Cost estimates equate the costs of third parties performingthe work. Any portion of the estimates which are based on activities being performedinternally are increased to reflect a profit margin a third party would receive to performthe same activity. This profit margin will be taken to income once the work is performedinternally.  **•** The total obligation is carried at the net present value of future cash flows, which iscalculated by inflating the obligation based upon the expected date of the expenditure usingan inflation rate and discounting the inflated total to its present value using a discountrate. The discount rate represents our credit-adjusted risk-free rate. The resultingclosure and post-closure obligation is recorded as an increase in this liability as airspaceis consumed.  **•** Accretion expense is calculated based on the discount rate and is charged to cost ofservices and increases the related closure and post-closure obligation. This expense willgenerally be less during the early portion of a landfill’s operating life and increasethereafter.     The following table sets forth the rates we used for the amortization of landfill costs andthe accrual of closure and post-closure costs for 2006, 2005 and 2004:               **2006**  **2005**  **2004** Number of landfills owned  20   19   14 Landfill depletion andamortization expense (inthousands) $8,784  $6,957  $4,290 Accretion expense (in thousands)  284   159   257 Closure and post-closurecost (in thousands)  286   —   —             $9,354   7,116   4,547 Airspace consumed (in thousandsof cubic yards)  4,806   3,854   2,623           Depletion, amortization,accretion, closure andpost-closure costs per cubicyard of airspace consumed $1.95  $1.85  $1.73                The impact of changes determined to be changes in estimates, based on an annual update, isaccounted for on a prospective basis. Our ultimate liability for such costs may increase in thefuture as a result of changes in estimates, legislation, or regulations.
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     ***Goodwill and Intangible Assets***     Goodwill and intangible assets acquired in a business combination accounted for as a purchaseand determined to have an indefinite useful life are not amortized, but instead tested forimpairment at least annually. Intangible assets with estimable useful lives are amortized overtheir respective estimated useful lives to their residual values, and reviewed for impairment.     ***Impairment of Long-Lived Assets***     Long-lived assets are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable. Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an asset to estimatedundiscounted future cash flows expected to be generated by the asset. If the carrying amount of anasset exceeds its estimated future cash flows, an impairment charge is recognized by the amount bywhich the carrying amount of the asset exceeds the fair value of the asset.     ***Allocation of Acquisition Purchase Price***     A summary of our accounting policies for acquisitions is as follows: **•** Acquisition purchase price is allocated to identified tangible and intangible assetsacquired and liabilities assumed based on their estimated fair values at the dates ofacquisition, with any residual amounts allocated to goodwill. We accrue the payment ofcontingent purchase price if the events surrounding the contingency are deemed probable.  **•** We often consummate single acquisitions that include a combination of collectionoperations and landfills. For each separately identified collection operation and landfillacquired in a single acquisition, we perform an initial allocation of total purchase priceto the identified collection operations and landfills based on their relative fair values.Following this initial allocation of total purchase price to the identified collectionoperations and landfills, we further allocate the identified intangible assets and tangibleassets acquired and liabilities assumed for each collection operation and landfill based ontheir estimated fair values at the dates of acquisition, with any residual amountsallocated to either goodwill or landfill site costs, as discussed above.**Recently Adopted and New Accounting Pronouncements**     In December 2004, the Financial Accounting Standards Board (FASB) issued Statement ofFinancial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)). Ingeneral, SFAS No. 123(R) does not change the approach described in SFAS No. 123, but it requiresall share-based awards to employees to be recognized as compensation expense based on the fairvalue of the award at the date of grant. On December 22, 2005, we accelerated vesting of alloutstanding “out-of-the-money” unvested stock options to avoid recognizing compensation cost in thestatement of operations in future financial statements subsequent to the adoption of SFAS No.123(R). It is estimated that the maximum future compensation expense that was avoided wasapproximately $1,058, before tax, based on our adoption date on January 1, 2006. On January 1,2006, we adopted SFAS No. 123 (R) using the modified prospective method, and accordingly, has notrestated the consolidated statements of operations.     In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid FinancialInstruments”, which amends SFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets andExtinguishment of Liabilities”. SFAS No. 155 amends SFAS No. 133 to narrow the scope exception forinterest-only and principal-only strips on debt instrumentsto include only such strips representing rights to receive a specified portion of thecontractual interest or principle cash flows. SFAS No. 155 also amends SFAS No. 140 to allowqualifying special-purpose entities to hold a passive derivative financial instrument pertaining tobeneficial interests that itself is a derivative instrument. SFAS No. 155 is effective for allfinancial instruments acquired or issued after the beginning of an entity’s first fiscal year
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thatbegins after September 15, 2006. We do not believe that SFAS No. 155 will have a material impacton our financial position, results of operations or cash flows.     In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets”,which provides an approach to simplify efforts to obtain hedge-like (offset) accounting. ThisStatement amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets andExtinguishments of Liabilities”, with respect to the accounting for separately recognized servicingassets and servicing liabilities. SFAS No. 156 (i) requires an entity to recognize a servicingasset or servicing liability each time it undertakes an obligation to service a financial asset byentering into a servicing contract in certain situations; (ii) requires that a separatelyrecognized servicing asset or servicing liability be initially measured at fair value, ifpracticable; (iii) permits an entity to choose either the amortization method or the fair valuemethod for subsequent measurement for each class of separately recognized servicing assets orservicing liabilities; (iv) permits at initial adoption a one-time reclassification ofavailable-for-sale securities to trading securities by an entity with recognized servicing rights,provided the securities reclassified offset the entity’s exposure to changes in the fair value ofthe servicing assets or liabilities; and (v) requires separate presentation of servicing assets andservicing liabilities subsequently measured at fair value in the balance sheet and additionaldisclosures for all separately recognized servicing assets and servicing liabilities. SFAS No. 156is effective for all separately recognized servicing assets and liabilities as of the beginning ofan entity’s fiscal year that begins after September 15, 2006, with earlier adoption permitted incertain circumstances. It also describes the manner in which it should be initially applied. Wedo not believe that SFAS No. 156 will have a material impact on our financial position, results ofoperations or cash flows.     In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes” — An Interpretation of SFAS No. 109 (FIN 48). FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statements in accordance withSFAS No. 109, “Accounting for Income Taxes”*.*FIN 48 also prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return that results in a tax benefit. Additionally, FIN 48provides guidance on de-recognition, income statement classification of interest and penalties,accounting in interim periods, disclosure, and transition. This interpretation is effective forfiscal years beginning after December 15, 2006. We are currently evaluating the effect that theapplication of FIN 48 will have on our financial position, results of operations or cash flows.     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157defines fair value, establishes a framework for measuring fair value in GAAP, and expandsdisclosures about fair value measurements. It applies under other accounting pronouncements thatrequire or permit fair value measurements, and does not require any new fair value measurements.The application of SFAS No. 157, however, may change current practice within an organization. SFASNo. 157 is effective for all fiscal years beginning after November 15, 2007, with earlierapplication encouraged. We are currently evaluating the impact of SFAS No. 157 on our financialposition, results of operations or cash flows.     In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effectsof Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”(SAB 108), to address diversity in practice in quantifying financial statement misstatements. SAB108 requires the quantification of misstatements based on their impact on both the balance sheetand the income statement to determine materiality. The guidance provides for a one-time cumulativeeffect adjustment to correct for misstatements that were not deemed material under a company’sprior approach but are material under the SAB 108 approach. SAB 108 is effective for fiscal yearsending after November 15, 2006. We do not believe that the adoption of SAB 108 has a materialimpact on our consolidated financial position, results of operations or cash flows.
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**Cautionary Statement About Forward-Looking Statements**     Some of the statements contained in this report are forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Actof 1934. From time to time, our public filings, press releases and other communications (such asconference calls and presentations) will contain forward-looking statements. These forward-lookingstatements can generally be identified as such because the context of the statement will includewords such as “may,” “should,” “outlook,” “project,” “intend,” “seek,” “plan,” “believe,”“anticipate,” “expect,” “estimate,” “potential,” “continue,” or “opportunity,” the negatives ofthese words, or similar words or expressions. Similarly, statements that describe our futureplans, objectives or goals are also forward-looking statements. This is true of our description ofour acquisition strategy for example. It is also true of our “run rate” definitions which areestimates based upon a mixture of historical and projected results.     We caution that forward-looking statements are not guarantees and are subject to known andunknown risks and uncertainties. Since our business, operations and strategies are subject to anumber of risks, uncertainties and other factors, actual results may differ materially from thosedescribed in the forward-looking statements.     Thus, for example, our future financial performance will depend significantly on our abilityto execute our acquisition strategy, which will be subject to many risks and uncertaintiesincluding, but not limited to, the following: **•** we may be unable to identify, complete or integrate future acquisitions, which may harmour prospects;  **•** we compete for acquisition candidates with other purchasers, some of which have greaterfinancial resources and may be able to offer more favorable terms, thus limiting our abilityto grow through acquisitions;  **•** in connection with financing acquisitions, we may incur additional indebtedness, or mayissue additional shares of our common stock, which would dilute the ownership percentage ofexisting stockholders;  **•** businesses that we acquire may have unknown liabilities and require unforeseen capitalexpenditures, which would adversely affect our financial results;  **•** rapid growth may strain our management, operational, financial and other resources, whichwould adversely affect our financial results;  **•** our acquisition strategy has resulted and is expected to continue to result insignificant goodwill and other intangible assets, which may need to be written down ifperformance is not as expected; and  **•** we may incur charges related to acquisitions, which could lower our earnings.     Our business is also subject to a number of operational risks and uncertainties that couldcause our actual results of operations or our financial condition to differ from anyforward-looking statements. These include, but are not limited to, the following: **•** changes in interest rates may affect our profitability;  **•** we are subject to environmental and safety laws, which restrict our operations and increase our costs;  **•** we may become subject to environmental clean-up costs or litigation that could curtailour business operations and materially decrease our earnings;  **•** our accruals for landfill closure and post-closure costs may be inadequate, and ourearnings would be lower if we are required to pay or accrue additional amounts;
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 **•** we may be unable to obtain financial assurances necessary for our operations, whichcould result in the closure of landfills or the termination of collection contracts;  **•** our business is capital intensive, requiring ongoing cash outlays that may strain orconsume our available capital and force us to sell assets, incur debt, or sell equity onunfavorable terms;  **•** increases in the costs of disposal, labor, fuel and insurance could reduce operatingmargins;  **•** we may not be able to maintain sufficient insurance coverage to cover the risksassociated with our operations, which could result in uninsured losses that would adverselyaffect our financial condition;  **•** our failure to remain competitive with our numerous competitors, some of which havegreater resources, could adversely affect our ability to retain existing customers andobtain future business;  **•** we may lose contracts through competitive bidding, early termination or governmentalaction, or we may have to substantially lower prices in order to retain certain contracts,any of which would cause our revenue to decline;  **•** comprehensive waste planning programs and initiatives required by state and localgovernments may reduce demand for our services, which could adversely affect our wastevolumes and the price of our landfill disposal services;  **•** covenants in our credit facilities and the instruments governing our other indebtednessmay limit our ability to grow our business and make capital expenditures;  **•** efforts by labor unions to organize our employees could divert management attention andincrease our operating expenses;  **•** a general downturn in U.S. economic conditions may reduce our business prospects anddecrease our revenue and cash flows;  **•** current and proposed laws may restrict our ability to operate across local borders whichcould affect our manner, cost and feasibility of doing business;  **•** we may not be successful in expanding the permitted capacity of our current or futurelandfills, which could restrict our growth, increase our disposal costs, and reduce ouroperating margins;  **•** poor decisions by our regional and local managers could result in the loss of customersor an increase in costs, or adversely affect our ability to obtain future business;  **•** we are vulnerable to factors affecting our local markets, which could adversely affectour stock price relative to our competitors;  **•** seasonal fluctuations will cause our business and results of operations to vary amongquarters, which could adversely affect our stock price;  **•** failure to maintain effective internal controls in accordance with Section 404 of theSarbanes-Oxley Act could have a material adverse effect on our business and stock price;  **•** our success depends on key members of our senior management, the loss of any of whomcould disrupt our customer and business relationships and our operations;
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 **•** conflicts of interest to our stockholders’ detriment may arise between us and WasteCorporation of America and its controlling equity holder, who owns a significant portion ofour equity and has one director on our board;  **•** our executive officers, directors and their related entities own a significant interestin our voting stock and may be able to exert significant influence over our management andaffairs, which may discourage a potential change of control transaction;  **•** provisions in our amended and restated certificate of incorporation, our amended andrestated bylaws and Delaware law could prohibit a change of control that our stockholdersmay favor and which could negatively affect our stock price; and  **•** we may issue preferred stock that has a liquidation or other preference over our commonstock without the approval of the holders of our common stock, which may affect thoseholders rights or the market price of our common stock.     We describe these and other risks in greater detail in the section entitled “Business—RiskFactors” included elsewhere in this report. We refer you to that section for additionalinformation.     The forward-looking statements included in this report are only made as of the date of thisreport and we undertake no obligation to publicly update forward-looking statements to reflectsubsequent events or circumstances.
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**Item 7A. Quantitative and Qualitative Disclosures About Market Risk.**     In the normal course of business, we are exposed to market risk, including changes in interestrates. We use interest rate swap agreements to manage a portion of our risks related to interestrates. Effective November 1, 2005, we entered into an interest rate swap agreement whereby weexchanged $150 million of floating rate LIBOR for a five-year fixed-rate of 4.885%. The swap wasinitially intended to be a hedge against interest payments under our various floating rate debtinstruments. With the restructuring of our long-term debt and the termination of this swapposition in July 2006, we realized a $4.0 million gain from the swap counter-party. Shortlythereafter, we entered into a new swap agreement effective July 11, 2006, where we agreed to pay afixed-rate of 5.64% in exchange for three-month floating rate LIBOR which was 5.51% at the time theswap was entered. At December 31, 2006, the related floating rate was 5.36%. The intention ofthis swap agreement is to limit our exposure to a rising rate interest environment. At the time weentered into the swap, we had no floating rate LIBOR debt and no such floating rate interestpayments were probable of being incurred in the near future. As a result, the swap transaction cannot be designated as a hedging transaction. Accordingly, any changes in the unrealized fair valueof the new swap will be recognized in the statement of operations. If, in the future, we haveoutstanding borrowings that have floating interest rate payments, we will consider designating allor part of this swap agreement as a hedge. We did not enter into the interest rate swap agreementsfor trading purposes.     As of December 31, 2006, we had no debt outstanding that bears interest at variable orfloating rates as compared to approximately $12.0 million as of December 31, 2005. With theplacement of a new swap agreement, we bear exposure to, and are primarily affected by, changes inLIBOR rates on $150 million. A 100 basis point increase in LIBOR interest rates would result ininterest income on the swap agreement of approximately $1.5 million annually while a 100 basispoint decrease in interest rates would result in $1.5 million in swap expense, in addition to anymark-to-market effect on the fair value of the swap. Please read “Business—Risk Factors—RisksRelating To Our Business—Changes in interest rates may affect our profitability.” The table belowprovides scheduled principal payments and fair value information about our market-risk sensitivefinancial instruments as of December 31, 2006 (dollars in thousands):                               **Expected Maturity Dates**  **2007** **2008** **2009** **2010** **2011** **Thereafter** **Total**Debt:                            Senior Notes $—  $—  $—  $—  $—  $150,000  $150,000 Average interest rate (a)                            Environmental Facilities                            Revenue Bonds $350  $380  $415  $455  $495  $7,070  $9,165 Average interest rate (b)                            Other borrowings $566  $331  $3,150  $4,121  $—  $—  $8,168 Average interest rate  6.3%  6.3%  5.1%  7.9%  —   —   6.7%Note payable $3,335  $—  $—  $—  $—  $—  $3,335 Average interest rate  6.0%  —   —   —   —   —   6.0% (a) The nominal interest rate of our senior notes is 9.25%. The average effective interestrate is 9.38% as interest is computed on the basis of a 360-day year as stipulated by the noteagreement. (b) Borrowings under the Environmental Facilities Revenue Bonds bear interest at 8.50% to 9.00%.As of December 31, 2006, the weighted average interest rate in effect for the EnvironmentalFacilities Revenue Bonds was 8.89%.     Our financial instruments that are potentially sensitive to changes in interest rates alsoinclude our 9.25% senior notes. As of December 31, 2006, the fair value of these notes, based onquoted market prices, was approximately $156.7 million compared to a carrying amount of $150million.
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**Item 8. Financial Statements and Supplementary Data.****Management’s Report on Internal Control over Financial Reporting**Our management is responsible for establishing and maintaining adequate internal control overfinancial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under thesupervision and with the participation of our management, including our Chief Executive Officer andChief Financial Officer, we conducted an evaluation to assess the effectiveness of our internalcontrol over financial reporting as of December 31, 2006 based on the framework in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). Based on this assessment, our management concluded that our internal controlover financial reporting was effective as of December 31, 2006.There are inherent limitations in the effectiveness of any system of internal controls overfinancial reporting. Therefore, internal control over financial reporting determined to beeffective can provide only reasonable assurance with respect to financial statement preparation andmay not prevent or detect all misstatements. Further, because of changes in conditions, theeffectiveness of internal control over financial reporting may vary over time.Management’s assessment of the effectiveness of our internal control over financial reporting as ofDecember 31, 2006 has been audited by KPMG LLP, an independent registered public accounting firm,as stated in their report which is included herein.
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**Report of Independent Registered Public Accounting Firm**The Board of Directors