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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-Q þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934For the quarterly period ended September 30, 2004oro
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934For 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
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)One Riverway, Suite 1400
    
    77056Houston, Texas 77056
    
    (Zip Code)(Address of principal executive offices)
 (713) 292-2400
(Registrants telephone number, including area code) N/A
(Former name, former address and former fiscal year,
if changed since last report)   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES þ  NO o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES  o NO þ Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date. Common Stock, $0.01 Par Value
    
    14,853,421 shares(Class)
    
    (Outstanding at November 5, 2004)




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RISK FACTORS AND
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS Some of the statements contained in this report are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. From time to time, our
public filings, press releases and other communications (such as conference
calls and presentations) will contain forward-looking statements. These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as may, will, should,
outlook, project, intend, seek, plan, believe, anticipate,
expect, estimate, potential, continue, or opportunity, the negatives
of these words, or similar words or expressions. Similarly, statements that
describe our future plans, objectives or goals are also forward-looking
statements. This is true of our description of our acquisition strategy for
example. We caution that forward-looking statements are not guarantees and are
subject to known and unknown risks and uncertainties. Since our business,
operations and strategies are subject to a number of risks, uncertainties and
other factors, actual results may differ materially from those described in the
forward-looking statements. Thus, for example, our future financial performance will depend
significantly on our ability to execute our acquisition strategy, which will be
subject to many risks and uncertainties including (but not limited to) the
following:  
    
    we may be unable to identify, complete or integrate future
acquisitions successfully;
    
    we compete for acquisition candidates with other purchasers, some
of which have greater financial resources and may be able to offer more
favorable terms;
    
    revenue and other synergies from acquisitions may not be fully
realized or may take longer to realize than expected;
    
    we may not be able to improve internalization rates by directing
waste volumes from acquired businesses to our landfills for regulatory,
business or other reasons;
    
    businesses that we acquire may have unknown liabilities and require
unforeseen capital expenditures;
    
    changes or disruptions associated with making acquisitions may make
it more difficult to maintain relationships with customers of the
acquired businesses;
    
    in connection with financing acquisitions, we may incur additional
indebtedness, or may issue additional shares of our common stock which
would dilute the ownership percentage of existing stockholders; and
    
    rapid growth may strain our management, operational, financial and
other resources. Our business is also subject to a number of operational risks and
uncertainties that could cause our actual results of operations, or our
financial condition, to differ from any forward-looking statements. These
include, but are not limited to, the following:  
    
    we may not be able to obtain or maintain the permits necessary for
operation and expansion of our existing landfills or landfills that we
might acquire or develop;
    
    our costs may increase for, or we may be unable to provide,
necessary financial assurances to governmental agencies under
applicable environmental regulations relating to our landfills;
    
    governmental regulations may require increased capital expenditures
or otherwise affect our business; 1




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
    
    our business is capital intensive, requiring ongoing cash outlays
that may strain or consume our available capital and we may not always
have access to the additional capital that we require to execute our
growth strategy;
    
    possible changes in our estimates of site remediation requirements,
final capping, closure and post-closure obligations, compliance,
regulatory developments and insurance costs;
    
    the effect of limitations or bans on disposal or transportation of
out-of-state waste or certain categories of waste;
    
    increases in the costs of disposal, labor and fuel could reduce
operating margins;
    
    increases in costs of insurance or failure to maintain full
coverage could reduce operating income;
    
    we are subject to environmental and safety laws, which restrict our
operations and increase our costs, and may impose significant
unforeseen liabilities;
    
    we compete with large companies and municipalities with greater
financial and operational resources, and we also compete with
alternatives to landfill disposal;
    
    covenants in our credit facilities and the instruments governing
our other indebtedness may limit our ability to grow our business and
make capital expenditures;
    
    changes in interest rates may affect our results of operations;
    
    a downturn in U.S. economic conditions or the economic conditions
in our markets may have an adverse impact on our business and results
of operations; and
    
    our success depends on key members of our senior management, the
loss of any of whom could disrupt our customer and business
relationships and our operations. In our registration statement on Form S-1 filed in connection with our
initial public offering, we described these and other risks in greater detail
(including in the section entitled Risk Factors ). We refer you to that
filing for additional information. The forward-looking statements included in this report are only made as of
the date of this report and we undertake no obligation to publicly update
forward-looking statements to reflect subsequent events or circumstances. 2




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSCONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II-OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 6. EXHIBITSSIGNATURESEXHIBIT INDEXPurchase and Sale of Assets Agreement - WCA of Alabama, Bluewater DivingPurchase and Sale of Assets Agreement - WCA of Alabama, BRCPurchase and Sale of Assets Agreement - WCA of Alabama, Blount RecyclingForm of Stock Option AgreementForm of Restricted Stock GrantRule 13a-14a/15d-14a Certification of CEORule 13a-14a/15d-14a Certification of CFOSection 1350 Certification of CEOSection 1350 Certification of CFO    Table of Contents  
 PART I- FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS. WCA WASTE CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS  (In thousands)
 September 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    258
    
    
    $
    105Accounts receivable, net of allowance for doubtful accounts of $256
(unaudited) and $177, respectively
    
    
    8,731
    
    
    
    5,170Prepaid expenses and other
    
    
    3,861
    
    
    
    5,246Total current assets
    
    
    12,850
    
    
    
    10,521Property and equipment, net of accumulated depreciation and amortization
of $29,726 and $23,473, respectively
    
    
    85,392
    
    
    
    70,726Goodwill, net
    
    
    39,255
    
    
    
    29,843Deferred financing costs, net
    
    
    2,988
    
    
    
    1,860Other assets
    
    
    5,890
    
    
    
    3,735Total assets
    
    $
    146,375
    
    
    $
    116,685LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    4,375
    
    
    $
    3,635Accrued liabilities
    
    
    6,073
    
    
    
    4,574Interest rate swap
    
    
    
    
    
    
    14Note payable
    
    
    
    
    
    
    903Accrued closure and post-closure liabilities, current
    
    
    1,254
    
    
    
    Current maturities of long-term debt
    
    
    1,474
    
    
    
    4,004Total current liabilities
    
    
    13,176
    
    
    
    13,130Long-term debt, less current maturities and discount
    
    
    59,582
    
    
    
    78,696Accrued closure and post-closure liabilities
    
    
    2,241
    
    
    
    3,005Deferred tax liabilities
    
    
    1,078
    
    
    
    3,287COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, $0.01 par value per share. Authorized 25,000 shares; issued
and outstanding 14,853 and 8,000 shares, respectively
    
    
    149
    
    
    
    80Additional paid-in capital
    
    
    69,266
    
    
    
    12,548Retained earnings
    
    
    883
    
    
    
    5,939Total stockholders equity
    
    
    70,298
    
    
    
    18,567Total liabilities and stockholders equity
    
    $
    146,375
    
    
    $
    116,685
 The accompanying notes are an integral part of these condensed consolidated financial statements. 3




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WCA WASTE CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)  (In thousands, except per share amounts)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Revenue
    
    $
    19,842
    
    
    $
    16,629
    
    
    $
    52,847
    
    
    $
    48,187Expenses:Cost of services
    
    
    13,557
    
    
    
    10,609
    
    
    
    35,484
    
    
    
    31,054Depreciation and amortization
    
    
    2,357
    
    
    
    1,944
    
    
    
    6,368
    
    
    
    5,664Accretion expense
    
    
    64
    
    
    
    52
    
    
    
    192
    
    
    
    155General and administrative:Stock-based compensation
    
    
    
    
    
    
    393
    
    
    
    11,532
    
    
    
    597Other general and administrative
    
    
    1,267
    
    
    
    894
    
    
    
    3,633
    
    
    
    2,98817,245
    
    
    
    13,892
    
    
    
    57,209
    
    
    
    40,458Operating income (loss)
    
    
    2,597
    
    
    
    2,737
    
    
    
    (4,362
    )
    
    
    7,729Other income (expense):Interest expense, net
    
    
    (866
    )
    
    
    (1,307
    )
    
    
    (3,394
    )
    
    
    (3,907
    )Other
    
    
    169
    
    
    
    3
    
    
    
    267
    
    
    
    32(697
    )
    
    
    (1,304
    )
    
    
    (3,127
    )
    
    
    (3,875
    )Income (loss) from continuing operations before income taxes and
cumulative effect of change in accounting principle
    
    
    1,900
    
    
    
    1,433
    
    
    
    (7,489
    )
    
    
    3,854Income tax (provision) benefit
    
    
    (752
    )
    
    
    (568
    )
    
    
    2,433
    
    
    
    (1,528
    )Income (loss) from continuing operations before cumulative effect of
change in accounting principle
    
    
    1,148
    
    
    
    865
    
    
    
    (5,056
    )
    
    
    2,326Gain (loss) from discontinued operations, net of tax
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    (154
    )Gain on disposal of discontinued operations, net of tax
    
    
    
    
    
    
    262
    
    
    
    
    
    
    
    262Income (loss) before cumulative effect of change in accounting
principle
    
    
    1,148
    
    
    
    1,159
    
    
    
    (5,056
    )
    
    
    2,434Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,324Net income (loss)
    
    $
    1,148
    
    
    $
    1,159
    
    
    $
    (5,056
    )
    
    $
    4,758Earnings per share-basic and diluted:Income (loss) from continuing operations before cumulative
effect of change in accounting principle
    
    $
    0.08
    
    
    $
    0.11
    
    
    $
    (0.48
    )
    
    $
    0.29Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Gain on disposal of discontinued operations
    
    
    
    
    
    
    0.03
    
    
    
    
    
    
    
    0.03Income (loss) before cumulative effect of change in accounting
principle
    
    
    0.08
    
    
    
    0.14
    
    
    
    (0.48
    )
    
    
    0.30Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.29Net income (loss)
    
    $
    0.08
    
    
    $
    0.14
    
    
    $
    (0.48
    )
    
    $
    0.59Weighted average shares outstanding  basic and diluted
    
    
    14,819
    
    
    
    8,000
    
    
    
    10,506
    
    
    
    8,000
 The accompanying notes are an integral part of these condensed consolidated financial statements. 4




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WCA WASTE CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)  (In thousands)
 Nine Months EndedSeptember 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (5,056
    )
    
    $
    4,758Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    6,368
    
    
    
    5,664Non-cash portion of stock-based compensation expense
    
    
    6,849
    
    
    
    597Amortization of debt discount and deferred financing costs
    
    
    475
    
    
    
    691Deferred tax provision (benefit)
    
    
    (2,209
    )
    
    
    717Accretion expense for closure and post-closure obligations
    
    
    192
    
    
    
    156Gain on sale of assets
    
    
    (267
    )
    
    
    (32
    )Interest rate swap
    
    
    (10
    )
    
    
    (1,376
    )Prepaid disposal usage
    
    
    227
    
    
    
    234Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (3,749
    )Change in operating assets and liabilities:Accounts receivable
    
    
    (2,989
    )
    
    
    (1,098
    )Prepaid expenses and other
    
    
    1,909
    
    
    
    1,566Accounts payable and other liabilities
    
    
    1,889
    
    
    
    (401
    )Non-cash expenses related to discontinued operations
    
    
    
    
    
    
    1,775Net cash provided by operating activities
    
    
    7,378
    
    
    
    9,502CASH FLOWS FROM INVESTING ACTIVITIES:Acquisitions of businesses, net of cash acquired
    
    
    (23,309
    )
    
    
    (6,441
    )Proceeds from sale of discontinued operations
    
    
    
    
    
    
    9,759Proceeds from sale of fixed assets
    
    
    282
    
    
    
    72Capital expenditures
    
    
    (8,835
    )
    
    
    (5,916
    )Cost incurred on possible acquisitions
    
    
    (51
    )
    
    
    Net cash used in investing activities
    
    
    (30,913
    )
    
    
    (2,526
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from credit facility
    
    
    37,233
    
    
    
    Payments on long-term debt
    
    
    (13,202
    )
    
    
    (3,202
    )Net change in old revolving line of credit
    
    
    (33,263
    )
    
    
    1,676Repayment of Waste Management, Inc. note
    
    
    (13,343
    )
    
    
    Distribution to former parent
    
    
    (7,180
    )
    
    
    (4,116
    )Proceeds from issuance of common stock
    
    
    55,018
    
    
    
    Deferred financing costs
    
    
    (1,575
    )
    
    
    (936
    )Decrease in restricted cash
    
    
    
    
    
    
    677Net cash provided by (used in) financing activities
    
    
    23,688
    
    
    
    (5,901
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    153
    
    
    
    1,075CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
    
    
    105
    
    
    
    CASH AND CASH EQUIVALENTS AT END OF THE PERIOD
    
    $
    258
    
    
    $
    1,075SUPPLEMENTAL CASH FLOW INFORMATION:Interest paid
    
    $
    2,909
    
    
    $
    2,202Income taxes paid
    
    
    
    
    
    
    Property and equipment financed by direct debt
    
    
    
    
    
    
    448
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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WCA WASTE CORPORATION AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(All tables in thousands, except per share data)
 1. BASIS OF PRESENTATION WCA Waste Corporation (together with its subsidiaries, WCA or the Company) is a
vertically integrated, non-hazardous solid waste collection and disposal
company. The unaudited condensed consolidated financial statements included herein have
been prepared in accordance with generally accepted accounting principles in
the United States and pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) for quarterly reports on Form 10-Q. Certain
information relating to the Companys organization and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted pursuant to such
rules and regulations. The Company believes that the presentations and
disclosures herein are adequate to make the information presented herein not
misleading when read in conjunction with its Prospectus filed with the SEC on
June 23, 2004 which contains the companys audited consolidated financial
statements. The unaudited condensed consolidated financial statements as of
September 30, 2004 and for the three and nine months ended September 30, 2004
and 2003 reflect, in the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary to fairly state the financial
position and results of operations for such periods. Certain reclassifications
have been made to the prior period financial statements to conform to the
current presentation. Please note, however, operating results for interim
periods are not necessarily indicative of the results for full years. For the
description of the Companys significant accounting policies, see Note 1 to
Notes to Consolidated Financial Statements included in such Prospectus. In preparing the Companys financial statements, several estimates and
assumptions are made that affect the accounting for, and recognition of,
assets, liabilities, revenues and expenses. These estimates and assumptions
must be made because some information used in the preparation of the Companys
financial statements is dependent on future events, cannot be calculated with a
high degree of precision from data available or is simply not capable of being
readily calculated based on generally accepted methodologies. Actual results
could differ from estimated amounts. In some cases, these estimates are
particularly difficult to determine and the Company must exercise significant
judgment. Significant items subject to such estimates and assumptions include
the depletion and amortization of landfill development costs, liabilities for
final capping, closure and post-closure costs, valuation allowances for
accounts receivable, liabilities for potential litigation, claims and
assessments, and liabilities for environmental remediation, deferred taxes and
self-insurance. The most difficult, subjective and complex estimates and the
assumptions that deal with the greatest amount of uncertainty are related to
the Companys accounting for landfills, asset impairments, and insurance
claims. WCA Waste Corporation was formed in February 2004 as a subsidiary of Waste
Corporation of America, Inc. (Waste Corporation of America). In June 2004,
Waste Corporation of America completed an internal reorganization among Waste
Corporation of America, WCA and WCA Waste Systems, Inc. (WSI), which was also a
wholly-owned subsidiary of Waste Corporation of America. Through the internal
reorganization, WCA briefly became the parent of Waste Corporation of America.
Waste Corporation of America and certain other operating subsidiaries of Waste
Corporation of America were then spun off from the operations of WCA and WSI.
This resulted in Waste Corporation of America and WCA being separate entities,
each owned by the former shareholders of Waste Corporation of America, and WSI
being a wholly-owned subsidiary of WCA. Also as part of the reorganization,
WCA assumed the obligations to issue stock upon exercise of Waste Corporation
of Americas outstanding options and warrants. Approximately 90% of these
options and warrants were cancelled by WCAs issuance of 1,330,056 shares,
resulting in a one-time compensation charge of $11.5 million. After giving
effect to the reorganization and subsequent stock split, WCA had 8,000,316
shares of common stock outstanding. All prior period share and per share
amounts have been adjusted to reflect the reorganization and stock split. Following this reorganization, WCA issued an additional 6,587,947 shares to
effect an initial public offering of its common stock. The Company has also
established the 2004 WCA Waste Corporation 6




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Incentive Plan to issue options to employees and directors. A total of
1,000,000 shares are authorized for issuance under the plan. In connection
with its initial public offering, the Company issued options to acquire 644,000
shares of common stock at an exercise price equal to the initial public
offering price and issued 2,000 restricted shares. The formation of WCA and the reorganization pursuant to which WSI became the
subsidiary of WCA represent a combination of entities under common control.
Accordingly, the accompanying unaudited condensed consolidated financial
statements reflect the operations of WSI as if such reorganization had occurred
as of the beginning of all periods presented. The accompanying unaudited condensed consolidated financial statements include
the accounts of the Company and its subsidiaries after elimination of all
material intercompany balances and transactions. Prior to the reorganization,
the Company was a wholly-owned subsidiary of Waste Corporation of America, and
the accompanying unaudited condensed consolidated financial statements have
been prepared on a carve-out basis to represent the net assets and related
historical results of the Company as if it were a stand-alone entity. General,
administrative and overhead expenses have been allocated between the Company
and Waste Corporation of America to reflect each entitys portion of these
expenses. 2. RECENT DEVELOPMENTS During the three months ended September 30, 2004, the Company acquired five
non-hazardous solid waste businesses. Company
    
    Location
    
    Completion date
    
    OperationsTexas Environmental Waste
    
    Houston, TX
    
    July 13, 2004
    
    CollectionAshley Trash Service
    
    Springfield, MO
    
    August 17, 2004
    
    CollectionPower Waste
    
    Birmingham, AL
    
    August 31, 2004
    
    CollectionBlount Recycling and
other related companies
    
    Birmingham, AL
    
    September 3, 2004
    
    Collection & LandfillTranslift
    
    Little Rock, AR
    
    September 17, 2004
    
    Collection
 Total consideration for these acquisitions consisted of $22.0 million in cash
and 263,158 restricted shares of the Companys common stock. The purchase
price for each transaction has been allocated to the identifiable tangible and
intangible assets acquired and liabilities assumed based on their estimated
fair values at the time of acquisition, with any residual amounts allocated to
goodwill. The purchase price allocations are considered preliminary until the
Company is no longer waiting for information that it has arranged to obtain and
that is known to be available or obtainable. The time required to obtain the
necessary information will vary with specific acquisitions, however, the final
purchase price allocation will not exceed one year from the consummation of the
acquisition. The Companys condensed consolidated financial statements include the results
of operations of the acquired businesses from their respective acquisition
dates. None of the completed acquisitions were significant (within the meaning
of Regulation S-X) to the Company as a whole. Based on the preliminary assessments of values for the acquisitions completed
during the quarter, the Company reflected identifiable intangibles of $2.4
million and goodwill of $9.4 million. Identifiable intangibles include
customer relationships which are amortized over their expected lives of an
average of 20 years and covenants not to compete which are being amortized over
their stated lives. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Landfill Accounting Capitalized Landfill Costs At September 30, 2004, the Company owned six municipal solid waste (MSW)
landfills and eight construction and demolition debris (C&D) landfills. One
MSW landfill and one C&D landfill are fully permitted but not constructed and
have not yet commenced operations as of September 30, 2004. 7




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Capitalized landfill costs include expenditures for the acquisition of land and
related airspace, engineering and permitting costs, cell construction costs and
direct site improvement costs. At September 30, 2004, no capitalized interest
had been included in capitalized landfill costs, however, in the future
interest could be capitalized on landfill construction projects but only during
the period the assets are undergoing activities to ready them for their
intended use. Capitalized landfill costs are amortized ratably using the
units-of-production method over the estimated useful life of the site as
airspace of the landfill is consumed. Landfill amortization rates are
determined periodically (not less than annually) based on ground surveys and
other density measures and estimates made by the Companys engineers,
management and financial personnel. Total available airspace includes the total of estimated permitted airspace
plus an estimate of probable expansion airspace that the Company believes is
likely to be permitted. Where the Company believes permit expansions are
probable, the expansion airspace, and the projected costs related to developing
the expansion airspace are included in the airspace amortization rate
calculation. The criteria the Company uses to determine if permit expansion is
probable include but are not limited to whether: (i) the Company believes the
project has fatal flaws; (ii) the land is owned or controlled by the Company,
or under option agreement; (iii) the Company has committed to the expansion;
(iv) financial analysis has been completed and the results indicate that the
expansion has the prospect of a positive financial and operational impact; (v)
personnel are actively working to obtain land use, local and state approvals
for an expansion; (vi) the Company believes that the permit is likely to be
received; and (vii) the Company believes that the timeframe to complete the
permitting is reasonable. The Company may be unsuccessful in obtaining expansion permits for airspace
that has been considered permitted. If unsuccessful in obtaining these permits,
the previously capitalized costs will be charged to expense. Closure and Post-Closure Obligations The Company has material financial commitments for the costs associated with
its future obligations for final closure, which is the closure of the landfill
and the capping of the final uncapped areas of a landfill and post-closure
maintenance of those facilities, which is generally expected to be for a period
of up to 30 years after final site closure. On January 1, 2003, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 143, Accounting for Asset Retirement Obligation, which
provides standards for accounting for obligations associated with the
retirement of long-lived assets and the associated asset retirement costs.
SFAS 143 outlines standards for accounting for the Companys landfill
retirement obligations that have historically been referred to as closure and
post-closure liabilities. The adoption of the standard has no impact on the
Companys cash requirements. In conjunction with the change in accounting
principle, the Company reflected a $2.3 million cumulative effect of the
change, net of tax, of $1.4 million in the first quarter of 2003. SFAS 143 results in a change in the mechanics of calculating landfill
retirement obligations and the classification of where amounts are recorded in
the financial statements. Landfill retirement obligations are no longer accrued
through a provision to cost of services, but rather by an increase to
capitalized landfill costs and amortized to depreciation and amortization as
landfill airspace is consumed. Generally, the requirements for recording
closure and post-closure obligations under SFAS 143 are as follows:  
    
    Landfill closure and post-closure liabilities are calculated by
estimating the total obligation in current dollars. Cost estimates
equate the costs of third parties performing the work. Any portions of
the estimates which are based on activities being performed internally
are increased to reflect a profit margin a third party would receive to
perform the same activity. This profit margin will be taken to income
should the work ultimately be performed internally.
    
    The total obligation is carried at the net present value of future
cash expenditures, which is calculated by inflating the obligation
based upon the expected date of the expenditure using an inflation rate
of 2.5% and discounting the inflated total to its present value using
an 8.5% discount rate. The 8.5% discount rate represents the Companys
credit-adjusted risk-free rate. The resulting closure and post-closure
obligation is recorded on the balance sheet as airspace is consumed. 8




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##### Table of Contents




    
    Accretion expense is calculated by multiplying the discounted
closure and post-closure obligation at the beginning of the period by
the 8.5% credit-adjusted risk-free rate (discount rate). Accretion
expense is a non-cash charge to cost of services and increases the
related closure and post-closure obligation. This expense will
generally be less during the early portion of a landfills operating
life and increase thereafter. The impact of changes determined to be changes in estimates, based on an annual
update, is accounted for on a prospective basis. The Companys ultimate
liability for such costs may increase in the future as a result of changes in
estimates, legislation, or regulations. The following table rolls forward the net landfill and closure and post-closure
liabilities from December 31, 2003 to September 30, 2004. Landfill
    
    Closure andAssets, net
    
    Post-closure LiabilitiesDecember 31, 2003
    
    $
    50,671
    
    
    $
    3,005Capital expenditures (unaudited)
    
    
    2,447
    
    
    
    Acquisition of landfill (unaudited)
    
    
    5,975
    
    
    
    45Amortization expense (unaudited)
    
    
    (3,212
    )
    
    
    Obligations incurred and
capitalized (unaudited)
    
    
    253
    
    
    
    253Interest accretion (unaudited)
    
    
    
    
    
    
    192September 30, 2004 (unaudited)
    
    $
    56,134
    
    
    $
    3,495
 The Companys liabilities for closure and post-closure costs are as follows: September 30,
    
    December 31,2004
    
    2003(unaudited)Recorded amounts:Current portion
    
    $
    1,254
    
    
    $
    Noncurrent portion
    
    
    2,241
    
    
    
    3,005Total recorded
    
    $
    3,495
    
    
    $
    3,005
 The Companys total anticipated cost for closure and post-closure activities is
$42.1 million, as measured in current dollars. The Company believes the amount
and timing of these activities are reasonably estimable. Where the Company
believes that both the amount of a particular closure and post-closure
liability and the timing of the payments are reliably determinable, the cost in
current dollars is inflated 2.5% until expected time of payment and then
discounted to present value at 8.5%. Accretion expense is applied to the
closure and post-closure liability based on the effective interest method and
is included in cost of services. Had the Company not discounted any portion of
its liability, the amount recorded would have been $11.0 million and $9.9
million at September 30, 2004, and December 31, 2003, respectively. (b) Accounting for Acquisitions Allocation of Acquisition Purchase Price A summary of the Companys policy for accounting for acquisitions is as
follows: Acquisition purchase price is allocated to identified intangible and tangible
assets acquired and liabilities assumed based on their estimated fair values at
the dates of acquisition, with any residual amounts allocated to goodwill. The Company deems the total remaining airspace of an acquired landfill to be a
tangible asset. Therefore, for acquired landfills, it initially allocates the
purchase price to identified intangible and tangible assets acquired, including
landfill airspace, and liabilities assumed based on their estimated fair values
at the date of acquisition. The Company may consummate single acquisitions that include a combination of
collection operations and landfills. For each separately identified collection
operation and landfill acquired in a single acquisition, the 9




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##### Table of Contents



Company performs an initial allocation of total purchase price to the
identified collection operations and landfills based on their relative fair
values. Following this initial allocation of total purchase price to the
identified collection operations and landfills, the Company further allocates
the identified intangible assets and tangible assets acquired and liabilities
assumed for each collection operation and landfill based on their estimated
fair values at the dates of acquisition, with any residual amounts allocated to
either goodwill or landfill site costs, as discussed above. The Company accrues the payment of contingent purchase price if the events
surrounding the contingency are deemed probable. Contingent purchase price
related to landfills is allocated to landfill site costs and contingent
purchase price for acquisitions other than landfills is allocated to goodwill.
There are currently no pending contingent amounts due relating to any prior
acquisitions. Costs Incurred on Possible Acquisitions Costs incurred on possible acquisitions are capitalized as incurred and consist
primarily of travel costs, third-party accounting, legal, and other consulting
fees incurred in the negotiation and due diligence process, and non-refundable
down payments. Upon consummation of an acquisition, deferred costs are
capitalized as part of the purchase price. Capitalized costs are reviewed for
reasonableness on a periodic basis, and costs that management believes relate
to transactions that will not be consummated are charged to expense. (c) Impairment of Long-Lived Assets The Company adopted SFAS No. 144, Accounting for Impairment or Disposal of
Long-Lived Asset, on January 1, 2002. In accordance with SFAS 144, long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the fair value of
the asset. (d) Deferred Financing Costs Deferred financing costs consist primarily of direct legal, lender and other
consulting fees incurred in the negotiation of new debt agreements. Costs are
amortized as a component of interest expense using the effective interest
method. (e) Insurance The Company has retained a portion of the risks related to its general
liability, automobile and workers compensation insurance programs. The
exposure for unpaid claims and associated expenses, including incurred but not
reported losses, is based on estimates of ultimate losses on claims and
actuarially-determined development factors. (f) Revenue Recognition The Company recognizes revenue upon the receipt and acceptance of non-hazardous
industrial and municipal waste at its landfills. Revenue for collection
services is recognized as the services are performed. Revenue for container
rental is recognized over the rental period. (g) Stock-Based Compensation Prior to the Companys initial public offering, the Companys corporate
structure was reorganized. In conjunction with the reorganization, WCA
assumed the obligation to issue stock upon the exercise of options and warrants
that Waste Corporation of America had previously issued. Thereafter,
approximately 90% of the outstanding options and warrants were cancelled by the
issuance of 1,330,056 shares of the Company. The restructuring led to a
compensation charge based on the estimated fair value of the stock issued in
cancellation of the options and warrants. Total stock-based compensation
expense during the nine-months ended September 30, 2004 was $11.5 million ($7.5
million net of tax benefit, or $0.71 per 10




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##### Table of Contents



share). Of this amount, $6.8 million was non-cash with the balance withheld
and remitted for withholding of payroll taxes. Additionally, the Company granted options to purchase 644,000 shares of WCA
common stock at the initial public offering price. SFAS 123, Accounting for
Stock-Based Compensation, established accounting and disclosure requirements
using a fair-valued-based method of accounting for stock-based employee
compensation plans. Because the methods prescribed by SFAS 123 to determine
the fair value of options were not developed for use in valuing employee stock
options and do not consider factors such as vesting periods or other selling
limitations, the Company applied the intrinsic-value-based method of accounting
and only adopted the disclosure requirements of SFAS 123. Under this method,
the Company typically would record no compensation expense for stock options
granted to employees when the exercise price of the options is equal to or
greater than the fair market value of common stock on the date of grant.
Certain features of the Waste Corporation of America options required the
Company to recognize a periodic charge for the difference between the exercise
price of the options and the fair value of the Waste Corporation of America
common stock. For the three and nine months ended September 30, 2003, the
Company recorded stock-based compensation expense of $0.4 million and $0.6
million, respectively, associated with these Waste Corporation of America
options. Had compensation expense for options granted by Waste Corporation of America
and stock option grants under the Companys Stock Incentive Plan been
determined based on the fair value of the options at the grant date as
prescribed by SFAS 123, the Companys net income (loss) and earnings (loss) per
share would have been the following: Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    2004
    
    2003Net income (loss), as reported
    
    $
    1,148
    
    
    $
    1,159
    
    
    $
    (5,056
    )
    
    $
    4,758Plus: Stock-based
compensation expense included
in reported net income, net
of tax
    
    
    
    
    
    
    255
    
    
    
    7,496
    
    
    
    388Less: Stock-based
compensation expense pursuant
to SFAS 123 on canceled
options and warrants, net of
tax
    
    
    
    
    
    
    
    
    
    
    (7,551
    )
    
    
    Less: Stock-based
compensation expense on
granted options pursuant to
SFAS 123, net of tax
    
    
    (123
    )
    
    
    (22
    )
    
    
    (175
    )
    
    
    (67
    )Net income (loss), pro forma
    
    $
    1,025
    
    
    $
    1,392
    
    
    $
    (5,286
    )
    
    $
    5,079Earnings (loss) per share 
basic and diluted-As reported
    
    $
    0.08
    
    
    $
    0.14
    
    
    $
    (0.48
    )
    
    $
    0.59Pro forma
    
    $
    0.07
    
    
    $
    0.17
    
    
    $
    (0.50
    )
    
    $
    0.63
 For purposes of calculating the fair value of options issued during 2004 and
2003, the following assumptions were used applying the Black-Scholes option
pricing method as prescribed by SFAS 123: 2004
    
    2003Risk-free interest rate
    
    
    2.75
    %
    
    
    3.93
    %Estimated average life of options
    
    4 years
    
    10 yearsEstimated volatility
    
    
    37.4
    %
    
    
    0
    %
 As the Companys common stock only began trading in June 2004, for the options
granted in 2004 the Company has estimated the volatility of its common stock by
averaging the volatility of other publicly traded solid waste companies over a
historical period of four years. (h) Earnings Per Share 11




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##### Table of Contents



Basic and diluted earnings per share have been calculated by dividing net
income (loss) by the weighted average number of common shares outstanding
during the respective periods. There were options and warrants to purchase
884,398 shares of common stock outstanding as of September 30, 2004 and none
outstanding as of September 30, 2003. All outstanding options and warrants are
anti-dilutive, accordingly, there is no difference in basic and diluted
earnings per share. (i) Allocation of Expenses Prior to the reorganization discussed in Note 1, the Company was a wholly
owned-subsidiary of Waste Corporation of America and shared common management,
general and administrative and overhead costs. The cost for these services
were incurred by the Company and allocated to Waste Corporation of America and
Waste Corporation of Americas other subsidiaries. Prior to the
reorganization, the Company allocated these costs based upon an average of each
entitys respective proportion of total headcount and total revenues, both of
which produce comparable allocation percentages. Management believes that the
bases of allocation of expenses provides the most relevant and reasonable
method of allocating these costs to the respective operations. WCAs senior
management will continue to serve as officers of Waste Corporation of America.
During 2004, the Company entered into an administrative services agreement with
Waste Corporation of America where Waste Corporation of America will pay a
monthly fee of approximately $40,000 for administrative services, including
services of executive officers, other employees and administrative systems,
service and facilities. It is impracticable to estimate the amount of expenses
that would have been had the Company been an unaffiliated entity of Waste
Corporation of America. There has been no allocation of debt or interest expense between the Company
and Waste Corporation of America as both entities have incurred their debt in
order to finance their operations. There is no inter-company debt between the
Company and Waste Corporation of America, and the Company does not receive
proceeds from any debt incurred by Waste Corporation of America. 4. LONG TERM DEBT AND NOTES PAYABLE Long-term debt and notes payable are as follows: September 30,
    
    December 31,2004
    
    2003$150 million revolving credit facility with financial institutions,
variable interest rate based on LIBOR plus 2.0% (3.6875% at
September 30, 2004) due in 2008
    
    $
    37,233
    
    
    $
    Revolving note payable with a financial institution, variable interest
rate based on LIBOR plus 3.0%. Refinanced in June 2004 in
connection with the facility amendment
    
    
    
    
    
    
    33,263Environmental Facilities Revenue Bonds, principal payable in
varying quarterly installments, maturing in 2004-2022, variable
interest rate based on the tax exempt rate plus 2.0% (3.8% and 3.3% at
September 30, 2004 and December 31, 2003, respectively)
    
    
    22,900
    
    
    
    23,800Term loan payable to financial institution. Fully repaid in
June 2004 from the IPO proceeds
    
    
    
    
    
    
    11,115Seller note, with interest rate of 6%, due in May 2006
    
    
    444
    
    
    
    444Term loan payable to Waste Management, Inc. (WMI), with
interest rate of 8.5%. Fully repaid in June 2004 from the IPO proceeds
    
    
    
    
    
    
    13,343Notes payable to banks and financial institutions, interest ranging
from 5.8% to 10.0%, payable monthly through August 2008
    
    
    571
    
    
    
    85661,148
    
    
    
    82,821Less: Debt discount
    
    
    (92
    )
    
    
    (121
    )Less: Current portion
    
    
    (1,474
    )
    
    
    (4,004
    )$
    59,582
    
    
    $
    78,696
 In conjunction with the initial public offering, the Companys operating
subsidiary, WCA Waste Systems, Inc., entered into an amended and restated
$150.0 million senior secured credit facility with a syndicate of lenders. The
credit facility is secured by the capital stock of all subsidiaries and liens
on all of the Companys and its subsidiaries assets. 12




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##### Table of Contents



Under the facility, indebtedness under any base rate loans (as defined in the
credit facility) bears interest at the higher of (i) the federal funds
effective rate plus 1/2 of 1% or (ii) the rate of interest from time to time
announced publicly by Wells Fargo, in San Francisco, California, as its prime
rate plus the applicable margin for base rate loans (all as defined in the
credit facility). Indebtedness under any LIBOR loans (as defined in the credit
facility) bears interest at a rate per year (rounded upwards, if necessary, to
the nearest 1/16 of 1%) determined by the administrative agent to be equal to
the quotient of (a) LIBOR divided by (b) one minus the reserve requirement (as
defined in the credit facility) plus the applicable margin for LIBOR loans. The
credit facility includes the following:  
    
    a subfacility for standby letters of credit in the aggregate
principal amount of up to $30.0 million;
    
    a swing line feature for up to $10.0 million for same day advances; and
    
    a direct pay letter of credit in the aggregate principal amount of approximately $22.9 million. As of September 30, 2004, the Company had $37.2 million outstanding under the
revolving line of credit, $22.9 million in direct pay letter of credit and $3.7
million in other letters of credit issued, leaving $86.2 million in
availability. The direct pay letter of credit will continue to be used to
secure the debt associated with the Companys tax-exempt environmental
facilities revenue bonds. The remainder of the credit facility will be used
for acquisitions, equipment purchases, landfill construction and development,
standby letters of credit that the Company must provided in the normal course
of business and general corporate purposes. The revolving credit facility requires the Company to maintain certain
financial ratios and comply with certain financial covenants. These covenants
include a maximum leverage ratio, as defined, of 4.25 and a fixed charge ratio
of 1.5 as well as minimum net worth amounts, as adjusted. At September 30,
2004, the Company was in compliance with the financial covenants under these
agreements. 5. INCOME TAXES The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying values of existing assets and liabilities and
their respective tax bases based on enacted tax rates. The Company provides a
valuation allowance when, based on managements estimates, it is more likely
than not that a deferred tax asset will not be realized in future periods.
Income taxes have been provided for the nine months ended September 30, 2004
based upon the Companys anticipated 2004 effective income tax rate of 32.5%.
The current year rate is lower than the statutory rate because of the tax
benefit on stock-based compensation. The 2003 rates also include the effect of
discontinued operations as well as the cumulative effect of the change in
accounting principle. 6. STOCK OPTION AWARDS The Company adopted the 2004 WCA Waste Corporation Incentive Plan (Stock
Incentive Plan) to provide for grants of options to purchase shares of common
stock, restricted stock and other equity-based compensation to employees,
consultants and non-employee directors of the Company and its affiliates who
are eligible to participate in the Stock Incentive Plan. During the nine months
ended September 30, 2004, the Company awarded options to purchase 80,000 shares
to its non-employee directors and options to purchase 564,000 shares to its
officers and employees under its Stock Incentive Plan with an exercise price
equal to the IPO price of $9.50 per share. These options vest ratably over a
three-year period. Additionally, the Company granted 2,000 shares of
restricted stock to an officer. The restrictions related to these shares lapse
over a two-year period of continuous employment. As of September 30, 2004,
354,000 shares remain available under the Stock Incentive Plan for future
grants. The Company accounts for stock-based compensation in accordance with APB 25 and
related interpretations. Stock options are granted at prices not less than the
fair market value of the Companys common stock on the date of grant and the
Stock Incentive Plan contains no provisions that require variable plan
accounting for the stock options granted; therefore, no compensation expense is
recognized. Compensation expense resulting from grants of restricted stock or
stock units is recognized during the vesting period. 13




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##### Table of Contents



Options granted under the Stock Incentive Plan are granted at a price not less
than the fair market value of the Companys Common Stock at the date of grant.
Generally, options granted have a term of ten years from the date of grant, and
vest in 1/3 increments per year over a three-year period beginning on the first
anniversary date of the grant. 7. STOCKHOLDERS EQUITY On June 28, 2004, the Company completed its initial public offering and issued
6,587,647 new shares to the public at an aggregate price of $9.50 per share
before a 7% underwriting discount. Net proceeds of the offering after
deducting underwriting discounts and offering expenses were $55.0 million.
During July 2004, the Company issued 263,158 restricted shares which lapse
three years from the issue date. The following table reflects the changes in
stockholders equity from December 31, 2003 to September 30, 2004 (dollars in
thousands): AdditionalPaid in
    
    RetainedCommon Stock
    
    Capital
    
    Earnings
    
    TotalDecember 31, 2003
    
    $
    80
    
    
    $
    12,548
    
    
    $
    5,939
    
    
    $
    18,567Net loss
    
    
    
    
    
    
    
    
    
    
    (5,056
    )
    
    
    (5,056
    )Proceeds from IPO
    
    
    66
    
    
    
    54,952
    
    
    
    
    
    
    
    55,018Issuance of shares to acquiree
    
    
    3
    
    
    
    1,584
    
    
    
    
    
    
    
    1,587Settlement of Waste Corporation of
America options through issuance of
WCA common stock
    
    
    
    
    
    
    6,849
    
    
    
    
    
    
    
    6,849Distributions to Waste Corporation of
America
    
    
    
    
    
    
    (6,667
    )
    
    
    
    
    
    
    (6,667
    )September 30, 2004
    
    $
    149
    
    
    $
    69,266
    
    
    $
    883
    
    
    $
    70,298
 In conjunction with the completion of the IPO, the Company transferred a total
of $20.0 million to Waste Corporation of America. This amount was used in part
to repay the term note with WMI which was a legal obligation of Waste
Corporation of America but was included in the historical financial statements
of the Company because a portion of the proceeds of the IPO were to be used to
satisfy the obligation (See Note 4). The remaining portion of the amount
transferred to Waste Corporation of America represents a distribution of equity
and is reflected as a reduction of additional paid in capital. During the quarter ended September 30, 2004, warrants to purchase 1,844 shares
of Company common stock expired with an additional 11,318 warrants which
expired subsequent to September 30, 2004. 8. SEGMENT INFORMATION The Companys operations consist of the collection, transfer and disposal of
non-hazardous construction and demolition debris and industrial and municipal
solid waste. Revenues are generated primarily from the Companys collection
operations to residential, commercial and roll-off customers and landfill
disposal services. The following table reflects total revenue by source for the
three and nine months ended September 30, 2004 and 2003 (dollars in thousands): Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    2004
    
    2003Collection:Residential
    
    $
    3,652
    
    
    $
    2,868
    
    
    $
    8,658
    
    
    $
    8,477Commercial
    
    
    2,948
    
    
    
    3,094
    
    
    
    8,872
    
    
    
    9,115Roll-off
    
    
    6,085
    
    
    
    4,774
    
    
    
    15,941
    
    
    
    13,585Other
    
    
    139
    
    
    
    53
    
    
    
    327
    
    
    
    199Total Collection
    
    
    12,824
    
    
    
    10,789
    
    
    
    33,798
    
    
    
    31,376
 14




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##### Table of Contents



Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    2004
    
    2003Disposal
    
    
    8,880
    
    
    
    7,801
    
    
    
    24,458
    
    
    
    22,330Less: Intercompany
    
    
    (3,290
    )
    
    
    (2,326
    )
    
    
    (8,732
    )
    
    
    (6,595
    )Disposal, net
    
    
    5,590
    
    
    
    5,475
    
    
    
    15,726
    
    
    
    15,735Transfer and other
    
    
    3,222
    
    
    
    2,035
    
    
    
    8,484
    
    
    
    6,033Less: Intercompany
    
    
    (1,794
    )
    
    
    (1,670
    )
    
    
    (5,161
    )
    
    
    (4,957
    )Transfer and
other, net
    
    
    1,428
    
    
    
    365
    
    
    
    3,323
    
    
    
    1,076Total Revenue
    
    $
    19,842
    
    
    $
    16,629
    
    
    $
    52,847
    
    
    $
    48,187
 The Company evaluates performance based on various factors, of which an
important performance measure is EBITDA and is generally defined as earnings
before interest, taxes, accretion, depreciation and amortization. The Companys
calculation of EBITDA is income from continuing operations before cumulative
effect of changes in accounting principles and before net interest, taxes,
depreciation and amortization. EBITDA is not a measure of operating income,
operating performance or liquidity under GAAP and may not be comparable to
similarly titled measures reported by other companies. The Company uses EBITDA
in the evaluation of field operating performance as it represents operational
cash flows and is a profit measure of components that are within the control of
the operating units. The table reflects certain geographic information relating
to the Companys operations. The state of Kansas includes one MSW landfill
which is a part of the vertically integrated Missouri operations and is
combined with Missouri to form a geographic segment. The states of Alabama,
South Carolina and Tennessee have been aggregated in Other due to their size. Kansas/Missouri
    
    Texas
    
    Arkansas
    
    Other
    
    Corporate
    
    TotalThree months ended September 30,
2004:Revenue
    
    $
    9,582
    
    
    
    5,769
    
    
    
    2,188
    
    
    
    2,303
    
    
    
    
    
    
    
    19,842Depreciation and amortization
    
    
    899
    
    
    
    651
    
    
    
    268
    
    
    
    513
    
    
    
    26
    
    
    
    2,357EBITDA
    
    
    2,228
    
    
    
    2,337
    
    
    
    244
    
    
    
    851
    
    
    
    (537
    )
    
    
    5,123Total assets
    
    
    46,634
    
    
    
    28,520
    
    
    
    27,264
    
    
    
    26,220
    
    
    
    17,737
    
    
    
    146,375Capital expenditures
    
    
    481
    
    
    
    816
    
    
    
    339
    
    
    
    1,655
    
    
    
    97
    
    
    
    3,388Capital expenditures (Acquisitions)
    
    
    89
    
    
    
    1,711
    
    
    
    1,968
    
    
    
    8,136
    
    
    
    
    
    
    
    11,904Three months ended September 30,
2003:Revenue
    
    $
    9,196
    
    
    
    4,146
    
    
    
    2,006
    
    
    
    1,281
    
    
    
    
    
    
    
    16,629Depreciation and amortization
    
    
    880
    
    
    
    453
    
    
    
    279
    
    
    
    310
    
    
    
    22
    
    
    
    1,944EBITDA
    
    
    1,623
    
    
    
    1,795
    
    
    
    37
    
    
    
    552
    
    
    
    677
    
    
    
    4,684Total assets
    
    
    46,275
    
    
    
    19,288
    
    
    
    20,713
    
    
    
    13,115
    
    
    
    18,770
    
    
    
    118,161Capital expenditures
    
    
    469
    
    
    
    1,114
    
    
    
    739
    
    
    
    1,024
    
    
    
    18
    
    
    
    3,364Nine months ended September 30,
2004:Revenue
    
    $
    27,692
    
    
    
    13,699
    
    
    
    6,359
    
    
    
    5,097
    
    
    
    
    
    
    
    52,847Depreciation and amortization
    
    
    2,586
    
    
    
    1,667
    
    
    
    798
    
    
    
    1,247
    
    
    
    70
    
    
    
    6,368EBITDA
    
    
    6,185
    
    
    
    6,192
    
    
    
    964
    
    
    
    1,761
    
    
    
    (12,829
    )
    
    
    2,273Total assets
    
    
    46,634
    
    
    
    28,520
    
    
    
    27,264
    
    
    
    26,220
    
    
    
    17,737
    
    
    
    146,375Capital expenditures
    
    
    2,693
    
    
    
    1,875
    
    
    
    1,546
    
    
    
    2,614
    
    
    
    107
    
    
    
    8,835Capital expenditures (Acquisitions)
    
    
    89
    
    
    
    1,711
    
    
    
    1,968
    
    
    
    8,136
    
    
    
    
    
    
    
    11,904Nine months ended September 30,
2003:Revenue
    
    $
    26,560
    
    
    
    12,246
    
    
    
    5,925
    
    
    
    3,456
    
    
    
    
    
    
    
    48,187Depreciation and amortization
    
    
    2,569
    
    
    
    1,334
    
    
    
    838
    
    
    
    858
    
    
    
    65
    
    
    
    5,664EBITDA
    
    
    5,612
    
    
    
    6,459
    
    
    
    710
    
    
    
    1,382
    
    
    
    (738
    )
    
    
    13,425Total assets
    
    
    46,275
    
    
    
    19,288
    
    
    
    20,713
    
    
    
    13,115
    
    
    
    18,770
    
    
    
    118,161Capital expenditures
    
    
    1,220
    
    
    
    2,413
    
    
    
    817
    
    
    
    1,440
    
    
    
    26
    
    
    
    5,916
 The following presents a reconciliation of the geographical segments
aggregate EBITDA to income from continuing operations before cumulative
effect of change in accounting principle, its most directly comparable GAAP
financial measure. Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Total EBITDA for reportable segments
    
    $
    5,123
    
    
    $
    4,684
    
    
    $
    2,273
    
    
    $
    13,425Depreciation and amortization
    
    
    (2,357
    )
    
    
    (1,944
    )
    
    
    (6,368
    )
    
    
    (5,664
    )Interest expense, net
    
    
    (866
    )
    
    
    (1,307
    )
    
    
    (3,394
    )
    
    
    (3,907
    )Income tax (expense) benefit
    
    
    (752
    )
    
    
    (568
    )
    
    
    2,433
    
    
    
    (1,528
    )Income (loss) from continuing
operations before cumulative
effect of change in accounting
principle
    
    $
    1,148
    
    
    $
    865
    
    
    $
    (5,056
    )
    
    $
    2,326
 15




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##### Table of Contents



9. COMMITMENTS AND CONTINGENCIES Legal Proceedings Effective September 29, 2004, the parties settled the suit filed on June 7,
2002, by Fines Recycling, Inc., Harry Donaldson, Jr., Gerry Hamby, Hal Isbell
and Donald G. Wilson in the Circuit Court of Talladega County, Alabama, against
Waste Corporation of America, WCA of Alabama, LLC (one of the Companys
subsidiaries), Tom J. Fatjo, Jr. (Chairman and Chief Executive Officer and
Manager of Waste Corporation of America, and the Companys Chairman and Chief
Executive Officer and a Director), Jerome M. Kruszka (President and Chief
Operating Officer and Manager of Waste Corporation of America, and the
Companys President and Chief Operating Officer and a Director), and Chuck
Green, one of the Companys managers. The terms of the settlement accelerated
the Companys buy-out of the plaintiffs future payment rights contained in the
Agreement and Plan of Merger and resolved the contingency on the original
purchase consideration to acquire the landfill and property that was the
subject of the Agreement and Plan of Merger. As such, the total settlement
amount ($0.5 million) was capitalized as part of the acquisition cost of the
site. The Company is a party to various general legal proceedings which have arisen
in the ordinary course of business. While the results of these matters cannot
be predicted with certainty, the Company believes that losses, if any,
resulting from the ultimate resolution of these matters will not have a
material adverse effect on the Companys consolidated financial position,
results of operations or cash flows. However, unfavorable resolution could
affect the consolidated financial position, results of operations or cash flows
for the quarterly periods in which they are resolved. Additionally, in the normal course of business and as a result of the extensive
governmental regulation of the solid waste industry, the Company may
periodically become subject to various judicial and administrative proceedings
involving federal, state or local agencies. In these proceedings, an agency may
seek to impose fines on the Company or to revoke or deny renewal of an
operating permit of the Company. From time to time, the Company may also be
subject to actions brought by citizens groups or adjacent landowners or
residents in connection with the permitting and licensing of landfills and
transfer stations the Company owns or operates or alleging environmental damage
or violations of the permits and licenses pursuant to which the Company
operates. No assurance can be given with respect to the outcome of any such
proceedings or the effect such outcomes may have on the Company. Although the
Company is unable to estimate any possible losses, a significant judgment
against the Company, the loss of significant permits or licenses or the
imposition of a significant fine could have a material adverse effect on the
Companys financial condition, results of operations and prospects. Moreover, the Company may become party to various claims and suits pending for
alleged damages to persons and property, alleged violations of certain laws and
alleged liabilities arising out of matters occurring during the normal
operation of a waste management business. Except for routine litigation
incidental to its business, there are no pending material legal proceedings to
which the Company is a party or to which any of its property is subject.
Although the Company is unable to estimate any possible losses, management
believes that the outcome of the proceedings to which the Company is currently
a party will not have a material adverse effect upon its financial condition,
results of operations or prospects. However, unfavorable resolution of any such
proceedings could affect the consolidated results of operations or cash flows
for the quarterly period in which they are resolved. While management believes
a majority of the Companys present routine litigation is covered by insurance,
subject to deductibles, no assurance can be given with respect to the outcome
of any such proceedings or the effect such outcomes may have on the Company or
that the Companys insurance coverage would be adequate. Financial Instruments Letters of credit, performance bonds, and other guarantees have been provided
by WCA to support tax-exempt bonds, performance of landfill final closure and
post-closure requirements, insurance contracts, and other contracts. Total
letters of credit, performance bonds, insurance policies and other guarantees
outstanding at September 30, 2004 aggregated approximately $24.3 million.
Additionally, direct pay letters of credit totaling $22.9 million were
outstanding at September 30, 2004. 16




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##### Table of Contents



The Company is required to provide financial assurances to governmental
agencies under applicable environmental regulations relating to landfill
closure and post-closure obligations. The Company satisfies these financial
assurances requirements by providing performance bonds, letters of credit,
insurance policies or trust deposits. During the past three years the costs
associated with bonding and insurance have risen dramatically, the financial
capacity and other requirements imposed by bonding and insurance companies have
become more difficult to comply with than in prior years and the number of such
bonding and insurance companies has decreased. To obtain closure and
post-closure bonds and certain performance bonds, Mr. Tom Fatjo, Jr. (the
Companys chairman of the board and chief executive officer), Mr. Jerome
Kruszka (a director and the Companys president and chief operating officer)
and Mr. William Esping (a principal of the Companys largest stockholder) were
required to provide personal guarantees to the Companys bonding company with
respect to the Companys obligations. The Company currently pays each of them
a fee of $10,000 per month for these guarantees and may in the future have to
continue these payments to compensate these or other executive officers or
directors for providing these types of personal guarantees. Environmental Matters The Company is subject to liability for any environmental damages that its
solid waste facilities may cause to neighboring landowners or residents,
particularly as a result of the contamination of soil, groundwater, surface
water, and drinking water, including damage resulting from conditions existing
prior to the acquisition of such facilities by the Company. The Company may
also be subject to liability for any off-site environmental contaminations
caused by pollutants or hazardous substances whose transportation, treatment,
or disposal was arranged by the Company or its predecessors. Any substantial
liability which exceeds the limits of available insurance for environmental
damage incurred by the Company could have a material adverse effect on the
Companys financial condition, results of operations, or cash flows. As of
September 30, 2004, the Company is not aware of any significant environmental
liabilities. 17




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included
elsewhere in this quarterly report. In addition, reference should be made to
our audited consolidated financial statements and notes thereto and related
Managements Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 2003 appearing in our Prospectus as
filed with the SEC on June 23, 2004. The discussion below contains
forward-looking statements that involve risks and uncertainties. For
additional information regarding some of these risks and uncertainties please
read Risk Factors and Cautionary Statement About Forward-Looking Statements.
Unless the context requires otherwise, references in this quarterly report on
Form 10-Q to WCA Waste Corporation, we, us or our refer to WCA Waste
Corporation and its direct and indirect subsidiaries on a consolidated basis. Overview We are a vertically integrated, non-hazardous solid waste management
company providing non-hazardous construction/demolition, industrial and
municipal solid waste collection, transfer, and disposal services in the south
and central regions of the United States. We serve approximately 130,000
commercial, industrial and residential customers in Alabama, Arkansas, Kansas,
Missouri, South Carolina, Tennessee and Texas. We serve our customers through
19 collection operations, 12 transfer stations, six municipal solid waste (MSW)
landfills and eight construction and demolition debris (C&D) landfills. One of
our transfer stations and two of our landfills, one MSW landfill and one C&D
landfill, are fully permitted but have not yet commenced operations.
Additionally, we currently operate but do not own two additional transfer
stations, and we hold certain prepaid disposal rights at landfills in Texas,
Oklahoma and Arkansas owned and operated by one of our competitors. Acquisition Strategy Our future financial performance will significantly depend on successful
implementation of our strategy of acquisitions in our existing markets and
selected additional markets. In markets where we already own a landfill, we
intend to focus on expanding our presence by acquiring smaller companies that
also operate in that market or in adjacent markets (tuck in acquisitions).
Tuck-in acquisitions will allow growth in revenue and increase market share and
enable integration and consolidation of duplicative facilities and functions to
maximize cost efficiencies and economies-of-scale. We will typically seek to
enter a new market by acquiring a permitted landfill operation in that market.
Upon acquiring a landfill in a new market, we then intend to expand our
operations by acquiring collection operations in the new market and
internalizing the waste into our landfill. We intend to pursue our acquisition strategy with the new borrowing
capacity under a $150 million credit facility entered into in connection with
the closing of our initial public offering. We expect that our acquisition
strategy will result in an annual revenue run rate of approximately $200
million and will triple our annual EBITDA run rate to approximately $60
million over the next three to four years. Run rate determinations are made
based on estimations from information provided to us. Management determines
the period over which to calculate a run rate based on factors they deem to be
reasonable. Actual revenues may or may not equal the estimated run rate. We
intend to pay for our acquisitions primarily with cash, including borrowings
under our credit facilities. We are currently evaluating expanding our credit
facility in the near future. During the quarter ended September 30, 2004, we completed five
acquisitions. These operations are anticipated to generate annual run rate
revenue of approximately $16 million. The purchase price for these
acquisitions consisted of $22.0 million of cash and 263,158 restricted shares
of Company stock. The following table sets forth additional information regarding
the acquisitions. ApproximateAnnualizedRevenueCompany
    
    Location
    
    Completion date
    
    Operations
    
    Run RateTexas Environmental Waste
    
    Houston, TX
    
    July 13, 2004
    
    Collection
    
    $5.6 millionAshley Trash Service
    
    Springfield, MO
    
    August 17, 2004
    
    Collection
    
    $0.4 million
 18




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##### Table of Contents



ApproximateAnnualizedRevenueCompany
    
    Location
    
    Completion date
    
    Operations
    
    Run RatePower Waste
    
    Birmingham, AL
    
    August 31, 2004
    
    Collection
    
    $1.0 millionBlount Recycling and
other related companies
    
    Birmingham, AL
    
    September 3, 2004
    
    Collection & Landfill
    
    $6.0 millionTranslift
    
    Little Rock, AR
    
    September 17, 2004
    
    Collection
    
    $2.9 million
 After giving effect to these acquisitions, we now operate a total of 14
landfills, 19 collection operations and 12 transfer stations, have
approximately 225 routes and handle approximately 5,400 landfill tons per day
at our landfills. We have entered into letters of intent with four separate companies that
collectively have estimated annualized run rate revenue of approximately $20
million and are also negotiating with other waste companies concerning
potential acquisitions. Assuming final definitive agreements can be
successfully negotiated and satisfactory due diligence completed, we intend to
consummate the acquisitions covered by the letters of intent before year end. 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 new employees to comply with Department of
Transportation regulations, (iii) implementing our safety program, and (iv)
re-routing trucks and equipment. General Our operations consist of the collection, transfer and disposal of
non-hazardous construction and demolition debris and industrial and municipal
solid waste. Our revenues are generated primarily from our collection
operations to residential, commercial and roll-off customers and landfill
disposal services. Roll-off service is the hauling and disposal of large waste
containers (typically between 10 and 50 cubic yards) that are loaded on to and
off of the collection vehicle. The following table reflects our total revenue
by source for the three and nine months ended September 30, 2004 and 2003 (in
thousands). Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    2004
    
    2003Collection:Residential
    
    $
    3,652
    
    
    $
    2,868
    
    
    $
    8,658
    
    
    $
    8,477Commercial
    
    
    2,948
    
    
    
    3,094
    
    
    
    8,872
    
    
    
    9,115Roll-off
    
    
    6,085
    
    
    
    4,774
    
    
    
    15,941
    
    
    
    13,585Other
    
    
    139
    
    
    
    53
    
    
    
    327
    
    
    
    199Total Collection
    
    
    12,824
    
    
    
    10,789
    
    
    
    33,798
    
    
    
    31,376Disposal
    
    
    8,880
    
    
    
    7,801
    
    
    
    24,458
    
    
    
    22,330Less: Intercompany
    
    
    (3,290
    )
    
    
    (2,326
    )
    
    
    (8,732
    )
    
    
    (6,595
    )Disposal, net
    
    
    5,590
    
    
    
    5,475
    
    
    
    15,726
    
    
    
    15,735Transfer and other
    
    
    3,222
    
    
    
    2,035
    
    
    
    8,484
    
    
    
    6,033Less: Intercompany
    
    
    (1,794
    )
    
    
    (1,670
    )
    
    
    (5,161
    )
    
    
    (4,957
    )Transfer and other, net
    
    
    1,428
    
    
    
    365
    
    
    
    3,323
    
    
    
    1,076Total Revenue
    
    $
    19,842
    
    
    $
    16,629
    
    
    $
    52,847
    
    
    $
    48,187
 Please read Note 8 to our condensed consolidated financial statements for
certain geographic information related to our operations and information on how
we evaluate performance for each region. We are currently evaluating the disposal prices that we charge at our 14
landfills because we believe that improving landfill pricing could be an
important factor in the long-term value of our landfills and in
improving our operating results. 19




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##### Table of Contents



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 premiums and claims expense, selling expenses,
wages and salaries of field personnel located at operating facilities,
third-party transportation expense and state and local waste taxes. On
December 1, 2001, we converted to a $250,000 deductible insurance policy for
general liability, workers compensation and automobile liability. The
frequency and amount of claims or incidents could vary significantly from
quarter-to-quarter and/or year-to-year, resulting in increased volatility of
our costs of services. General and administrative expense includes the salaries and benefits of
our corporate employees, certain centralized reporting and cash management
costs and other overhead costs associated with our corporate office. Depreciation expense includes depreciation of fixed assets over their
useful lives using the straight-line method. We capitalize third-party expenditures related to pending acquisitions,
such as legal, engineering, and accounting expenses, and certain direct
expenditures such as travel costs. We expense indirect acquisition costs, such
as salaries and other corporate services, as we incur them. We routinely
evaluate all capitalized costs, and expense those related to projects that we
believe are not likely to succeed. Goodwill represents the excess of the purchase price over the fair value
of the net assets of the acquired entities. In allocating the purchase price
of an acquired company among its assets, we first assign value to the tangible
assets, followed by intangible assets such as customer relationships and
covenants not to compete and any remaining amounts are then allocated to
goodwill. Results of Operations Three Months Ended September 30, 2004 Compared to Three Months Ended September
30, 2003 The following table sets forth items in our condensed consolidated statement of
operations and as a percentage of revenues for the three months ended September
30, 2004 and 2003 (dollars in thousands). Three Months Ended September 30,2004
    
    2003Revenue
    
    $
    19,842
    
    
    
    100.0
    %
    
    $
    16,629
    
    
    
    100.0
    %Expenses:Cost of services
    
    
    13,557
    
    
    
    68.3
    
    
    
    10,609
    
    
    
    63.8Depreciation and amortization
    
    
    2,357
    
    
    
    11.9
    
    
    
    1,944
    
    
    
    11.7Accretion expense
    
    
    64
    
    
    
    0.3
    
    
    
    52
    
    
    
    0.3Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    393
    
    
    
    2.4Other general and administrative
    
    
    1,267
    
    
    
    6.4
    
    
    
    894
    
    
    
    5.4Operating income
    
    
    2,597
    
    
    
    13.1
    
    
    
    2,737
    
    
    
    16.5Interest expense, net
    
    
    (866
    )
    
    
    (4.4
    )
    
    
    (1,307
    )
    
    
    (7.9
    )Other income, net
    
    
    169
    
    
    
    0.9
    
    
    
    3
    
    
    
    0.0Income tax provision
    
    
    (752
    )
    
    
    (3.8
    )
    
    
    (568
    )
    
    
    (3.4
    )Income from continuing operations
before cumulative effect of change in
accounting principle
    
    $
    1,148
    
    
    
    5.8
    %
    
    $
    865
    
    
    
    5.2
    %
 Revenue.Total revenue for the three months ended September 30, 2004
increased $3.2 million, or 19.3%, to $19.8 million from $16.6 million for the
three months ended September 30, 2003. Acquisitions contributed $2.1 million
of the increase while increased volumes and pricing contributed $0.9 and $0.2
million, respectively. Non-acquisition related volume increases were a result
of the opening of two transfer stations in 2004 as well as other internal
growth. Cost of services.Total cost of services for the three months ended
September 30, 2004 increased $3.0 million, or 27.8%, to $13.6 million from
$10.6 million for the three months ended September 30, 2003. Acquisitions and
integration costs accounted for a majority of the increased cost of services.
Additional 20




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##### Table of Contents



cost increases were experienced with the increased cost of fuel.
Moreover, fuel costs as a percentage of revenue increased from 3.8% in the
third quarter of 2003 to 4.8% in the third quarter of 2004. Although we have a
fuel surcharge in place, these increased costs are greater than we could pass
through. Depreciation and amortization.Depreciation and amortization expense for
the three months ended September 30, 2004 increased $0.4 million, or 21.2%, to
$2.4 million from $1.9 million for the three months ended September 30, 2003.
Depreciation as a percentage of revenue remained stable at approximately 11.9%.
Overall increases can be attributed to acquisitions and increased amortization
corresponding with increased volumes. Stock-based compensation.During the quarter ended September 30, 2003, we
recorded a non-cash compensation charge of $0.4 million in connection with
stock options outstanding. Prior to our internal reorganization in June 2004,
our former parent, Waste Corporation of America, had options and warrants
outstanding. As part of the internal reorganization, we assumed the obligation
to issue shares upon the exercise of such options and warrants. Upon
completion of the reorganization, approximately 90% of such options and
warrants were cancelled in exchange for shares of our common stock. Other general and administrative.Total other general and administrative
expense for the three months ended September 30, 2004 increased $0.4 million,
or 41.7%, to $1.3 million from $0.9 million for the three months ended
September 30, 2003. The increase is primarily attributable to lower
administrative costs in the prior year period before the Company became a
public company as well as increased administrative costs associated with being
a public company and the ongoing acquisition program and increases in the
employees incentive compensation accrual. Interest expense, net.Interest expense decreased in the quarter ended
September 30, 2004 when compared to the same quarter in 2003. The reduction
relates to the lower average debt balance resulting from the repayment of a
portion of the outstanding debt with the proceeds of the IPO. Other income, net.Other income, net in the current period primarily
includes the gain associated with the sale of certain rural routes in Missouri. Nine Months Ended September 30, 2004 Compared to Nine Months Ended September
30, 2003 The following table sets forth items in our condensed consolidated statement of
operations and as a percentage of revenues for the nine months ended September
30, 2004 and 2003 (dollars in thousands). Nine Months Ended September 30,2004
    
    2003Revenue
    
    $
    52,847
    
    
    
    100.0
    %
    
    $
    48,187
    
    
    
    100.0
    %Expenses:Cost of services
    
    
    35,484
    
    
    
    67.1
    
    
    
    31,054
    
    
    
    64.4Depreciation and amortization
    
    
    6,368
    
    
    
    12.0
    
    
    
    5,664
    
    
    
    11.8Accretion expense
    
    
    192
    
    
    
    0.4
    
    
    
    155
    
    
    
    0.3Stock-based compensation
    
    
    11,532
    
    
    
    21.8
    
    
    
    597
    
    
    
    1.2Other general and administrative
    
    
    3,633
    
    
    
    6.9
    
    
    
    2,988
    
    
    
    6.2Operating income (loss)
    
    
    (4,362
    )
    
    
    (8.3
    )
    
    
    7,729
    
    
    
    16.0Interest expense, net
    
    
    (3,394
    )
    
    
    (6.4
    )
    
    
    (3,907
    )
    
    
    (8.1
    )Other income, net
    
    
    267
    
    
    
    0.5
    
    
    
    32
    
    
    
    0.1Income tax (provision) benefit
    
    
    2,433
    
    
    
    4.6
    
    
    
    (1,528
    )
    
    
    (3.2
    )Income (loss) from continuing
operations before cumulative effect
of change in accounting principle
    
    $
    (5,056
    )
    
    
    (9.6
    )%
    
    $
    2,326
    
    
    
    4.8
    %
 Revenue.Total revenue for the nine months ended September 30, 2004
increased $4.7 million, or 9.7%, to $52.8 million from $48.1 million for the
nine months ended September 30, 2003. Acquisitions completed in the third
quarter of 2004 contributed $2.1 million of the increase while volume increases
resulted in an increase of $2.5 million. Non-acquisition related volume
increases were a result of the opening of two transfer stations in 2004 as well
as other internal growth. 21




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##### Table of Contents



Cost of services.Total cost of services for the nine months ended
September 30, 2004 increased $4.4 million, or 14.3%, to $35.5 million from
$31.1 million for the nine months ended September 30, 2003. Operating cost
increases reflect the impact of recent acquisitions and other volume related
growth. Additionally, increases in fuel costs and incentive compensation
accruals contributed to the cost increases. Fuel costs as a percentage of
revenue increased from 4.2% for the nine months ended September 30, 2003 to
4.7% for the nine months ended September 30, 2004. Although we have a fuel
surcharge in place, these increased costs are greater than we could pass
through. Depreciation and amortization.Depreciation and amortization expense for
the nine months ended September 30, 2004 increased $0.7 million, or 12.4%, to
$6.4 million from $5.7 million for the nine months ended September 30, 2003.
The increase was primarily associated with acquisitions during 2004 as well as
the commencement of two new transfer station operations during the first
quarter of 2004. Stock-based compensation.Prior to our internal reorganization described
in Note 1 to our unaudited condensed consolidated financial statements, our
former parent, Waste Corporation of America, had options and warrants
outstanding. As part of the internal reorganization, we assumed the obligation
to issue shares upon the exercise of such options and warrants. Subsequently,
we extinguished approximately 90% of such outstanding stock options and
warrants by issuing 1,330,056 shares of our common stock. This restructuring
led to a compensation charge of $11.5 million prior to the IPO that occurred in
June 2004 based on the estimated fair value of the stock issued in cancellation
of the options and warrants. Other general and administrative.Total other general and administrative
expense for the nine months ended September 30, 2004 increased $0.6 million, or
21.6%, to $3.6 million from $3.0 million for the nine months ended September
30, 2003. The increase is primarily attributable to increased accruals for
incentive compensation as compared to the same period in 2003. Other factors
resulting in increased costs include the incremental overhead required to
comply with public reporting responsibilities as well as additional overhead
incurred in support of the acquisition program. Interest expense, net.Interest expense, net decreased by $0.5 million in
the nine-months ended September 30, 2004 when compared to the same period in
2003. The reduction relates to the lower average debt balance resulting from
the repayment of a portion of the outstanding debt with the proceeds of the
IPO. Other income, net.Other income, net, for the nine months ended September
30, 2004, reflects primarily the gains on the disposition of fixed assets and
the gain associated with the sale of certain rural routes in Missouri. Income tax (provision) benefit.Income taxes in the nine month period
ended September 30, 2004 as a percent of pre-tax income was 32.5% compared to
39.6% for the same period in 2003. The decrease in the current year rate
relates to the lower provision benefit applied to the stock-based compensation
charge in the second quarter of 2004, as well as the impact of non-deductible
expenses reducing our net loss for tax purposes. Cumulative effect of change in accounting principle.The cumulative
effect of change in accounting principle for the period ended September 30,
2003 is due to the adoption of SFAS 143, effective January 1, 2003, which
resulted in a $2.3 million benefit, net of a $1.4 million tax expense. 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 acquisition strategy also requires
significant capital. We plan to meet our capital needs primarily from
availability under our credit
facility and through cash flow from operations. We have not currently hedged
any market risk related to interest rates. We are currently evaluating whether
to enter into an interest rate swap agreement as well as potentially expanding
our credit facility. During the quarter ended September 30, 2004, we used approximately $22
million of cash related to the completion of five acquisitions. These funds
came primarily from the use of the revolving credit facility as well as cash
flow from operations. 22




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As of September 30, 2004, we had total outstanding debt of approximately
$61.1 million, consisting primarily of approximately $22.9 million of
tax-exempt environmental facilities revenue bonds and approximately $37.2
million outstanding under our credit facility. As of September 30, 2004, we had a working capital deficit of $0.3 million
which had improved $2.3 million from a working capital deficit of $2.6 million
as of December 31, 2003. Our credit facility includes a swing-line feature,
which monitors cash requirements or excesses on a daily basis. After meeting
current working capital and capital expenditure requirements, our cash strategy
is to use the swing-line feature of our credit facility to maintain a minimum
cash and cash equivalents balance and use excess cash to reduce our
indebtedness under the credit facility. Credit Facility In June 2004, WCA Waste Systems, Inc., our operating subsidiary and the
borrower, entered into an amended and restated $150.0 million senior secured
credit facility with Wells Fargo Bank, National Association, as the
administrative agent and the lenders party thereto. As of September 30, 2004,
we had $37.2 million outstanding under the revolving facility, $22.9 million in
direct pay letter of credit and $3.7 million in other letters of credit issued,
leaving us with $86.2 million in availability. Indebtedness under any base rate loans (as defined in the credit facility)
carries interest at the higher of (i) the federal funds effective rate plus 1/2
of 1% or (ii) the rate of interest from time to time announced publicly by
Wells Fargo, in San Francisco, California, as its prime rate plus the
applicable margin for base rate loans (all as defined in the credit facility).
Indebtedness under any LIBOR loans (as defined in the credit facility) carries
interest at a rate per year (rounded upwards, if necessary, to the nearest 1/16
of 1%) determined by the administrative agent to be equal to the quotient of
(a) LIBOR divided by (b) one minus the reserve requirement (as defined in the
credit facility) plus the applicable margin for LIBOR loans. The credit
facility includes the following:  
    
    a subfacility for standby letters of credit in the aggregate principal
amount of up to $30.0 million;
    
    a swing line feature for up to $10.0 million for same day advances; and
    
    a direct pay letter of credit in the aggregate principal amount of
approximately $22.9 million. The direct pay letter of credit is used to secure the debt associated with
our tax-exempt environmental facility revenue bonds. The remainder of the
credit facility will be used for acquisitions, equipment purchases, landfill
construction and development, standby letters of credit that we must provide in
the normal course of our business, and general corporate purposes. Significant terms of the credit facility are detailed in the following
table. Each of the capitalized terms included in the table below have the
meanings assigned to them in the credit facility. Security:
    
    Capital stock of our subsidiaries and all tangible
(including real estate) and intangible assets
belonging to us and our subsidiaries.Maturity:
    
    Four years from closing.Financial Covenants:
    
    Maximum Leverage Ratio. 4.25x (Funded Debt/Pro Forma
Adjusted EBITDA).Maximum Senior Funded Debt Leverage Ratio. 3.50x
until June 30, 2006, and 3.25x thereafter (Senior
Funded Debt/Pro Forma Adjusted EBITDA).Minimum Fixed Charge Coverage Ratio. 1.50x (Pro
Forma Adjusted EBITDA less Capital Expenditures and
cash income taxes/ Aggregate of cash interest
payments, capital lease payments and scheduled
principal payments of Debt).Minimum Net Worth. 85% of Net Worth at Closing, plus
50% of positive net income, plus 100% of the increase
to Net Worth from equity offerings after
 23




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associated costs of the offerings.Other Covenants:
    
    Acquisition and Expansion Capital Expenditures
Basket. No limit provided Leverage Ratio remains
below 3.00x and $10 million is available on the
Revolving Credit after the acquisition; if Leverage
Ratio exceeds 3.00x, limited to $20 million per year.Additional Indebtedness. Limited to $10 million per
year for purchase money financing and capital leases.
Borrower may issue subordinated debt so long as the
terms and conditions are satisfactory to
Administrative Agent and Lenders and Borrower
demonstrates pro forma compliance.
 The covenants in the credit facility limit our ability and certain of our
subsidiaries to, among other things: (i) create, incur, assume or permit to
exist certain liens; (ii) make certain investments, loans, and advances; (iii)
enter into any sale-leaseback transactions; (iv) materially change the nature
of our business; (v) create, incur, assume or permit to exist certain leases;
(vi) merge into or with or consolidate with any other person; (vii) sell, lease
or otherwise dispose of all or substantially all of our property or assets;
(viii) discount or sell any of our notes receivable or accounts receivable;
(ix) transact business with affiliates unless in the ordinary course of
business and on an arms length basis; (x) make certain negative pledges; (xi)
amend, supplement or otherwise modify the terms of any subordinated debt or
prepay, redeem or repurchase any subordinated debt; (xii) pay any dividends.
Further, we must make mandatory prepayments of outstanding indebtedness under
the credit facility upon the issuance of debt or equity securities by us or our
subsidiaries. The amount of the prepayment shall be equal to 100% of the net
cash proceeds of any such offering. As of September 30, 2004, we were in
compliance with all our covenants. All amounts under the credit facility are recourse obligations and are
subject to acceleration upon the occurrence of certain events, including
nonpayment, breaches of representations, warranties and covenants (subject to
cure in certain instances), bankruptcy or insolvency, defaults under other debt
arrangements, failure to pay judgments and the occurrence of events creating
material adverse effects. Our credit facility prohibits the payment of cash dividends by our primary
operating subsidiary to us (or any intermediary) under all circumstances,
meaning we have very limited sources of cash. Our only source of cash to pay
dividends is distributions from our subsidiaries and, therefore, our ability to
declare or pay future cash dividends on our common stock would be subject to,
among other factors, a relaxation of this prohibition. If we are unable to incur additional indebtedness under our credit
facility, our acquisition strategy will be negatively impacted. Contractual Obligations In connection with our initial public offering in June 2004, we repaid
outstanding indebtedness and entered into a credit facility. We used a portion
of the proceeds of the IPO to repay the outstanding balance on term loans with
a bank and with Waste Management, Inc., as well as a portion of our revolving
credit facility. During the quarter ended September 30, 2004, we borrowed approximately $22
million under our credit facility primarily related to the completion of five
acquisitions as discussed elsewhere in this quarterly report. These borrowings
increased out total outstanding long-term debt, net of discount as of September
30, 2004 to $61.1 million, consisting primarily of approximately $22.9 million
of tax-exempt environmental facilities revenue bonds and approximately $37.2 million
outstanding under our credit facility. There were no other material changes outside of the ordinary course of our
business during the three months ended September 30, 2004 to the other items
listed in the Contractual Obligations table included in our Prospectus dated
June 22, 2004 (and filed with the SEC on June 23, 2004). Cash Flows The changes in cash flows from operating activities are primarily due to
changes in the components of working capital from period to period. The changes
in working capital components were impacted by the 24




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continued expansion of our
business. Other items impacting operating cash flows include depreciation and
amortization as well as a portion of the stock-based compensation which were
non-cash expenses. Cash provided by operations for the nine months ended
September 30, 2004 and 2003 was $7.4 million and $9.5 million, respectively.
Excluding the cash portion of the stock-based compensation, cash provided by
operating activities for the nine months ended September 30, 2004 was $12.1
million. Cash used in investing activities consist primarily of cash used for
capital expenditures and the acquisition of businesses. Cash used for capital
expenditures, including acquisitions, was $32.1 million and $12.4 million for
the nine months ended September 30, 2004 and 2003, respectively. Investing
cash flows in the nine months ended September 30, 2003 reflected $9.8 million
of proceeds related to the disposal of discontinued operations. We expect non-acquisition related capital expenditures for 2004 to
approximate $11.5 million. We intend to fund these expenditures principally
through cash flow from operations and borrowings under our credit facility. In
addition, if successful in our acquisition strategy, we may make substantial
additional expenditures in acquiring solid waste collection and disposal
businesses. We believe that the funds available from our cash flow from
operations and borrowings under our credit facility will provide adequate cash
to fund our acquisition strategy and other cash needs for the foreseeable
future. Included in our capital expenditures are expenditures incurred to
construct and to maintain our landfills and related facilities to comply with
applicable environmental laws and regulations. Some of those expenditures
include the acquisition of land and airspace, engineering and permitting costs,
cell construction costs and direct site improvement costs. Moreover, in
addition to the $11.5 million in capital expenditures described above, we may
incur additional expenditures in connection with the recently approved permit
to expand our Central Missouri landfill. In July 2004, the Company filed a
lawsuit over a mining lease covering a portion of this expansion area. While
the parties are engaged in settlement discussions, no assurance of a favorable
resolution can be given. If we are unsuccessful, our expansion could be
adversely affected by our inability to utilize all or part of the land and
associated airspace affected by this lease, but even if we are successful, we
may incur substantially higher capital costs than previously expected to
utilize this airspace, as we will be required to conduct our own excavation on
these lands, which we believe to be the obligation of the lessee. Cash used in financing activities during the nine months ended September
30, 2004 and 2003 include borrowings under our credit facilities, repayments of
debt in all periods, distributions to our former parent and financing costs
associated with amendments to our credit facility in all periods. Proceeds
from financing includes the net proceeds from our initial public offering
funded on June 28, 2004 and the use of the credit facility for the closing of
five acquisitions during the quarter ended September 30, 2004. These proceeds
were used in part to repay outstanding debt including the term loans with both
a bank and Waste Management, Inc., a portion of the outstanding revolving
credit facility and distributions to our former parent. Landfill Accounting Policy Capitalized Landfill Costs At September 30, 2004, the Company owned six municipal solid waste (MSW)
landfills and eight construction and demolition debris (C&D) landfills. One
MSW landfill and one C&D landfill are fully permitted but not constructed and
have not yet commenced operations as of September 30, 2004. 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 of September 30, 2004, no capitalized
interest had been included in capitalized landfill costs. However, in the
future, interest could be capitalized on landfill construction projects, but
only during the period the assets are undergoing activities to ready them for
their intended use. Capitalized landfill costs are amortized ratably using the
units-of-production method over the estimated useful life of the site as
airspace of the landfill is consumed. Landfill amortization rates are
determined periodically (not less than annually) based on aerial and ground
surveys and other density measures and estimates made by our internal and
third-party engineers. Total available airspace includes the total of estimated permitted
airspace plus an estimate of probable expansion airspace that we believe is
likely to be permitted. Where we believe permit expansions are 25




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probable, the
expansion airspace, and the projected costs related to developing the expansion
airspace are included in the airspace amortization rate calculation. The
criteria we use to 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 has the prospect of a positive financial
and operational impact;
    
    personnel are actively working to obtain land use, local and
state approvals for an expansion 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. We may be unsuccessful in obtaining expansion permits for airspace that
has been considered probable. If we are unsuccessful in obtaining these
permits, the previously capitalized costs will be charged to expense. We have
included 5.6 million cubic yards of expansion airspace with estimated
development costs of approximately $0.7 million in our calculation of the rates
used for the amortization of landfill costs. Closure and Post-Closure Obligations We have material financial commitments for the costs associated with our
future obligations for final closure, which is the closure of the landfill, the
capping of the final uncapped areas of a landfill and post-closure maintenance
of those facilities, which is generally expected to be for a period of up to 30
years for MSW facilities and up to five years for C&D facilities. On January 1, 2003, we adopted SFAS 143, Accounting for Asset Retirement
Obligations (SFAS 143), which provides standards for accounting for
obligations associated with the retirement of long-lived assets and the
associated asset retirement costs. Generally, the requirements for recording
closure post-closure obligations under SFAS No. 143 are as follows:  
    
    Landfill closure and post-closure liabilities are calculated
by estimating the total obligation in current dollars. Cost
estimates equate the costs of third parties performing the work.
Any portion of the estimates which are based on activities being
performed internally are increased to reflect a profit margin a
third party would receive to perform the same activity. This profit
margin will be taken to income once the work is performed
internally.
    
    The total obligation is carried at the net present value of
future cash flows, which is calculated by inflating the obligation
based upon the expected date of the expenditure using an inflation
rate of 2.5% and discounting the inflated total to its present value
using an 8.5%
discount rate. The 8.5% discount rate represents our credit-adjusted
risk-free rate. The resulting closure and post-closure obligation is
recorded as an increase in this liability as airspace is consumed.
    
    Accretion expense is calculated based on the 8.5% discount
rate and is charged to cost of services and increases and related
closure and post-closure obligation. This expense will generally
be less during the early portion of the landfills operating life
and increase thereafter. The following table sets forth the rates we used for the amortization of
landfill costs and the accrual of closure and post-closure costs for 2003 and
for the nine months ended September 30, 2004. 26




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Nine MonthsYear ended
    
    EndedDecember 31,
    
    September 30,2003
    
    2004Number of landfills owned
    
    
    13
    
    
    
    14Landfill depletion and amortization expense
(in thousands)
    
    $
    4,066
    
    
    $
    3,212Accretion expense (in thousands)
    
    
    207
    
    
    
    192Closure and post-closure expense
(in thousands)
    
    
    
    
    
    
    4,273
    
    
    
    3,404Airspace consumed (in thousands of
cubic yards)
    
    
    2,301
    
    
    
    1,863Depletion, amortization, accretion,
closure and post-closure expense per
cubic yard of airspace consumed
    
    $
    1.86
    
    
    $
    1.83
 The impact of changes determined to be changes in estimates, based on an
annual update, is accounted for on a prospective basis. Our ultimate liability
for such costs may increase in the future as a result of changes in estimates,
legislation, or regulations. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We do not currently have any arrangements in place to reduce market
exposure with respect to interest rates under our outstanding debt as of
September 30, 2004 of $60.1 million that bears interest at variable or floating
rates. Therefore, we would bear exposure to increases in interest rates and
our major market risk exposure is changing interest rates and fluctuations in
LIBOR. We are currently evaluating whether to enter into interest rate hedging
arrangements. We have entered into interest rate swap agreements in the past,
but not for trading purposes. As of September 30, 2004, we were exposed to cash flow risk due to changes
in interest rates with respect to $37.2 million in outstanding floating rate
based loans under our credit facility and $22.9 million of tax-exempt bonds.
Please read Managements Discussion and Analysis of Financial Condition and
Results of Operations-Credit Facility included elsewhere in the quarterly
report on Form 10-Q for a discussion of our credit facility. 
 ITEM 4. CONTROLS AND PROCEDURES. We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this quarterly report. Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective in ensuring
that the information required to be disclosed by us (including our consolidated
subsidiaries) in the reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms. Based on an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial
Officer, there have been no changes in our internal control 27




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over financial
reporting that occurred during our last fiscal quarter, identified in
connection with that evaluation, that has materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. 28




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PART II-OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS. Please read Note 9 to our unaudited condensed consolidated financial
statements included elsewhere in this quarterly report on Form 10-Q for
information regarding our legal proceedings. 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. (a) On July 13, 2004, in connection with our acquisition of Texas
Environmental Waste, a municipal solid waste company located in Houston, Texas,
we issued 263,158 restricted shares of our common stock to the owners of Texas
Environmental Waste as part of the purchase price of the acquisition. Please
read Note 2 to our condensed consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations  Acquisition Strategy included
elsewhere in this quarterly report for additional information regarding this
acquisition. This transaction was undertaken in reliance upon the exemption
from the registration requirements of the Securities Act of 1933 afforded by
Section 4(2). We believe the exemptions other than the foregoing exemption may
exist for this transaction. (b) Not applicable (c) Not applicable 
 ITEM 6. EXHIBITS. 10.1
    
    Purchase and Sale of Assets Agreement, dated as of September 30, 2004, by and between WCA of
Alabama, L.L.C., Bluewater Diving, LLC, Frank Hollis and Van Mulvehill.*10.2
    
    Purchase and Sale of Assets Agreement, dated as of September 3, 2004, by and between WCA of
Alabama, L.L.C., BRC, LLC, Frank Hollis and Van Mulvehill. *10.3
    
    Purchase and Sale of Assets Agreement, dated as of September 3, 2004, by and between WCA of
Alabama, L.L.C., Blount Recycling, LLC, Frank Hollis and Van Mulvehill.*10.4
    
    Form of Stock Option Agreement under the 2004 WCA Waste Corporation Incentive Plan.10.5
    
    Form of Restricted Stock Grant under the 2004 WCA Waste Corporation Incentive Plan.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.32.1
    
    Section 1350 Certification of Chief Executive Officer.32.2
    
    Section 1350 Certification of Chief Financial Officer.
    *
    
    Confidential treatment has been requested with respect to certain information
contained in this agreement. 29




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. WCA WASTE CORPORATIONBy:
    /s/ CHARLES A. CASALINOVACharles A. CasalinovaSenior Vice President and Chief Financial
Officer (Principal Financial Officer) By:
    /s/ KEVIN D. MITCHELLKevin D. MitchellVice President and Controller
(Principal Accounting Officer) Date: November 10, 2004 30




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EXHIBIT INDEX 10.1
    
    Purchase and Sale of Assets Agreement, dated as of September 30, 2004, by and between WCA of
Alabama, L.L.C., Bluewater Diving, LLC, Frank Hollis and Van Mulvehill.*10.2
    
    Purchase and Sale of Assets Agreement, dated as of September 3, 2004, by and between WCA of
Alabama, L.L.C., BRC, LLC, Frank Hollis and Van Mulvehill. *10.3
    
    Purchase and Sale of Assets Agreement, dated as of September 3, 2004, by and between WCA of
Alabama, L.L.C., Blount Recycling, LLC, Frank Hollis and Van Mulvehill.*10.4
    
    Form of Stock Option Agreement under the 2004 WCA Waste Corporation Incentive Plan.10.5
    
    Form of Restricted Stock Grant under the 2004 WCA Waste Corporation Incentive Plan.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.32.1
    
    Section 1350 Certification of Chief Executive Officer.32.2
    
    Section 1350 Certification of Chief Financial Officer.
    *
    
    Confidential treatment has been requested with respect to certain information
contained in this agreement.