UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

or

Commission File Number: 000-50808

WCA Waste Corporation

(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 o      NO þ

     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.

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;

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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.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

WCA WASTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WCA WASTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WCA WASTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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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. The Company believes that the presentations and disclosures herein are adequate when read in conjunction with its Prospectus filed with the SEC on June 23, 2004. The unaudited condensed consolidated financial statements as of June 30, 2004, and for the three and six months ended June 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 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 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

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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

In July 2004, the Company purchased the hauling operations of Texas Environmental Waste Services (TEW), a municipal solid waste collection company located in Houston, Texas. Total consideration was $6.4 million in cash and 263,158 shares of restricted common stock. These restrictions lapse in July 2007. TEW serves approximately 45,000 accounts in the Houston area.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Landfill Accounting

Capitalized Landfill Costs

At June 30, 2004, the Company owned six municipal solid waste (MSW) landfills and seven 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 June 30, 2004.

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 June 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.

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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 thirty years for MSW facilities and up to five years for C&D facilities after final site closure.

On January 1, 2003, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations”, 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 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 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.
	•		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 June 30, 2004.

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     The Company’s liabilities for closure and post-closure costs are as follows:

The Company’s total anticipated cost for closure and post-closure activities is $40.6 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 $10.5 million and $9.9 million at June 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 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 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 accounted for as a purchase, 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.

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(c) Impairment of Long-Lived Assets

The Company adopted SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”, 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 quarter ended June 30, 2004 was $11.5 million ($7.5 million net of tax benefit, or $0.86 per 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 six months ended June 30, 2003 the Company recorded stock-based compensation expense of $0.1 million and $0.2 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 per share would have been the following:

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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:

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

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 to purchase 644,000 shares of common stock outstanding as of June 30, 2004 and none outstanding as of June 30, 2003. All outstanding options were 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 executive officers, other employees, 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

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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: