UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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 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

     As of May 9, 2005, there were 15,541,977 shares of WCA Waste Corporation’s common stock, par value $0.01 per share, outstanding.

Table of Contents

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. It is also true of our statements concerning “run rates,” which are estimates based upon a mixture of historical and projected results and forecasts provided by third parties.

     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;
	•	failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price; 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 annual report on Form 10-K for the year ended December 31, 2004 (sometimes referred to in this report, including the notes to our financial statements, as the “10-K”), we described these and other risks in greater detail in the section entitled “Business—Risk Factors”. We refer you to that filing for additional information on these risks.

     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 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 Form 10-K filed with the SEC on March 24, 2005 which contains the Company’s audited consolidated financial statements for the year ended December 31, 2004. The unaudited condensed consolidated financial statements as of March 31, 2005 and for the three months ended March 31, 2005 and 2004 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 Form 10-K.

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 Company’s internal reorganization in the second quarter of 2004, the Company was a wholly-owned subsidiary of Waste Corporation of America, and the accompanying unaudited condensed consolidated financial statements for those periods 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. ACQUISITIONS

The Company completed the acquisition of Gecko Investments, LLC, located near suburban St. Louis, Missouri, on January 11, 2005. Gecko includes a collection operation and a municipal solid waste (MSW) landfill. Total consideration for this acquisition was approximately $12.2 million consisting of $5.5 million in cash, $1.5 million in 8% convertible debt and 510,515 shares of common stock valued at $5.2 million. Contemporaneously with the acquisition, certain sellers in the Gecko transaction and related entities purchased $2.5 million in 8% convertible debt for a net cash expenditure of $3.0 million.

The purchase price for this 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 business from its acquisition date. The acquisition was not significant (within the meaning of Regulation S-X) to the Company as a whole.

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Based on the preliminary assessments of values for this acquisition, the Company reflected landfill cost of $10.5 million, identifiable intangibles of $0.7 million and goodwill of $0.3 million. Identifiable intangibles include customer lists which are amortized over their expected lives of an average of 20 years.

In addition to the above acquisition, during the three months ended March, 31, 2005, the Company remitted approximately $1.0 million in connection with an acquisition made in 2004 related to an earn-out arrangement. The expenditure has been treated as additional purchase price and has been allocated to goodwill.

Additionally, during January 2005, the Company entered into a definitive agreement to acquire two construction and demolition debris (C&D) landfills, two transfer stations and two materials recovery facilities (MRFs) in North Carolina. This acquisition was completed on April 1, 2005 for total consideration of approximately $38.5 million. An initial deposit payment in the amount of $1.7 million was made during the three months ended March 31, 2005 with the balance due at the time of closing.

3. STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation under the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. Under this method, the Company recorded 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. The adoption of SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)) will result in recognition of compensation expense beginning in the first quarter of 2006, and thus may impact the Company’s future results of operations.

Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method described above. The fair value calculations at the date of grant using the Black-Scholes option pricing model were calculated with the following weighted average assumptions:

Had compensation expense for the options granted to employees been determined based on the fair value at the grant date, consistent with the provisions of SFAS No. 123, the Company’s net income and earnings per share for the three months ended March 31, 2005 and 2004 would have been adjusted to the pro forma amounts indicated below:

4. EARNINGS PER SHARE

Basic and diluted earnings per share have been calculated by dividing net income by the weighted average number of common shares outstanding during the respective periods. There were options and warrants to purchase 678,603 shares of common stock outstanding as of March 31, 2005 and none outstanding as of

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March 31, 2004. Certain outstanding options and warrants to purchase 21,603 shares of common stock are anti-dilutive, and accordingly, are excluded from diluted earnings per share calculations. The computations of basic and diluted earnings per share are as follows:

In addition to the outstanding options and warrants, for the period ended March 31, 2005, approximately 635,728 shares of common stock equivalents related to convertible notes payable were excluded from the computation of diluted earnings per share as the results would be anti-dilutive.

5. LONG-TERM DEBT AND NOTES PAYABLE

Long-term debt and notes payable are as follows:

As of March 31, 2005, the Company had $55.2 million outstanding under the revolving line of credit, $22.2 million in direct pay letter of credit and $4.4 million in other letters of credit issued, leaving $78.2 million in availability under its credit facility. The direct pay letter of credit is 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 provide in the normal course of business and general corporate purposes.

In connection with the January 2005 acquisition of Gecko Investments, LLC, the Company issued convertible notes totaling $4.0 million. These notes and any accrued but unpaid interest are convertible into shares of common stock at the rate of $10.37 per share. The Company can force conversion if the

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closing price of the Company’s common stock exceeds $15.00 per share one year after their respective issuance date.

New Credit Agreements

On April 28, 2005 (the “Closing Date”), WCA Waste Systems, Inc. (“WSI”), the primary operating subsidiary of the Company, replaced its Fourth Amended and Restated Credit Agreement, dated as of December 21, 2004 (the “Fourth Restated Credit Agreement”), by entering into a First Lien Credit Agreement (the “First Lien Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, Comerica Bank, as syndication agent, and the lenders party thereto. On the Closing Date, WSI also entered into a Second Lien Credit Agreement (the “Second Lien Credit Agreement” and together with the First Lien Credit Agreement, the “Credit Agreements”) with Wells Fargo, as administrative agent, and Ares Capital Corporation, as the primary lender. The following is a summary description of certain material terms of the Credit Agreements and, as such, is not complete. Please also refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facility” for more information on the Credit Agreements.

The aggregate revolving credit commitments available under the First Lien Credit Agreement total $175 million, consisting of a $75 million revolving line of credit and a $100 million Term B loan (the “Term B Loan”). The Second Lien Credit Agreement provides for a second lien term loan in the amount of $25 million (the “Second Lien Term Loan”). Accordingly, the total credit available immediately under the Credit Agreements is $200 million. The proceeds of the Credit Agreements will be used for acquisitions, equipment purchases, landfill construction and development, standby letters of credit and general corporate purposes. Subcategories under the revolving line of credit include a subfacility for standby letters of credit in the aggregate principal amount of up to $30 million and a swing line feature for up to $10 million for same day advances. The revolving credit loan under the First Lien Credit Agreement will mature on April 28, 2010 and the Term B Loan will mature on April 28, 2011 unless the commitments thereunder are terminated or prepaid in full at an earlier date. The Second Lien Credit Agreement will mature on October 28, 2011. The credit facilities bear interest at a base rate plus a variable margin rate depending on the overall leverage ration of the Company at the time of renewal.

As of April 29, 2005, WSI had fully drawn down the Term B Loan and the Second Lien Term Loan and had utilized approximately $26.9 million of the revolving facility for letters of credit, leaving it with $48.1 million in availability under the First Lien Credit Agreement revolving credit loan. This resulted in the Company having approximately $30.0 million in cash on hand. In connection with the closing of the new credit facilities, the Company will incur a charge to its earnings related to the write-off of a portion of its deferred financing costs during the second quarter of 2005.

6. LANDFILL ACCOUNTING

Capitalized Landfill Costs

At March 31, 2005, the Company owned seven MSW landfills and eight 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 March 31, 2005.

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 March 31, 2005, 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, outside 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

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

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, 2004 to March 31, 2005.

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 $92.2 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 $11.1 million and $9.9 million at March 31, 2005 and December 31, 2004, respectively.

7. 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

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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 three months ended March 31, 2005 based upon the Company’s anticipated 2005 annual effective income tax rate of 39.44%. Such rate differs from the statutory rate of 34% due to state income taxes and estimates of non-deductible expenses.

8. STOCKHOLDERS’ EQUITY

On January 11, 2005, the Company issued 510,515 new shares at an aggregate price of $10.26 per share to Gecko Investments as partial consideration for the acquisition. During March 2005, the Company issued 123,821 restricted shares which vest over three years from the issue date. The following table reflects the changes in stockholders’ equity from December 31, 2004 to March 31, 2005:

9. 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 months ended March 31, 2005 and 2004: