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

     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;

1

•		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

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

WCA WASTE CORPORATION AND SUBSIDIARIES

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

3

WCA WASTE CORPORATION AND SUBSIDIARIES

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

4

WCA WASTE CORPORATION AND SUBSIDIARIES

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

5

WCA WASTE CORPORATION AND SUBSIDIARIES

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

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.

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

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

•

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.

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 $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

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

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:

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

11

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:

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

     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

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):

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):

14

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.

     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.

15

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

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

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.

18

     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).

     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

     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).

     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

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).

     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

     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

     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.

23

     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

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

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

     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

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

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.

*

Confidential treatment has been requested with respect to certain information contained in this agreement.

29

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 CORPORATION
	By:	/s/ CHARLES A. CASALINOVA
		Charles A. Casalinova
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

	By:	/s/ KEVIN D. MITCHELL
		Kevin D. Mitchell
		Vice President and Controller (Principal Accounting Officer)

Date: November 10, 2004

30

EXHIBIT INDEX

*

Confidential treatment has been requested with respect to certain information contained in this agreement.