UNITED STATES

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 000-50808

WCA Waste Corporation

Registrant’s telephone number, including area code: (713) 292-2400

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, par value $0.01 per share

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No þ

     The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2004, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing sales price as reported on the Nasdaq National Market on such date was approximately $93.8 million.

     Number of shares of common stock outstanding as of March 1, 2005 : 15,363,936.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders are incorporated by reference into Part III of this annual report on Form 10-K. Except with respect to the information specifically incorporated by reference in this Form 10-K, the Proxy Statement for the Annual Meeting of Stockholders is not deemed to be filed as part hereof.

TABLE OF CONTENTS

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PART I

Item 1. Business.

Introduction

     We are a vertically integrated, non-hazardous solid waste management company. We provide non-hazardous construction/demolition, industrial and municipal solid waste collection, transfer and disposal services in the south and central regions of the United States. As of December 31, 2004, we served approximately 141,000 commercial, industrial and residential customers in Alabama, Arkansas, Kansas, Missouri, South Carolina, Tennessee and Texas. As of December 31, 2004, we owned nineteen collection operations, eleven 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.

     WCA Waste was incorporated as a Delaware corporation in February 2004, and our principal operating subsidiary, WCA Waste Systems, Inc., was incorporated in Delaware in September 2000, which then acquired 32 separate solid waste management operations from Waste Management, Inc. From our formation through December 31, 2004, we successfully integrated over 50 separate operating locations acquired in a total of 15 transactions (including the transaction with Waste Management, Inc.). For information regarding acquisitions made in 2004 and year-to-date 2005, please read “—Acquisition History After Our Initial Public Offering” below. Unless the context requires otherwise, references in this Annual Report on Form 10-K to “WCA Waste,” “we,” “us,” or “our” refer to WCA Waste Corporation and its direct and indirect subsidiaries on a consolidated basis.

     We serve as a holding company for our subsidiaries, each of which is wholly-owned and controlled by us. Prior to an internal corporate reorganization completed prior to our initial public offering in June 2004, we were a wholly-owned subsidiary of Waste Corporation of America. As a result of the internal corporate reorganization, we briefly became the parent of Waste Corporation of America, which we then spun off as a separate company with operations, assets and liabilities associated with Waste Corporation of America’s Florida, Colorado and New Mexico operations. For information regarding the internal corporate reorganization completed prior to our initial public offering in June 2004, please read “—Internal Reorganization and Relationship With Waste Corporation of America” below.

Industry Overview

     Based on industry sources, we believe the non-hazardous solid waste industry in the United States generates approximately $43.0 billion in annual revenue. Approximately $20.6 billion, or approximately 48%, of the estimated annual industry revenue is generated by the three largest public companies in the industry. Based on industry sources, we believe other public and privately held companies represent 28% with municipalities representing approximately 24% of the estimated annual industry revenue.

     The solid waste industry can be divided among collection, transfer and disposal services. The collection and transfer operations of solid waste companies typically have lower margins than disposal service operations. By vertically integrating collection, transfer and disposal operations, operators seek to capture significant waste volumes and improve operating margins.

     During the past three decades, our industry has experienced periods of substantial consolidation activity, though we believe it remains extremely fragmented. We believe that there are two factors that have had a substantial impact on the trend toward consolidation:

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	•	Stringent industry regulations have caused operating and capital costs to rise. Many local industry participants have found these costs difficult to bear and have decided to either close their operations or sell them to larger operators.
	•	Larger operators are increasingly pursuing economies of scale by vertically integrating their operations or by utilizing their facility, asset and management infrastructure over larger volumes. Larger solid waste collection and disposal companies have become more cost-effective and competitive by controlling a larger waste stream and by gaining access to significant financial resources to make acquisitions. However, acquisitions by larger companies generally have less of an impact on their growth rates and revenues because acquisitions are small relative to the size of such companies.

     Despite the ongoing consolidation, the solid waste services industry remains fragmented and regional in nature. We believe that there are considerable opportunities in the industry for additional consolidation, especially of operations that do not fit the acquisition criteria of the other waste companies. Based on industry sources, we believe private companies and public companies other than the three largest represent approximately 28% of the estimated $43.0 billion in annual revenue generated by the solid waste industry. This condition contributes to the fragmented nature of the industry, with many small operations co-existing with a relatively small number of large organizations. Accordingly, we believe that there are significant opportunities for growth through additional acquisitions of assets and operations.

Our Acquisition Growth Strategy

     Vertical Integration And Internalization

     Vertical integration is a core element of our operating strategy because it will allow us to manage the waste stream from the point of collection through disposal, thereby maximizing the rate of waste internalization increasing our operating margins and improving our operating cash flows. All collected waste must ultimately be processed or disposed of, with landfills being the main depository for such waste. Generally, to be most efficient, collection services should occur within a 35-mile operating radius from the disposal site (up to 100 miles if a transfer station is used). Collection companies that do not own a landfill within such range from their collection routes will usually have to dispose of the waste they collect in landfills owned by third parties. Thus, owning a landfill in a market area provides substantial leverage in the waste management business.

     As of December 31, 2004, we owned fourteen landfills throughout the regions we serve, two of which, though fully permitted, have not yet commenced operations. We believe that our relatively high number of landfills coupled with the geographic locations of those landfills in the regions we serve positions us to maintain relatively high levels of internalization within our existing markets. For the years ended December 31, 2004 and 2003, approximately 78% and 71%, respectively, of the total volume of waste we collected was disposed of at our landfills.

     Acquisition Strategy

     Our acquisition strategy will target operations that will benefit from our core operating strategy of maximizing the internalization of waste. We intend to make acquisitions for two primary purposes: (i) to expand our operations in market areas we already service (“tuck-in” acquisitions); and (ii) to gain entry into new markets (“strategic” acquisitions). Please read “—Acquisition History After Our Initial Public Offering” below for more information. We intend to focus our strategic acquisitions in markets that are generally characterized by one or more of the following characteristics: (i) the availability of adequate disposal capacity, either through acquisitions or through agreements with third parties; (ii) the opportunity for us to acquire a significant market share; and (iii) steady projected economic or population growth rates.

     Since ownership of landfills is essential for internalization of waste, we look for opportunities to enter a new market by acquiring or managing a permitted landfill operation in that market. However, while we generally prefer to use a landfill acquisition as our entry into a new market, we, nevertheless, may acquire a collection operation in

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a new market first if we believe we will be able to acquire a permitted landfill operation in that market within a relatively short time after acquiring the collection operation.

     Once we establish a presence in a new market, we intend to expand our presence by tuck-in acquisitions; that is, by acquiring companies that also operate in that market or in adjacent markets, especially collection companies and transfer stations that allow us to increase internalization of waste into landfills that we own or operate. Tuck-in acquisitions will allow growth in revenue and an increase in market share and enable integration and consolidation of duplicative facilities and functions to maximize cost efficiencies and economies of scale.

     While our long-term strategy will focus on tuck-in acquisitions, during 2004 and early 2005, we have been presented with a greater number of landfill opportunities than we had planned.

     We have generally targeted markets in the south and central regions of the United States because we believe that they: (i) are served by a large number of independent non-hazardous solid waste operations, many of which we believe may be suitable for acquisition by us; (ii) generally experience less seasonal fluctuation in the demand for solid waste services than other regions; and (iii) are projected to have steady economic and population growth rates.

     In executing our acquisition strategy, we believe that the following characteristics make us an attractive partner to independent solid waste companies in our target area and enable us to continue our acquisition-based growth strategy.

	•	Our financial strength improved dramatically as a result of our initial public offering and our new credit facility, which have provided us with financial flexibility and capacity to complete several acquisitions.
	•	Our management is extremely experienced in the waste industry and in making waste company acquisitions. Our co-founder and chairman of the board and chief executive officer, Tom J. Fatjo, Jr., has over 35 years of experience in the solid waste industry, beginning with Browning-Ferris Industries, Inc., or BFI, which he founded in 1966. Our other co-founder, president and chief operating officer, Jerome M. Kruszka, has over 30 years of experience in the solid waste management industry, beginning with Waste Management, Inc. and its affiliates, where he held a number of managerial positions during his tenure there. Both Mr. Fatjo, Jr. and Mr. Kruszka have overseen the acquisition and integration of several hundred solid waste operations during their careers in the industry. Additionally, our other senior executive officers, Charles A. Casalinova and Tom J. Fatjo, III, have an average of approximately 18 years of experience in the industry and our three regional managers have an average of approximately 19 years of experience in the industry, in each case involving substantial experience acquiring and integrating waste management assets and operations.
	•	Based on industry sources, we believe approximately 28% of the estimated $43.0 billion in annual revenue for the solid waste industry is generated by privately owned companies and public companies other than the three largest. While many of these operations may represent attractive acquisition candidates to a company of our size, many are too small to make any material impact on the revenues of the large companies in our industry and are thus less attractive to these companies. Accordingly, we believe that we have more opportunity for growth, as a percentage of revenue, through acquisitions than companies larger than us.

Acquisition History After Our Initial Public Offering

     In June 2004, we completed an initial public offering of our common stock and an amendment of our bank credit facility. In December 2004, we further amended our bank credit facility. These financing activities enabled us to acquire eight waste operations from June 2004 through March 1, 2005:

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	•	In July 2004, we purchased Texas Environmental Waste, a residential and roll-off collection company in Houston, Texas.
	•	In August 2004, we purchased Ashley Trash Service, a residential collection operation in Seymour, Missouri, and Power Waste, a roll-off collection operation in Birmingham, Alabama.
	•	In September 2004, we acquired Blount Recycling and other related companies, which included a C&D landfill and roll-off collection operation in Trafford, Alabama, a transfer station and roll-off collection operation in Huntsville, Alabama, a transfer station in Midfield, Alabama, and a hauling operation in Tuscaloosa, Alabama.
	•	In September 2004, we acquired Translift, Inc., a commercial and roll-off collection company in Little Rock, Arkansas.
	•	In November 2004, we acquired Rural Disposal, Inc., a residential, commercial and roll-off collection company in Willow Springs, Missouri.
	•	In November 2004, we purchased Trash Away, Inc., which consisted of a transfer station and materials recovery facility (MRF), commercial, residential and roll-off collection company, and a portable toilet operation in Piedmont, South Carolina.
	•	In January 2005, we acquired Eagle Ridge MSW landfill (located approximately 45 miles northwest of St. Louis near Bowling Green, Missouri).

     In January 2005, we also signed a definitive agreement to acquire four subsidiaries of MRR Southern, which is affiliated with D.H. Griffin Construction Co., with operations in Raleigh and Greensboro/ High Point, North Carolina. The Raleigh operations (which are located in Wake County) consist of a C&D landfill (with approximately 8 million cubic yards of permitted capacity and additional expansion capacity of 6.6 million yards), a C&D MRF and two C&D transfer stations. The Greensboro/ High Point operations consist of a C&D landfill with a MRF. This landfill has a projected remaining capacity of approximately 4.5 million cubic yards. When the North Carolina acquisition is completed, we will have made nine acquisitions totaling $34 million in annual “run rate” revenue since completing our initial public offering in June 2004 and will own seventeen landfills, fifteen transfer stations, twenty collection operations and three C&D MRFs. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview—Acquisition Strategy Overview” for more information regarding each of the completed acquisitions and the pending acquisition in North Carolina.

     We have integrated all of our completed acquisitions to date into our existing operations. However, it may take up to a year to realize operating synergies fully.

Our Operations

     Our operations consist of the collection, transfer and disposal of construction and demolition debris and industrial and municipal solid waste. Our revenue mix for the year ended December 31, 2004 was approximately $48.1 million (66%) collection, $20.7 million (28%) disposal and $4.6 million (6%) transfer/other. We expect a higher percentage of our revenues will come from disposal operations in 2005. We have a broad and diverse customer base; no single customer accounted for more than 2% of our revenues for the years ended December 31, 2004 or 2003. Please read note 12 to our consolidated financial statements for certain geographic information relating to our operations.

     Collection Services

     As of December 31, 2004, we provided construction and demolition debris and industrial and municipal solid waste collection services to approximately 141,000 industrial, commercial and residential customers in seven states

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through nineteen collection operations. In 2004, our collection revenue consisted of approximately 48% from services provided to industrial customers, 25% from services provided to commercial customers and 27% from services provided to residential customers.

     In our commercial collection operations, we supply our customers with waste containers of various types and sizes. These containers are designed so that they can be lifted mechanically and emptied into a collection truck to be transported to a disposal facility. By using these containers, we can service most of our commercial customers with trucks operated by a single employee. Commercial collection services are generally performed under service agreements with a duration of one to five years with possible renewal options. Fees are generally determined by such considerations as individual market factors, collection frequency, the type of equipment we furnish, the type and volume or weight of the waste to be collected, the distance to the disposal facility and the cost of disposal.

     Residential solid waste collection services often are performed under contracts with municipalities, which we generally secure by competitive bid and which give us exclusive rights to service all or a portion of the homes in these municipalities. These contracts usually range in duration from one to five years with possible renewal options. Residential solid waste collection services may also be performed on a subscription basis, in which individual households or homeowners’ or similar associations contract directly with us. The fees received for subscription residential collection are based primarily on market factors, frequency and type of service, the distance to the disposal facility and the cost of disposal.

     Additionally, we rent waste containers and provide collection services to construction, demolition and industrial sites on a contractual basis. We load the containers onto our vehicles and transport them with the waste to either a landfill or a transfer station for disposal. We refer to this as “roll-off” collection.

     Transfer and Disposal Services

     Landfills are the main depository for solid waste in the United States. Solid waste landfills are built and operated under stringent regulations. Currently, solid waste landfills in the United States must be designed, permitted, operated, closed and maintained after closure in compliance with federal, state and local regulations pursuant to Subtitle D of the Resource Conservation and Recovery Act of 1976, as amended. Operating a solid waste landfill includes excavating, constructing liners, continually spreading and compacting waste and covering waste with earth or other inert material as required, final capping, closure and post-closure. The objectives of these operations are to maintain sanitary conditions, to ensure the best possible use of the airspace and to prepare the site so that it can ultimately be used for other purposes.

     Access to a disposal facility is a necessity for all solid waste management companies. While access to disposal facilities owned or operated by third parties can be obtained, we believe it is preferable to internalize the waste streams. When we internalize waste we collect, we pay ourselves instead of a third party landfill operator and generally are able to realize higher operating margins and stronger operating cash flows.

     In markets where we have collection operations that may be too far to economically haul the waste we collect directly to our nearest landfill, we pursue the use of transfer stations to effectively extend the distance from our own landfills that such collection operations can economically operate without having to utilize the disposal facilities of a third party. A transfer station is a facility located near residential and commercial collection routes where collection trucks take the solid waste that has been collected. The waste is unloaded from the collection trucks and reloaded onto larger transfer trucks for transportation to a landfill for final disposal. In addition to increasing our ability to internalize the waste our collection operations collect, using transfer stations reduces the costs associated with transporting waste to final disposal sites because the trucks we use for transfer have a larger capacity than collection trucks, thus allowing more waste to be transported to the disposal facility in each trip. It also increases the efficiency of our collection personnel and equipment because it allows them to focus more on collection. As of December 31, 2004, we owned eleven transfer stations, seven of which were located in Missouri, two of which were located in Alabama, and the remaining two of which were each located in Arkansas and South Carolina. Additionally, as of December 31, 2004, we operated but did not own two additional transfer stations, one in Arkansas and one in Missouri.

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     The fees charged at disposal facilities are based on market factors, as well as the type and weight or volume of solid waste deposited and the type and size of the vehicles used in the transportation of the waste. The fees charged to third parties who deposit waste at our transfer stations are generally based on the type and volume or weight of the waste transferred and the distance to the disposal site.

     Landfills

     As of December 31, 2004, we owned fourteen non-hazardous solid waste landfills in seven states, two of which, though fully permitted, have not yet commenced operations. Additionally, we hold certain prepaid disposal rights at landfills in Texas, Oklahoma and Arkansas owned and operated by one of our competitors. The following table sets forth certain information as of December 31, 2004 for each of our landfills. The table does not include information for those landfills acquired after December 31, 2004 as discussed in “—Acquisition History After Our Initial Public Offering” above.

     As indicated in the table above, as of December 31, 2004, six of our landfills were permitted to accept municipal solid waste. The remaining eight landfills were permitted to accept non-hazardous dry construction and demolition debris, which generally includes bricks, boards, metal, concrete, wall board and similar materials. All of our landfills accept waste from municipalities, private sector waste collection companies and the general public.

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     Based on remaining permitted capacity (including probable expansions) as of December 31, 2004 and projected annual disposal volumes, the average remaining landfill life of our twelve operating landfills at December 31, 2004 was approximately 42.9 years. Some of our landfills have the potential for expanded disposal capacity beyond their currently permitted limits. We monitor the availability of permitted disposal capacity at each of our landfills on an ongoing basis and evaluate whether to pursue an expansion at a given landfill. In making this determination with respect to a particular landfill, we consider a number of factors, including the estimated future volume of waste to be disposed of at the landfill, the estimated future prices for disposal of waste at the landfill, the amount of unpermitted acreage included in the landfill, the likelihood that we will be able to obtain the required approvals and permits for expansion and the costs of developing the additional capacity. Please read notes 1 and 2 to our consolidated financial statements for information regarding our landfill accounting and use of estimates. We also regularly consider whether it is advisable, in light of changing market conditions and/or regulatory requirements, to seek to expand or change the permitted waste streams or to seek other permit modifications.

     We are currently seeking to expand permitted capacity at several of our landfills for which we consider expansions to be probable. These or other future expansions may not be permitted as designed and the average remaining landfill life of our twelve operating landfills as of December 31, 2004 may not be approximately 42.9 years when considering remaining permitted capacity, probable expansion capacity and projected annual disposal volume.

  Available Airspace

     The following table reflects airspace activity for landfills owned or operated by us for the years ended December 31, 2004, 2003 and 2002. The table does not include airspace activity for those landfills acquired after December 31, 2004 as discussed in “—Acquisition History After Our Initial Public Offering” above.

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Risk Management, Insurance and Financial Assurances

     Our environmental risk management program includes evaluating existing facilities and potential acquisitions for environmental compliance. We do not presently expect environmental compliance costs to increase materially above current levels, but we cannot predict whether recent and future acquisitions will cause such costs to increase. We also maintain a worker safety program that encourages safe practices in the workplace. Operating practices at all of our facilities emphasize minimizing the possibility of environmental contamination and liability.

     The nature of our business exposes us to the risk of liabilities arising out of our operations, including possible damages to the environment. Such potential liabilities could involve, for example: (i) claims for remediation costs, personal injury, property damage and damage to the environment in cases where we may be held responsible for the escape of harmful materials; (ii) claims of employees, customers or third parties for personal injury or property damage occurring in the course of our operations; or (iii) claims alleging negligence in the planning or performance of work. We could also be subject to fines and civil and criminal penalties in connection with alleged violations of regulatory requirements. Because of the nature and scope of the possible environmental damages, liabilities imposed in environmental litigation can be significant. Our solid waste operations have third party environmental liability insurance with limits in excess of those required by permit regulations, subject to certain limitations and exclusions, which we believe are customary in the industry. However, the limits of such environmental liability insurance may be inadequate in the event of a major loss. Further, we may be unable to continue to carry excess environmental liability insurance should market conditions in the insurance industry make such coverage prohibitively expensive.

     We have property insurance, general liability, automobile physical damage and liability, employment practices liability, pollution liability, directors and officers liability, fiduciary liability, workers’ compensation and employer’s liability coverage, as well as umbrella liability policies to provide excess coverage over the underlying limits contained in our primary general liability, automobile liability and employer’s liability policies. Each of our insurance policies contains a per occurrence or per loss deductible for which we are responsible. Our deductibles range from $5,000 per loss under our property insurance coverage to $250,000 per occurrence or loss under our

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general liability, automobile liability and workers’ compensation and employer’s liability coverages. In addition, we have a $500,000 per loss deductible under our pollution liability coverage. Accordingly, we are effectively self-insured for these amounts with respect to claims covered by our insurance policies, as well as with respect to amounts that exceed our policy limits (including our umbrella policy limits, where applicable). In the future, we may be exposed to uninsured liabilities which could have a material adverse effect on our financial condition, results of operations or cash flows. Please read note 8 to our consolidated financial statements.

     In the normal course of business, we are required to post performance bonds, insurance policies, letters of credit and/or cash deposits in connection with the performance of municipal residential collection contracts, the operation, closure or post-closure of landfills, certain environmental permits and certain business licenses and permits. Bonds issued by surety companies operate as a financial guarantee of our performance. We have satisfied financial responsibility requirements by obtaining bank letters of credit, insurance policies, performance bonds or making cash deposits. Additionally, we currently have personal guarantees in place from certain of our executive officers, directors and an affiliate of our largest stockholder in order to obtain these types of instruments. We have in the past compensated and indemnified, and may in the future compensate and indemnify, our executive officers, directors and the affiliate of our largest stockholder for these guarantees. As of December 31, 2004, we had obtained performance bonds in an aggregate amount of approximately $20.7 million and letters of credit in an aggregate amount of approximately $6.0 million, supporting performance of landfill closure and post-closure requirements, insurance contracts, municipal contracts and other financial assurance obligations. If in the future we are unable to obtain such instruments in sufficient amounts or at acceptable rates, we could be precluded from entering into additional municipal solid waste collection contracts or obtaining or retaining landfill or transfer station operating permits. Please read “—Risk Factors—Risks Relating To Our Business—We may be unable to obtain financial assurances necessary for our operations, which could result in the closure of landfills or the termination of collection contracts.”

Competition

     The solid waste collection and disposal industry is highly competitive and fragmented and requires substantial labor and capital resources. The industry presently includes three large, publicly-held, national waste companies, Waste Management, Inc., Allied Waste Industries, Inc., and Republic Services, Inc., as well as other public and privately held waste companies. These three companies account for approximately 48% of the estimated $43.0 billion of annual revenue generated by the industry. Certain of the markets in which we compete or will likely compete are served by one or more of these companies, as well as by numerous privately held regional and local solid waste companies of varying sizes and resources, some of which have accumulated substantial goodwill in their markets. We also compete with operators of alternative disposal facilities and with counties, municipalities and solid waste districts that maintain their own waste collection and disposal operations. Public sector operations may have financial advantages over us because of their access to user fees and similar charges, tax revenues and tax-exempt financing.

     We compete for collection, transfer and disposal volume based primarily on geographic location and the price and quality of our services. From time to time, our competitors may reduce the price of their services in an effort to expand their market shares or service areas or to win competitively bid municipal contracts. These practices may cause us to reduce the price of our services or, if we elect not to do so, to lose business.

     The solid waste collection and disposal industry has undergone significant consolidation, and we encounter competition in our efforts to acquire landfills, transfer stations and collection operations. Intense competition exists not only for collection, transfer and disposal volume but also for acquisition candidates. We generally compete for acquisition candidates with publicly owned waste management companies, as well as numerous privately held regional and local solid waste companies of varying sizes and resources. Competition in the disposal industry may also be affected by the increasing national emphasis on recycling and other waste reduction programs, which may reduce the volume of waste deposited in landfills. Accordingly, it may become uneconomical for us to make further acquisitions or we may be unable to locate or acquire suitable acquisition candidates at price levels and on terms and conditions that we consider appropriate, particularly in markets we do not already serve.

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Non-Competition Agreements

     In connection with the sale of operations located in Oklahoma and Nebraska by our former parent, Waste Corporation of America, in 2000, we may not compete with the buyer in portions of those states through October 2005. Additionally, in connection with the sale by Waste Corporation of America in 2003 of operations located in west Texas, we may not compete with the buyer in ten counties in west Texas through July 2006. Finally, the Reorganization Agreement we entered into with Waste Corporation of America in connection with our internal corporate reorganization in June 2004 contains a mutual non-competition agreement pursuant to which we and our subsidiaries agreed not to acquire or operate any waste operations within 50 miles of any of Waste Corporation of America’s or its subsidiaries’ current operations in Florida, Colorado or New Mexico, and Waste Corporation of America and its subsidiaries agreed not to acquire or operate any waste operations within 50 miles of any of our or our subsidiaries’ operations in Alabama, Arkansas, Kansas, Missouri, South Carolina, Tennessee or Texas through June 2009.

Sales and Marketing

     We focus our marketing efforts on continuing and expanding business with existing customers, as well as attracting new customers. Our sales and marketing strategy is to provide prompt, high quality, comprehensive solid waste collection, transfer and disposal services to our customers at competitive prices. We target potential customers of all sizes, from small quantity generators to large companies and municipalities. Because the waste collection and disposal business is a very localized business, most of our marketing activity is local in nature. However, we do have a vice president of sales who is responsible for overseeing our sales and marketing efforts, including assisting in hiring and setting compensation programs.

Government Contracts

     We are parties to contracts with municipalities and other associations and agencies. Many of these contracts are or will be subject to competitive bidding. We may not be the successful bidder, or we may have to substantially lower prices in order to be the successful bidder. In addition, some of our customers may terminate their contracts with us before the end of the contract term.

     Municipalities may annex unincorporated areas within counties where we provide collection services, and as a result, our customers in annexed areas may be required to obtain service from competitors who have been franchised or contracted by the annexing municipalities to provide those services. Some of the local jurisdictions in which we currently operate grant exclusive franchises to collection and disposal companies, others may do so in the future, and we may enter markets where franchises are granted by certain municipalities.

Regulation

     Our business is subject to extensive and evolving federal, state and local environmental, health, safety and transportation laws and regulations. These laws and regulations are administered by the U.S. Environmental Protection Agency, or EPA, and various other federal, state and local environmental, zoning, air, water, transportation, land use, health and safety agencies. Many of these agencies regularly inspect our operations to monitor compliance with these laws and regulations. Governmental agencies have the authority to enforce compliance with these laws and regulations and to obtain injunctions or impose civil or criminal penalties in cases of violations. We believe that regulation of the waste industry will continue to evolve, and we will adapt to future legal and regulatory requirements to ensure compliance.

     Our operation of landfills subjects us to certain operational, monitoring, site maintenance, closure, post-closure and other obligations which could give rise to increased costs for compliance and corrective measures. In connection with our acquisition of landfills and continued operation or expansion of our landfills, we must often spend considerable time to increase the capacity of these landfills. We may be unable to obtain or maintain necessary governmental approvals. Once obtained, operating permits are subject to modification and revocation by the issuing agency. Compliance with these and any future regulatory requirements could require us to make

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significant capital and operating expenditures. However, most of these expenditures are made in the normal course of business and do not place us at any competitive disadvantage.

     Our operations are subject to extensive regulation, principally under the federal statutes described below.

     The Resource Conservation and Recovery Act of 1976, as amended, or RCRA. RCRA regulates the handling, transportation and disposal of hazardous and non-hazardous wastes and delegates authority to states to develop programs to ensure the safe disposal of solid wastes. On October 9, 1991, the EPA promulgated Solid Waste Disposal Facility Criteria for non-hazardous solid waste landfills under Subtitle D of RCRA. Subtitle D includes location standards, facility design and operating criteria, closure and post-closure requirements, financial assurance standards and groundwater monitoring, as well as corrective action standards, many of which had not commonly been in place or enforced at landfills. Subtitle D applies to all solid waste landfill cells that received waste after October 9, 1991, and, with limited exceptions, required all landfills to meet these requirements by October 9, 1993. All states in which we operate have EPA-approved programs which implemented at least the minimum requirements of Subtitle D.

     The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or CERCLA. CERCLA, which is also known as Superfund, addresses problems created by the release or threatened release of hazardous substances (as defined in CERCLA) into the environment. CERCLA’s primary mechanism for achieving remediation of such problems is to impose strict, joint and several liability for cleanup of disposal sites on current owners and operators of the site, former site owners and operators at the time of disposal and parties who arranged for disposal at the facility (i.e., generators of the waste and transporters who select the disposal site). The costs of a CERCLA cleanup can be substantial. Liability under CERCLA is not dependent on the existence or intentional disposal of “hazardous wastes” (as defined under RCRA), but can also be based upon the release or threatened release, even as a result of lawful, unintentional and non-negligent action, of any one of the more than 700 “hazardous substances” listed by the EPA, even in minute amounts.

     The Federal Water Pollution Control Act of 1972, as amended, or the Clean Water Act. This act establishes rules regulating the discharge of pollutants into streams and other waters of the United States (as defined in the Clean Water Act) from a variety of sources, including solid waste disposal sites. If runoff from our landfills or transfer stations may be discharged into surface waters, the Clean Water Act requires us to apply for and obtain discharge permits, conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in those discharges. In 1990, the EPA issued additional rules under the Clean Water Act, which establish standards for management of storm water runoff from landfills and which require landfills that receive, or in the past received, industrial waste to obtain storm water discharge permits. In addition, if a landfill or transfer station discharges wastewater through a sewage system to a publicly-owned treatment works, the facility must comply with discharge limits imposed by the treatment works. Also, if development of a landfill may alter or affect “wetlands,” the owner may have to obtain a permit and undertake certain mitigation measures before development may begin. This requirement is likely to affect the construction or expansion of many solid waste disposal sites.

     The Clean Air Act of 1970, as amended, or the Clean Air Act. The Clean Air Act provides for increased federal, state and local regulation of the emission of air pollutants. The EPA has applied the Clean Air Act to solid waste landfills and vehicles with heavy duty engines, such as waste collection vehicles. Additionally, in March 1996, the EPA adopted New Source Performance Standards and Emission Guidelines (the “Emission Guidelines”) for municipal solid waste landfills to control emissions of landfill gases. These regulations impose limits on air emissions from solid waste landfills. The Emission Guidelines impose two sets of emissions standards, one of which is applicable to all solid waste landfills for which construction, reconstruction or modification was commenced before May 30, 1991. The other applies to all municipal solid waste landfills for which construction, reconstruction or modification was commenced on or after May 30, 1991. The Emission Guidelines are being implemented by the states after the EPA approves the individual state’s program. These guidelines, combined with the new permitting programs established under the Clean Air Act, subject solid waste landfills to significant permitting requirements and, in some instances, require installation of gas recovery systems to reduce emissions to allowable limits. The EPA also regulates the emission of hazardous air pollutants from municipal landfills and has promulgated regulations that require measures to monitor and reduce such emissions.

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     The Occupational Safety and Health Act of 1970, as amended, or OSHA. OSHA establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the Occupational Safety and Health Administration and various record keeping, disclosure and procedural requirements. Various standards, including standards for notices of hazards, safety in excavation and demolition work and the handling of asbestos, may apply to our operations.

     Flow Control/Interstate Waste Restrictions. Certain permits and approvals, as well as certain state and local regulations, may limit a landfill or transfer station to accepting waste that originates from specified geographic areas, restrict the importation of out-of-state waste or wastes originating outside the local jurisdiction or otherwise discriminate against non-local waste. These restrictions, generally known as flow control restrictions, are controversial, and some courts have held that some flow control schemes violate constitutional limits on state or local regulation of interstate commerce. From time to time, federal legislation is proposed that would allow some local flow control restrictions. Although no such federal legislation has been enacted to date, if such federal legislation should be enacted in the future, states in which we own landfills could limit or prohibit the importation of out-of-state waste or direct that wastes be handled at specified facilities. Such state actions could adversely affect our landfills. These restrictions could also result in higher disposal costs for our collection operations. If we were unable to pass such higher costs through to our customers, our business, financial condition and operating results could be adversely affected.

     Certain state and local jurisdictions may also seek to enforce flow control restrictions through local legislation or contractually. In certain cases, we may elect not to challenge such restrictions. These restrictions could reduce the volume of waste going to landfills in certain areas, which may adversely affect our ability to operate our landfills at their full capacity and/or reduce the prices that we can charge for landfill disposal services. These restrictions may also result in higher disposal costs for our collection operations. If we were unable to pass such higher costs through to our customers, our business, financial condition and operating results could be adversely affected.

     State and Local Regulation. Each state in which we now operate or may operate in the future has laws and regulations governing the generation, storage, treatment, handling, transportation and disposal of solid waste, occupational safety and health, water and air pollution and, in most cases, the siting, design, operation, maintenance, closure and post-closure maintenance of landfills and transfer stations. State and local permits and approval for these operations may be required and may be subject to periodic renewal, modification or revocation by the issuing agencies. In addition, many states have adopted statutes comparable to, and in some cases more stringent than, CERCLA. These statutes impose requirements for investigation and cleanup of contaminated sites and liability for costs and damages associated with such sites, and some provide for the imposition of liens on property owned by responsible parties. Furthermore, many municipalities also have ordinances, local laws and regulations affecting our operations. These include zoning and health measures that limit solid waste management activities to specified sites or activities, flow control provisions that direct or restrict the delivery of solid wastes to specific facilities, laws that grant the right to establish franchises for collection services and then put such franchises out for bid and bans or other restrictions on the movement of solid wastes into a municipality.

     Permits or other land use approvals with respect to a landfill, as well as state or local laws and regulations, may specify the quantity of waste that may be accepted at the landfill during a given time period and/or specify the types of waste that may be accepted at the landfill. Once an operating permit for a landfill is obtained, it must generally be renewed periodically.

     There has been an increasing trend at the state and local level to mandate and encourage waste reduction and recycling and to prohibit or restrict the disposal in landfills of certain types of solid wastes, such as yard wastes, beverage containers, unshredded tires, lead-acid batteries, paper, cardboard and household appliances. The enactment of regulations reducing the volume and types of wastes available for transport to and disposal in landfills could prevent us from operating our facilities at their full capacity.

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     Many states and local jurisdictions have enacted “bad boy” laws that allow the agencies that have jurisdiction over waste services contracts or permits to deny or revoke these contracts or permits based on the applicant’s or permit holder’s compliance history. Some states and local jurisdictions go further and consider the compliance history of the parent, subsidiaries or affiliated companies, in addition to that of the applicant or permit holder. These laws authorize the agencies to make determinations of an applicant’s or permit holder’s fitness to be awarded a contract to operate and to deny or revoke a contract or permit because of unfitness unless there is a showing that the applicant or permit holder has been rehabilitated through the adoption of various operating policies and procedures put in place to assure future compliance with applicable laws and regulations.

     Some state and local authorities enforce certain federal laws in addition to state and local laws and regulations. For example, in some states, RCRA, OSHA, parts of the Clean Air Act and parts of the Clean Water Act are enforced by local or state authorities instead of the EPA, and in some states those laws are enforced jointly by state or local and federal authorities.

     Public Utility Regulation. In many states, public authorities regulate the rates that landfill operators may charge. The adoption of rate regulation or the reduction of current rates in states in which we own landfills could adversely affect our business, financial condition and operating results.

Seasonality

     Based on our industry and our historic trends, we expect our operations to vary seasonally. Typically, revenue will be highest in the second and third calendar quarters and lowest in the first and fourth calendar quarters. The fluctuation is primarily due to lower volumes of solid waste generated during the winter months because of decreased construction and demolition activities. We also expect that our operating expenses may be higher during the winter months due to periodic adverse weather conditions that can slow the collection of waste, resulting in higher labor and operational costs. Please read “—Risk Factors—Risks Relating To Our Operations and Corporate Organization—Seasonal fluctuations will cause our business and results of operations to vary among quarters, which could adversely affect our stock price.”

Employees

     As of December 31, 2004, we had approximately 589 full-time employees. A group of 12 employees at one of our locations is represented by a union and we negotiated a collective bargaining agreement with them. We have not experienced a significant work stoppage, and we believe our relations with our employees are good.

Internal Reorganization and Relationship With Waste Corporation of America

     In connection with our initial public offering in June 2004, we completed an internal corporate reorganization. Prior to the reorganization, we were a wholly-owned subsidiary of Waste Corporation of America. As a result of the internal corporate reorganization, we briefly became the parent of Waste Corporation of America, which we then spun off as a separate company with operations in Florida, Colorado and New Mexico. In connection with the internal corporate reorganization, we entered into two agreements with Waste Corporation of America: (i) a Reorganization Agreement; and (ii) an Administrative Services Agreement.

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Reorganization Agreement. In connection with the internal reorganization, we contributed $20.0 million to Waste Corporation of America upon completion of our initial public offering. We do not have any ongoing obligation to make future payments to Waste Corporation of America. Pursuant to the Reorganization Agreement and related agreements, we assumed the obligation to issue shares upon the exercise of options and warrants that had been previously issued by Waste Corporation of America. Subsequently, we issued 1,330,056 shares (after giving effect to a merger and reverse stock split prior to our initial public offering in June 2004) of our common stock in cancellation of approximately 90% of such options and warrants of Waste Corporation of America. We recognized a compensation charge of $11.5 million in connection with the cancellation of these options and warrants and the related issuance of common stock in the second quarter of 2004. Subsequent to December 31, 2004, substantially all of the remaining warrants were

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terminated. The Reorganization Agreement also contained the mutual non-competition agreement described under “—Non-Competition Agreements” above.

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Administrative Services Agreement. In connection with the reorganization, we and our subsidiaries entered into a five-year Administrative Services Agreement, pursuant to which we and our subsidiaries will continue to provide all of various administrative, human resources, employee leasing, treasury, accounting and insurance management services described above to Waste Corporation of America and its subsidiaries. Waste Corporation of America agreed to pay us a fee of $40,000 per month for such administrative services, plus all direct and other allocated costs incurred on behalf of Waste Corporation of America and its subsidiaries. The fee to be paid by Waste Corporation of America also includes payment for the services our officers will provide to Waste Corporation of America and its affiliates. We expect that our officers will devote approximately 90% of their time, on average, to our operations and 10%, on average, to the operations of Waste Corporation of America and its subsidiaries. Until we and Waste Corporation of America can practically separate required bonding, insurance and other similar arrangements supporting financial assurances to governmental agencies as to our respective landfills, we will continue to maintain such arrangements in place as part of our administrative services and Waste Corporation of America will be responsible to us for any costs or claims relating to its landfills or operations. On each anniversary of the Administrative Services Agreement, we will review with Waste Corporation of America the fee payable under the Administrative Services Agreement to determine whether it should be adjusted to reflect the level of the services then provided.

Risk Factors

Risks Relating to Our Acquisition Program

     We may be unable to identify, complete or integrate future acquisitions, which may harm our prospects.

     We may be unable to identify appropriate acquisition candidates. If we do identify an appropriate acquisition candidate, we may not be able to negotiate acceptable terms or finance the acquisition or, if the acquisition occurs, effectively integrate the acquired business into our existing business. Negotiations of potential acquisitions and the integration of acquired business operations require a disproportionate amount of management’s attention and our resources. Even if we complete additional acquisitions, continued financing may not be available or available on reasonable terms, any new businesses may not generate revenues comparable to our existing businesses, the anticipated cost efficiencies or synergies may not be realized and these businesses may not be integrated successfully or operated profitably or accretive to our earnings.

     We compete for acquisition candidates with other purchasers, some of which have greater financial resources and may be able to offer more favorable terms, thus limiting our ability to grow through acquisitions.

     Other companies in the solid waste services industry also have a strategy of acquiring and consolidating regional and local businesses. We expect that as the consolidation trend in our industry continues, the competition for acquisitions will increase. Competition for acquisition candidates may make fewer acquisition opportunities available to us or make those opportunities more expensive.

     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.

     We intend to finance acquisitions with available cash, borrowings under our credit facility, shares of our common stock or a combination of these means. As a result, we may incur additional indebtedness or issue additional shares of our common stock which would dilute the ownership percentage of existing stockholders. Our credit facility contains covenants restricting, among other things, the amount of additional indebtedness. We expect to offer shares of our common stock as some or all of the consideration for certain acquisitions. Our ability to do so will depend in part on the attractiveness of our common stock. This attractiveness may depend largely on the capital appreciation prospects of our common stock compared to the common stock of our competitors. If the

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market price of our common stock were to decline materially over a prolonged period of time, we may find it difficult to use our common stock as consideration for acquisitions.

     Businesses that we acquire may have unknown liabilities and require unforeseen capital expenditures, which would adversely affect our financial results.

     We may acquire businesses with liabilities that we fail to discover, including liabilities arising from non-compliance with environmental laws by prior owners for which we may be responsible as the successor owner. Moreover, as we integrate a new business, we may discover that required expenses and capital expenditures are greater than anticipated, which would adversely affect our financial results.

     Rapid growth may strain our management, operational, financial and other resources, which would adversely affect our financial results.

     Executing our acquisition strategy will require significant time from our senior management. We may also be required to expand our operational and financial systems and controls and our management information systems capabilities. We may also need to attract and train additional senior managers, technical professionals and other employees. Failure to do any of these could restrict our ability to maintain and improve our profitability while continuing to grow.

     We may incur charges related to acquisitions, which could lower our earnings.

     We capitalize some expenditures and advances relating to acquisitions and pending acquisitions, but expense indirect acquisition costs, including general corporate overhead, as they are incurred. We charge against earnings any unamortized capitalized expenditures and advances (net of any amount that we estimate we will recover, through sale or otherwise) that relate to any pending acquisition that is not consummated. We, therefore, may incur charges in future periods, which could lower our earnings.

Risks Relating To Our Business

     We are subject to environmental and safety laws, which restrict our operations and increase our costs.

     We are subject to extensive federal, state and local laws and regulations relating to environmental protection and occupational safety and health. These include, among other things, laws and regulations governing the use, treatment, storage and disposal of wastes and materials, air quality, water quality and the remediation of contamination associated with the release of hazardous substances. Our compliance with existing regulatory requirements is costly, and continued changes in these regulations could increase our compliance costs. Government laws and regulations often require us to enhance or replace our equipment and to modify landfill operations and may, in the future, require us to initiate final closure of a landfill. We are required to obtain and maintain permits that are subject to strict regulatory requirements and are difficult and costly to obtain and maintain. We may be unable to implement price increases sufficient to offset the cost of complying with these laws and regulations. In addition, regulatory changes could accelerate or increase expenditures for closure and post-closure monitoring at solid waste facilities and obligate us to spend sums over the amounts that we have accrued.

     We may become subject to environmental clean-up costs or litigation that could curtail our business operations and materially decrease our earnings.

     The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or CERCLA, and analogous state laws provide for the remediation of contaminated facilities and impose strict joint and several liability for remediation costs on current and former owners or operators of a facility at which there has been a release or a threatened release of a “hazardous substance.” This liability is also imposed on persons who arrange for the disposal of and who transport such substances to the facility. Hundreds of substances are defined as “hazardous” under CERCLA and their presence, even in small amounts, can result in substantial liability. The

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expense of conducting a cleanup can be significant. Notwithstanding our efforts to comply with applicable regulations and to avoid transporting and receiving hazardous substances, we may have liability because these substances may be present in waste collected by us or disposed of in our landfills, or in waste collected, transported or disposed of in the past by companies that we acquire even if we did not collect or dispose of the waste while we owned the landfill. The actual costs for these liabilities could be significantly greater than the amounts that we might be required to accrue on our financial statements from time to time.

     In addition to the costs of complying with environmental regulations, we may incur costs to defend against litigation brought by government agencies and private parties. As a result, we may be required to pay fines or our permits and licenses may be modified or revoked. We may in the future be a defendant in lawsuits brought by governmental agencies and private parties who assert claims alleging environmental damage, personal injury, property damage and/or violations of permits and licenses by us. A significant judgment against us, the loss of a significant permit or license or the imposition of a significant fine could curtail our business operations and may decrease our earnings.

     Our accruals for landfill closure and post-closure costs may be inadequate, and our earnings would be lower if we are required to pay or accrue additional amounts.

     We are required to pay closure and post-closure costs of any disposal facilities that we own or operate. We accrue for future closure and post-closure costs of our owned landfills, generally for a term of five years for C&D landfills and 30 years for MSW landfills, based on engineering estimates of future requirements associated with the final landfill design and closure and post-closure process. Our obligations to pay closure and post-closure costs, including for monitoring, may exceed the amount we accrued, which would adversely affect our earnings. Expenditures for these costs may increase as a result of any federal, state or local government regulatory action, including changes in closing or monitoring activities, types and quantities of materials used or the period of required post-closure monitoring. These factors could substantially increase our operating costs and therefore impair our ability to invest in our existing facilities or new facilities. The amount of our accruals is based upon estimates by management and engineers and accountants. We review at least annually our estimates for closure and post-closure costs, and any change in our estimates could require us to accrue additional amounts.

     We may be unable to obtain financial assurances necessary for our operations, which could result in the closure of landfills or the termination of collection contracts.

     We are required to provide financial assurances to governmental agencies under applicable environmental regulations relating to landfill closure and post-closure obligations, our landfill operations, and other collection and disposal contracts. We satisfy 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 these bonding and insurance companies has decreased. We have been required, and may in the future be required, to obtain personal guarantees from certain of our senior executive officers, directors and an affiliate of our largest stockholder in order to obtain these types of instruments. We have compensated and indemnified, and may in the future compensate and indemnify, our senior executive officers, directors and the affiliate of our largest stockholder for these guarantees. We may be unable to provide the level of financial assurance that we are required to provide in the future or it may become too costly to do so, which in either case could result in the closure of landfills or the termination of collection contracts.

     Our business is capital intensive, requiring ongoing cash outlays that may strain or consume our available capital and force us to sell assets, incur debt, or sell equity on unfavorable terms.

     Our ability to remain competitive, grow and maintain operations largely depends on our cash flow from operations and access to capital. Maintaining our existing operations and expanding them through internal growth or acquisitions requires large capital expenditures. As we undertake more acquisitions and further expand our operations, the amount we expend on capital, closure and post-closure and remediation expenditures will increase.

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These increases in expenditures may result in lower levels of working capital or require us to finance working capital deficits. We intend to continue to fund our cash needs through cash flow from operations and borrowings under our credit facility, if necessary. However, we may require additional equity or debt financing to fund our growth.

     We do not have complete control over our future performance because it is subject to general economic, political, financial, competitive, legislative, regulatory and other factors. It is possible that our business may not generate sufficient cash flow from operations, and we may not otherwise have the capital resources, to allow us to make necessary capital expenditures. If this occurs, we may have to sell assets, restructure our debt or obtain additional equity capital, which could be dilutive to our stockholders. We may not be able to take any of the foregoing actions, and we may not be able to do so on terms favorable to us or our stockholders.

     Increases in the costs of disposal may reduce our operating margins.

     We dispose of approximately one-fourth of the waste that we collect in landfills operated by others, but that rate may increase in the future. We may incur increases in disposal fees paid to third parties or in the costs of operating our own landfills. Failure to pass these costs on to our customers may reduce our operating margins.

     Increases in the costs of labor may reduce our operating margins.

     We compete with other businesses in our markets for qualified employees. The labor market is currently tight in many of the areas in which we operate. A shortage of qualified employees would require us to enhance our wage and benefits packages to compete more effectively for employees or to hire more expensive temporary employees. Labor is our second largest operating cost, and even relatively small increases in labor costs per employee could materially affect our cost structure. Failure to attract and retain qualified employees, to control our labor costs, or to recover any increased labor costs through increased prices we charge for our services or otherwise offset such increases with cost savings in other areas may reduce our operating margins.

     Increases in the costs of fuel may reduce our operating margins.

     The price and supply of fuel needed to run our collection and transfer trucks and our landfill equipment is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries, regional production patterns and environmental concerns. During 2004 and 2003, we experienced increases in the cost of diesel fuel as a percentage of revenue of 4.9% and 4.1%, respectively. Any significant price escalations or reductions in the supply could increase our operating expenses or interrupt or curtail our operations. Failure to offset all or a portion of any increased fuel costs through increased fees or charges would reduce our operating margins.

     Increases in costs of insurance would reduce our operating margins.

     One of our largest operating costs is for insurance coverage, including general liability, automobile physical damage and liability, property, employment practices, pollution, directors and officers, fiduciary, workers’ compensation and employer’s liability coverage, as well as umbrella liability policies to provide excess coverage over the underlying limits contained in our primary general liability, automobile liability and employer’s liability policies. Changes in our operating experience, such as an increase in accidents or lawsuits or a catastrophic loss, could cause our insurance costs to increase significantly or could cause us to be unable to obtain certain insurance. Increases in insurance costs would reduce our operating margins. Changes in our industry and perceived risks in our business could have a similar effect.

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     We may not be able to maintain sufficient insurance coverage to cover the risks associated with our operations, which could result in uninsured losses that would adversely affect our financial condition.

     Integrated non-hazardous waste companies are exposed to a variety of risks that are typically covered by insurance arrangements. However, we may not be able to maintain sufficient insurance coverage to cover the risks associated with our operations for a variety of reasons. Increases in insurance costs and changes in the insurance markets may, given our resources, limit the coverage that we are able to maintain or prevent us from insuring against certain risks. Large or unexpected losses may exceed our policy limits, adversely affecting our results of operations, and may result in the termination or limitation of coverage, exposing us to uninsured losses, thereby adversely affecting our financial condition.

     Our failure to remain competitive with our numerous competitors, some of which have greater resources, could adversely affect our ability to retain existing customers and obtain future business.

     Our industry is highly competitive. We compete with large companies and municipalities, many of which have greater financial and operational resources. The non-hazardous solid waste collection and disposal industry is led by three large national, publicly-traded waste management companies that account for approximately 48% of the estimated $43.0 billion of annual industry revenues. The industry also includes numerous regional and local companies. Additionally, many counties and municipalities operate their own waste collection and disposal facilities and have competitive advantages not available to private enterprises. We also encounter competition from alternatives to landfill disposal, such as recycling and incineration, that benefit from state requirements to reduce landfill disposal. If we are unable to successfully compete against our competitors, our ability to retain existing customers and obtain future business could be adversely affected.

     We may lose contracts through competitive bidding, early termination or governmental action, or we may have to substantially lower prices in order to retain certain contracts, any of which would cause our revenues to decline.

     We are parties to contracts with municipalities and other associations and agencies. Many of these contracts are or will be subject to competitive bidding. We may not be the successful bidder, or we may have to substantially lower prices in order to be the successful bidder. In addition, some of our customers may terminate their contracts with us before the end of the contract term. If we were not able to replace revenues from contracts lost through competitive bidding or early termination or from lowering prices or from the renegotiation of existing contracts with other revenues within a reasonable time period, our revenues could decline.

     Municipalities may annex unincorporated areas within counties where we provide collection services, and as a result, our customers in annexed areas may be required to obtain service from competitors who have been franchised or contracted by the annexing municipalities to provide those services. Some of the local jurisdictions in which we currently operate grant exclusive franchises to collection and disposal companies, others may do so in the future, and we may enter markets where franchises are granted by certain municipalities. Unless we are awarded a franchise by these municipalities, we will lose customers which will cause our revenues to decline.

     Comprehensive waste planning programs and initiatives required by state and local governments may reduce demand for our services, which could adversely affect our waste volumes and the price of our landfill disposal services.

     Many of the states in which we operate landfills require counties and municipalities to formulate comprehensive plans to reduce the volume of solid waste disposed of in landfills through waste planning, recycling, composting or other programs. Some state and local governments mandate waste reduction at the source and prohibit the disposal of certain types of wastes, such as yard wastes, at landfills. These actions may reduce the volume of waste going to landfills in certain areas, and therefore our landfills may not continue to operate at currently estimated volumes or they may be unable to charge current prices for landfill disposal services.

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     Covenants in our credit facility and the agreements governing our other indebtedness may limit our ability to grow our business and make capital expenditures.

     Our credit facility and certain of the agreements governing our other indebtedness impose financial covenants and ratios that we must satisfy and other covenants that limit certain actions that we may take (including, among other things, our ability to incur additional indebtedness, grant liens and make investments) and acquisitions. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facility.” All of these restrictions could affect our ability to take advantage of potential business opportunities. Our ability to comply with these covenants and restrictions may be affected by changes in economic or business conditions or other events beyond our control.

     Failure to observe these restrictions could result in a default, allowing acceleration of the debt incurred under those agreements, requiring us to repay the indebtedness under such credit facility and, if we were unable to do so, allowing the lenders to foreclose on their collateral (which includes substantially all of the assets we own, including the stock and assets of our subsidiaries). A default also could result from our inability to repay any indebtedness when due. Moreover, default under one agreement could lead to an acceleration of indebtedness under other agreements that contain cross-acceleration or cross-default provisions.

     Changes in interest rates may affect our profitability.

     Our acquisition strategy could require us to incur substantial additional indebtedness in the future, which will increase our interest expense. Further, to the extent that these borrowings are subject to variable rates of interest, increases in interest rates will increase our interest expense, which will affect our profitability. As of December 31, 2004, we had $69.4 million of floating rate based long-term debt. If interest rates were to change by 100 basis points, or 1%, this would result in a corresponding change of $0.7 million in annual interest expense. In the past, we have attempted to hedge against interest rate changes through swap arrangements (and we may continue to do so in the future). For certain interest rate swap agreements, we record non-cash mark-to-market gains and losses based on changes in future yield curves to the statement of operations. Therefore, fluctuations in interest rates may require us to record non-cash losses with respect to swap arrangements.

     Efforts by labor unions to organize our employees could divert management attention and increase our operating expenses.

     Labor unions have in the past attempted to organize our employees, and these efforts will likely continue in the future. At its 2003 national meeting, the International Brotherhood of Teamsters announced that our industry is one in which it will begin focusing its efforts. In March 2001, a group of employees chose to be represented by a union, and we negotiated a collective bargaining agreement with them. As of December 31, 2004, there were 12 employees in that group. Additional groups of employees may seek union representation in the future, and the negotiation of collective bargaining agreements could divert management attention and result in increased operating expenses and lower net income. If we are unable to negotiate acceptable collective bargaining agreements, we might have to wait through “cooling off” periods, which are often followed by union-initiated work stoppages, including strikes. Depending on the type and duration of these work stoppages, our operating expenses could increase significantly.

     A general downturn in U.S. economic conditions may reduce our business prospects and decrease our revenues and cash flows.

     Our business is affected by general economic conditions. Any extended weakness in the U.S. economy could reduce our business prospects and could cause decreases in our revenues and operating cash flows. In addition, in a down-cycle economic environment, we would likely experience the negative effects of increased competitive pricing pressure and customer turnover.

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     Current and proposed laws may restrict our ability to operate across local borders which could affect our manner, cost and feasibility of doing business.

     As of December 31, 2004, approximately $1.9 million, or 2.6%, of our revenue was earned from the disposal of waste that is generated in a state other than the state where it is disposed. Accordingly, only a small portion of our operations cross state borders, but these operations could increase in the future. Some states have imposed restrictions on collection routes and disposal locations. Our collection, transfer and landfill operations may also be affected in the future by proposed “flow control” legislation that would allow state and local governments to direct waste generated within their jurisdictions to a specific facility for disposal or processing. Moreover, in the future, our operations may be affected by proposed federal legislation authorizing states to regulate, limit or perhaps even prohibit interstate shipments of waste. If this or similar legislation is enacted, state or local governments with jurisdiction over our landfills could act to limit or prohibit disposal or processing of out-of-state waste in our landfills, whether collected by us or by third parties which could affect our manner, cost and feasibility of doing business.

     We may not be successful in expanding the permitted capacity of our current or future landfills, which could restrict our growth, increase our disposal costs, and reduce our operating margins.

     Our ability to meet our growth objectives depends in part on our ability to expand landfill capacity, whether by acquisition or expansion. Exhausting permitted capacity at a landfill would restrict our growth, and reduce our financial performance in the market served by the landfill since we would be forced to dispose of collected waste at more distant landfills or at landfills operated by our competitors, thereby increasing our waste disposal expenses. Although we have received final permits on expansions at our existing landfills, there may be challenges, comments, or delays that could have an adverse effect on our operations in these markets. Obtaining required permits and approvals to expand landfills has become increasingly difficult and expensive, requiring numerous hearings and compliance with various zoning, environmental and regulatory laws and drawing resistance from citizens, environmental or other groups. Even if permits are granted, they may contain burdensome terms and conditions or the timing required may be extensive and could affect the remaining capacity at the landfill. We may choose to delay or forego tuck-in acquisitions in markets where the remaining lives of our landfills are relatively short because increased volumes would further shorten the lives of these landfills.

Risks Relating to Our Operations and Corporate Organization

     Poor decisions by our regional and local managers could result in the loss of customers or an increase in costs, or adversely affect our ability to obtain future business.

     We manage our operations on a decentralized basis. Therefore, regional and local managers have the authority to make many decisions concerning their operations without obtaining prior approval from executive officers. Poor decisions by regional or local managers could result in the loss of customers or an increase in costs, or adversely affect our ability to obtain future business.

     We are vulnerable to factors affecting our local markets, which could adversely affect our stock price relative to our competitors.

     The non-hazardous waste business is local in nature. Accordingly, our business in one or more regions or local markets may be adversely affected by events and economic conditions relating to those regions or markets even if the other regions of the country are not affected. As a result, our financial performance may not compare favorably to our competitors with operations in other regions, and our stock price could be adversely affected.

     Seasonal fluctuations will cause our business and results of operations to vary among quarters, which could adversely affect our stock price.

     Based on historic trends experienced by the businesses we have acquired, we expect our operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters, and

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again lower in the fourth quarter. This seasonality generally reflects the lower volume of solid waste generated because of decreased construction and demolition activities during the winter months. Adverse weather conditions negatively affect waste collection productivity, resulting in higher labor and operational costs. The general increase in precipitation during the winter months increases the weight of collected waste, resulting in higher disposal costs, as costs are often calculated on a per ton basis. Because of these factors, we expect operating income to be generally lower in the winter months. As a result our stock price may be negatively affected by these variations. Additionally, severe weather during any time of the year can negatively affect the costs of collection and disposal and may cause temporary suspensions of our collection and disposal services. Long periods of inclement weather may interfere with collection and landfill operations, delay the construction of landfill capacity and reduce the volume of waste generated by our customers. Any of these conditions can adversely affect our business and results of operations, which could negatively affect our stock price.

     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.

     During the next year, we will be documenting and testing our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and our stock price.

     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.

     We believe that our continued success depends in large part on the sustained contributions of our chairman of the board and chief executive officer, Mr. Tom J. Fatjo, Jr., our president and chief operating officer, Mr. Jerome M. Kruszka, and other members of our senior management. We rely on them to identify and pursue new business opportunities and acquisitions and to execute operational strategies. The loss of services of Messrs. Fatjo, Jr. or Kruszka or any other senior management member could significantly impair our ability to identify and secure new contracts and otherwise disrupt our operations. We do not maintain key person life insurance on any of our senior executives. We have entered into employment agreements with our executive officers that contain non-compete and confidentiality covenants. Despite these agreements, we may not be able to retain these officers and may not be able to enforce the non-compete and confidentiality covenants in their employment agreements.

     Members of our senior management will devote a portion of their time to Waste Corporation of America LLC’s operations, which will divert their attention from our business and operations.

     As indicated above, our continued success largely depends on the continued contributions of our senior management. However, Messrs. Fatjo, Jr. and Kruszka and other members of our senior management also serve as executive officers of our former parent, Waste Corporation of America LLC, and, therefore, devote a portion of their time to matters other than our business and operations. We believe that senior management will devote approximately 10% of their time, on average, to Waste Corporation of America LLC’s operations.

     Conflicts of interest to our and our stockholders’ detriment may arise between us and Waste Corporation of America and its controlling equity holder, who owns a significant portion of our equity and has two directors on our board.

     As of March 1, 2005, WCA Partners, L.P. and other related entities beneficially owned approximately 17.0% of our common stock. Additionally, these entities continue to own approximately 60.2% of the equity interests of

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Waste Corporation of America LLC, our former parent and a privately-held solid waste company with which we have administrative services, non-competition and other arrangements. Mr. William P. Esping, who is a former director, and members of his family are the primary beneficial owners of these various entities. Messrs. Ballard O. Castleman and Robert P. Lancaster, who are members of our board of directors, have ownership positions in and are employed by such entities. Messrs. Castleman and Lancaster constitute two of the six current members of our board of directors. Because of the substantial ownership interest of WCA Partners, L.P. and related entities in Waste Corporation of America LLC, these entities may, in the event a conflict of interest arises between us and Waste Corporation of America LLC and these entities, favor their interests in Waste Corporation of America LLC over their interests in us to the detriment of us and our other stockholders.

     Our executive officers, directors and their related entities own a significant interest in our voting stock and may be able to exert significant influence over our management and affairs, which may discourage a potential change of control transaction.

     As of March 1, 2005, our executive officers, directors and their related entities (including WCA Partners, L.P.) owned or controlled approximately 26.7% of the outstanding shares of our common stock. Accordingly, these parties, acting together, could possess a controlling vote on matters submitted to a vote of the holders of our common stock. As long as these individuals beneficially own a significant interest, they will have the ability to significantly influence the election of members of our board of directors and to influence our management and affairs. As of March 1, 2005, WCA Partners, L.P. and other related entities, collectively beneficially owned approximately 17.0% of our common stock, as well as approximately 60.2% of the equity of Waste Corporation of America LLC with which we have administrative services, non-competition and other arrangements. This concentration of ownership, the potential ability to significantly influence our management and affairs, and the potential conflicts of interests relating to Waste Corporation of America LLC may have the effect of preventing or discouraging transactions involving a potential change of control or otherwise adversely affect us.

     Provisions in our amended and restated certificate of incorporation, our amended and restated bylaws and Delaware law could prohibit a change of control that our stockholders may favor and which could negatively affect our stock price.

     Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws and applicable provisions of the Delaware General Corporation Law may make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of our stockholders. These provisions could discourage potential takeover attempts and could adversely affect the market price of our common stock. Our amended and restated certificate of incorporation and our amended and restated bylaws:

	•	authorize the issuance of blank check preferred stock that could be issued by our board of directors to thwart a takeover attempt;
	•	prohibit cumulative voting in the election of directors, which would otherwise allow holders of less than a majority of stock to elect some directors;
	•	require super-majority voting to effect amendments to provisions of our amended and restated bylaws concerning the number of directors;
	•	limit who may call special meetings;
	•	prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders;
	•	establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholders meeting; and

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•

require that vacancies on the board of directors, including newly-created directorships, be filled only by a majority vote of directors then in office.

     In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder.

     We do not anticipate paying cash dividends on our common stock in the foreseeable future, so you can only realize a return on your investment by selling your shares of our common stock.

     We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, capital requirements, earnings and other factors and are prohibited by the terms of our credit facility. Please read “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividend Policy.” Accordingly, for the foreseeable future you can only realize a return on your investment by selling your shares of our common stock.

     We may issue preferred stock that has a liquidation or other preference over our common stock without the approval of the holders of our common stock, which may affect those holders rights or the market price of our common stock.

     Our board of directors is authorized to issue series of shares of preferred stock without any action on the part of our stockholders. Our board of directors also has the power, without stockholder approval, to set the terms of any such series of shares of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or if we liquidate, dissolve or wind up our business and other terms. If we issue preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the market price of our common stock could be adversely affected.

Available Information

     Our Internet website is www.wcawaste.com. We make available through the “Investor Relations-SEC Filings” section of our Internet website our annual report on Form 10–K, quarterly reports on Form 10–Q, current reports on Form 8–K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Item 2. Properties.

     Our principal executive offices are located at One Riverway, Suite 1400, Houston, Texas 77056, where we currently lease 12,259 square feet of office space. We also own or lease field-based administrative offices in Alabama, Arkansas, Kansas, Missouri, South Carolina, Tennessee and Texas.

     Our principal property and equipment consist of land (primarily landfills, transfer stations and bases for collection operations), buildings, and vehicles and equipment, including waste collection and transportation vehicles, related support vehicles, carts, containers and heavy equipment used in landfill operations, all of which are encumbered by liens in favor of our lenders. As of December 31, 2004, we owned nineteen collection operations, eleven transfer stations, six MSW landfills and eight C&D landfills. We also operated but did not own two additional transfer stations as of December 31, 2004. For a description of our landfills, please read “Business—Our Operations—Landfills.”

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Item 3. Legal Proceedings.

     Information regarding our legal proceedings can be found in note 13(d) to our consolidated financial statements included elsewhere in this report.

Item 4. Submission of Matters to a Vote of Security Holders.

     No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2004.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Common Stock

     Our common stock is traded on the NASDAQ National Market under the symbol “WCAA.” As of March 1, 2005, there were approximately 69 holders of record of our common stock. This number does not include any beneficial owners for whom shares of common stock may be held in “nominee” or “street” name. The following table sets forth the range of high and low closing sales prices per share for our common stock as reported by NASDAQ for the periods indicated.

Dividend Policy

     We have never declared or paid any cash dividends on our common stock and do not intend to declare or pay any cash dividends on our common stock in the foreseeable future. We currently intend to retain our earnings, if any, to finance the development and expansion of our business and for general corporate purposes. Furthermore, our credit facility prohibits payment of cash dividends or other payments or advances 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 to our stockholders would be distributions or other payments or advances from our subsidiaries, which as discussed above, is prohibited by the terms of our credit facility. Any future dividends declared would be subject to a relaxation of this prohibition, would be at the discretion of our board of directors and would depend on our financial condition, results of operations, capital requirements, contractual obligations, the other terms of our credit facility and other financing agreements at the time a dividend is considered, and other relevant factors.

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Item 6. Selected Financial Data.

     The following table sets forth certain selected historical consolidated financial data derived from our consolidated financial statements included elsewhere in this report. The selected financial data for the three-months ended December 31, 2000 represent the period from our formation through the end of our first fiscal year and are derived from our unaudited financial statements. The information set forth below should be read in connection with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this report. The following information may not be indicative of our future operating results.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following discussion of our financial condition and results of operations should be read together with the historical consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions.. For additional information regarding some of the risks and uncertainties that affect our business and the industry in which we operate, please read “Business—Risk Factors” included elsewhere in this report and “—Cautionary Statement About Forward-Looking Statements” below.

Executive Overview

     General Overview of Our Business

     Revenues. 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

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loaded onto and off of the collection vehicle. The following table reflects our total revenue by source for the previous three years (dollars in thousands):

     No single contract or customer accounted for more than 2% of our revenues for the years presented.

     Net income (loss). During the year ended December 31, 2004, the Company reported a net loss of $4.4 million. This net loss resulted primarily from a stock-based compensation charge of $11.5 million ($7.5 million net of tax benefit) that we incurred in June 2004 in connection with an internal reorganization that we completed immediately prior to our initial public offering. Before the reorganization, we were a wholly-owned subsidiary of Waste Corporation of America. As a result of the internal corporate reorganization, we assumed the obligation to issue shares upon the exercise of options and warrants that had been previously issued by Waste Corporation of America. Subsequently, we issued 1,330,056 shares of our common stock in cancellation of approximately 90% of such options and warrants that gave rise to the compensation charge. Please refer to “Business—Internal Reorganization and Relationship with Waste Corporation of America” for description of the internal reorganization. Net income would have been $3.1 million (or $0.27 per share on 11.6 million fully diluted shares) without the stock-based compensation charge (after giving effect to the tax benefit associated with the charge). Since we do not anticipate that we will have another internal reorganization that will result in a similar charge, we expect that our GAAP-based reported operating income and net income will show comparative increases for 2005 over 2004 that should, in our view, be analyzed by taking into account the impact of the stock-based compensation charge. Moreover, we note that our net income included a charge of $383,000 (net of tax benefit) (or $0.03 per share on 11.6 million fully diluted shares) for deferred financing costs associated with the amendment of our credit facility in December 2004.

     Non-GAAP measures. Our management evaluates our performance and potential acquisition candidates based on non-GAAP measures, of which the primary performance measure is EBITDA. EBITDA consists of earnings (net income) before interest expense, income tax expense, depreciation, amortization and write-off of deferred financing costs. We also compute EBITDA before the cumulative effect of change in accounting principle and before considering the effect of discontinued operations as the effect of these items are not relevant to our ongoing operations.

     We believe EBITDA is useful to an investor in evaluating our operating performance because:

	•	it is widely used by investors in our industry to measure a company’s operating performance without regard to items such as interest expense, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, financing methods, capital structure and the method by which assets were acquired;
	•	it helps investors more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest charges from our outstanding debt) and asset base (primarily depreciation and amortization of our vessels) from our operating results; and
	•	it helps investors identify items that are within operational control. Depreciation charges, while a component of operating income, are fixed at the time of the asset purchase in

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accordance with the depreciable lives of the related asset and as such are not a directly controllable period operating charge.

      Our management uses EBITDA:

	•	as a measure of operating performance because it assists us in comparing our performance on a consistent basis as it removes the impact of our capital structure and asset base from our operating results;
	•	as one method we use to estimate a purchase price (often expressed as a multiple of EBITDA) for solid waste companies we intend to acquire. The appropriate EBITDA multiple will vary from acquisition to acquisition depending on factors such as the size of the operation, the type of operation, the strategic location of the operation in its market as well as other considerations;
	•	in presentations to our board of directors to enable them to have the same consistent measurement basis of operating performance used by management;
	•	as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations;
	•	in evaluations of field operations since it represents operational performance and takes into account financial measures within the control of the field operating units;
	•	as a basis for incentive cash bonuses paid to our executive officers and other employees;
	•	to assess compliance with financial ratios and covenants included in our credit facility; and
	•	in communications with investors, lenders, and others, concerning our financial performance.

      In March 2003, the Securities and Exchange Commission, or Commission, adopted rules regulating the use of non-GAAP financial measures, such as EBITDA, in filings with the Commission, disclosures and press releases. These rules require non-GAAP financial measures to be presented with and reconciled to the most nearly comparable financial measure calculated and presented in accordance with GAAP. The following presents a reconciliation of the total EBITDA to net income (in thousands):

      In considering EBITDA results, our management also takes various adjustments (especially for non-operational expenses) into account in evaluating performance in order to provide it with what it believes to be a better view of ongoing operational performance. Thus, for example, in our evaluations we exclude the stock-based compensation charge of $11.5 million ($7.5 million net of tax benefit) that we incurred in June 2004 in connection with our

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internal reorganization mentioned above. We make similar adjustments in evaluating acquisition candidates. The following presents a reconciliation of EBITDA to Adjusted EBITDA (in thousands):

     Neither our EBITDA nor Adjusted EBITDA as we define them may be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. EBITDA and Adjusted EBITDA should not be considered in isolation or as substitutes for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP.

     Other considerations. Costs of services include, but are not limited to, labor, fuel and other vehicle operating expenses, equipment maintenance, disposal fees paid to third-party disposal facilities, insurance premiums and claims expense, third-party transportation expense and state 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 expenses include the salaries and benefits of our corporate management, 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 estimated 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, commissions 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. As of December 31, 2004, we had $0.3 million capitalized costs relating to pending acquisitions.

     The integration expenses associated with our acquisitions include expenses related to: (i) incorporating new truck fleets into our preventative maintenance program, (ii) the testing of new employees to comply with Department of Transportation regulations, (iii) implementing our safety program, and (iv) re-routing trucks and equipment. In the short-term, as expected, the cost of acquiring and integrating companies will continue to put pressure on operating results. While some synergies from tuck-in acquisitions can take as long as twelve months to be realized, we have integrated all of our completed acquisitions to date into our existing operations.

     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 covenants not to compete and any remaining amounts are then allocated to goodwill.

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     2004 Business Performance

     During 2004, we successfully completed an initial public offering (IPO) of our common stock, began the execution of our acquisition strategy, and grew revenues through acquisition and internal growth.

     Our IPO was the first in our industry since 1997. It allowed us to improve our capitalization from approximately 82% debt to total capitalization prior to the IPO to approximately 50% at December 31, 2004. In conjunction with the IPO we amended our credit agreement to provide additional borrowing capacity.

     Our improved capitalization allowed us to implement our acquisition strategy. In 2004 we acquired and have integrated seven companies, which we forecast (based on internal estimates) to add $22.5 million of revenue in 2005. In addition, since December 31, 2004, we have acquired a landfill and collection operation in Bowling Green, Missouri, near St. Louis, and have entered into a definitive agreement to acquire two C&D landfills, two transfer stations, and two material recovery facilities in the Raleigh and High Point/Greensboro, North Carolina markets. Please read “—Acquisition Strategy Overview” below for a detailed discussion of our recent acquisitions and strategy.

     In addition to growth from acquisitions, our internal growth from operations in 2004 was 5.5%, with 4.7% coming from volume growth, and 0.8% coming from price increases. We experienced revenue growth in both our collection and transfer station operations and were able to maintain our high level of internalization. In 2004, 78.1% of the waste disposed by our collection and transfer operations went to our own landfills.

     While we experienced both revenue growth from acquisitions and internal sources, our operating income, net income and Adjusted EBITDA (a non-GAAP financial measure) were negatively impacted by a number of factors. For a description of Adjusted EBITDA and a reconciliation to comparable GAAP measures please refer to “—General Overview of Our Business—Non-GAAP Measures” above. These factors included stock-based compensation expense, the costs of integrating the acquired companies and bringing their operations in line with our operating standards and increased diesel fuel costs. Additionally, we have experienced increased costs associated with operating as a public company and the pursuit of our acquisition strategy which we estimate to be approximately $0.5 million per quarter ($2 million per year).

     2005 Financial Objectives

     With respect to 2005, we expect the following financial objectives:

	•	Revenue in excess of $110 million (a 50% increase over 2004 reported revenues);
	•	Adjusted EBITDA, which is a non-GAAP financial measure, in excess of $27 million (a 50% increase over 2004). This assumes an adjusted operating income margin of 25%. This margin is somewhat compressed by acquiring landfills earlier than expected. As tuck-in acquisitions are completed, we believe internalization and margins will improve. Our margins will also be affected by changes in diesel fuel costs, the expenses associated with integrating acquisitions and costs associated with testing and compliance with Section 404 of the Sarbanes-Oxley Act;
	•	“Run rate” revenue from operations acquired in 2005 to be approximately $50 million. Clearly this estimate is based on an assumed level of acquisition activity. We are in active discussions concerning potential acquisitions of other waste companies with estimated annualized revenue “run rates” totaling approximately $50 million. This includes two potential acquisitions covered by letters of intent, with estimated annualized revenue “run rates” totaling approximately $10 million. In the immediate areas surrounding our current operations including those we are in active discussions with, we have identified additional solid waste companies that might be potential acquisition candidates (our “acquisition pipeline”). However, we note that we may not complete all or any of the acquisitions that we are in active discussions with or that we may from time to time report as being in our “acquisition pipeline”. “Run rate” determinations are made based on estimations from information provided to us by the acquisition

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		candidates and from other sources and estimates developed by us. “Run rate” measures are not audited or based on GAAP. We determine the period over which to calculate a “run rate” based on factors we deem to be reasonable. Actual revenues may or may not equal the estimated “run rate”;
	•	Net income to be in the range of $0.38 to $0.40 per share, depending on the timing of acquisitions and the form of any capital and related charges that we might obtain to fund acquisitions. We have assumed that our blended tax rate will be approximately 39% for 2005. Net income per share will be impacted by any additional issuance of shares and increases in interest expense resulting from the types of consideration issued in future acquisitions; and
	•	2005 year-end “run rates” of revenue and Adjusted EBITDA, to be more than two times similar measures for the year ended December 31, 2003 (which were representative of our “run rates” at the time of our initial public offering).

      Please note that these financial objectives are all forward looking statements that involve risks, uncertainties and assumptions. For additional information regarding some of the risks and uncertainties that affect our business and the industry in which we operate, please read “Business—Risk Factors” and “—Cautionary Statement About Forward-Looking Statements” included elsewhere in this report. You should note that our ability to achieve these objectives will be primarily dependent upon successful execution of our acquisition strategy (please read “—Acquisition Strategy Overview” below). In addition, as we have previously reported, we intend to review price increase opportunities to recover cost increases and improve operating margins. As we have in the past, we also will look for opportunities to improve operating margins by reducing operating costs. Those opportunities may involve a variety of initiatives, including improvements to systems and programs and evaluation of location specific operating results. As we discuss in “—Liquidity and Capital Resources—Cash Flows” below, we expect capital expenditures related to our existing operations for 2005 to be approximately 12% of our revenue, which would include expenditures for vehicles, heavy equipment, containers, landfill cell development, and certain systems and program improvements.

      Acquisition Strategy Overview

       Our future financial performance will significantly depend on successful implementation of our strategy of acquisitions in our existing markets and selected additional markets. As we discussed in “Business—Our Acquisition Growth Strategy” our acquisition strategy will target operations that will benefit from our core operating strategy of maximizing the “internalization” of waste. 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 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 expand our operations to collection services by acquiring collection operations in the new market and internalizing the waste into our landfill. While our long-term strategy will focus on tuck-in acquisitions, during 2004 and early 2005, we have acquired a greater number of landfills to date than we originally expected to have completed at this stage of our acquisition program. We have been presented with a greater number of landfill opportunities than we had planned.

      During the year ended December 31, 2004, we completed seven acquisitions. The aggregate purchase price for these acquisitions consisted of approximately $31.3 million of cash, $3.0 million of convertible debt and 263,158 restricted shares of our common stock valued at approximately $1.6 million. The following sets forth additional information regarding the acquisitions:

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     After giving effect to these acquisitions, at December 31, 2004, we operated a total of twelve landfills, nineteen collection operations and twelve transfer stations, had approximately 235 routes and handled approximately 5,600 landfill tons per day at our landfills.

     On January 12, 2005, we acquired Gecko Investments, LLC, located approximately 50 miles northwest of suburban St. Louis in Bowling Green, Missouri. This transaction included the acquisition of one MSW landfill, as well as a collection operation. On January 18, 2005, we signed a definitive agreement with MRR Southern, LLC to acquire two C&D landfills, two transfer stations, and two materials recovery facilities in the Raleigh and High Point, North Carolina markets. When this acquisition is completed, we will have made nine acquisitions totaling $34 million in estimated annual “run rate” revenue since completing our initial public offering in June 2004 and will own seventeen landfills, fifteen transfer stations, twenty collection operations and three C&D MRFs. For a description of estimations of “run rates” please refer to “—2005 Financial Objectives” above.

Results of Operations

     The following table sets forth items in our consolidated statement of operations in thousands and as a percentage of revenues for the years ended December 31, 2004, 2003 and 2002:

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

     Revenue. Total revenue for the year ended December 31, 2004 increased by 14.4% to $73.5 million from $64.2 million for the year ended December 31, 2003. Acquisitions completed in the third and fourth quarters of 2004 contributed $5.7 million (8.9%) of the increase while volume increases resulted in an increase of $3.0 million (4.7%), and price increases contributed $0.5 million (0.8%). Non-acquisition related volume increases were a result of the opening of two transfer stations in 2004 as well as other internal growth. Revenue segmentation (before elimination of intercompany revenue) for the year ended December 31, 2004 was 53.3 % collection operations, 33.9% disposal, 12.3% transfer and 0.5% recycling.

     Cost of services. Total cost of services for the year ended December 31, 2004 increased $8.7 million, or 21%, to $50.4 million from $41.7 million for the year ended December 31, 2003. Operating cost increases reflect a

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variety of factors. Thus, our costs reflect, in part, the impact of recent acquisitions and other volume related growth. As previously discussed, we expect to incur higher costs while we acquire and integrate new operations.

     Increases in fuel costs contributed to the cost increases as well. Diesel fuel costs as a percentage of revenue increased from 4.1% for the year ended December 31, 2003 to 4.9% for the year ended December 31, 2004. A sampling of our markets indicates that our average fuel cost per gallon increased approximately 40% from January 2004 to December 2004. The increase in costs could not be fully covered by fuel surcharges as evidenced by the fact that fourth quarter 2004 fuel surcharges covered approximately 50% of increased costs. Through a combination of price increases and fuel surcharges, we expect to begin to recover an additional portion of fuel cost increases by July 2005.

     Additionally, we spent approximately $0.6 million to redirect waste from our Central Missouri landfill through one of our transfer stations to our Black Oak landfill. This waste was redirected temporarily while the expanded area of the Central Missouri landfill was being constructed. The construction of this expansion was completed in January 2005.

     Depreciation and amortization. Depreciation and amortization expenses for the year ended December 31, 2004 increased $1.0 million, or 13%, to $8.8 million from $7.8 million for the year ended December 31, 2003. Depreciation as a percentage of revenue remained stable at approximately 12%. 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.

     General and administrative. Total general and administrative expense for the year ended December 31, 2004 increased $0.8 million, or 21%, to $4.7 million from $3.9 million for the year ended December 31, 2003. The increase is primarily attributable to increased costs including the incremental overhead required to comply with public company reporting responsibilities as well as additional overhead incurred in support of our acquisition program.

     Non-cash compensation charge. We recognized a compensation charge of $11.5 million for the year ended December 31, 2004. Prior to our internal reorganization, 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 (after giving effect to a merger and reverse stock split prior to our initial public offering in June 2004) of our common stock. This restructuring led to the $11.5 million compensation charge prior to our initial public offering that occurred in June 2004 based on the estimated fair value of the stock issued in cancellation of the options and warrants.

     Interest expense, net. Interest expense, net decreased by $0.8 million in the year ended December 31, 2004 as compared to the year ended December 31, 2003. The reduction relates to the lower average debt balance resulting from the repayment of a portion of our outstanding debt with the proceeds of the initial public offering.

     Write-off of deferred financing costs. The $0.6 million write-off of deferred financing costs is associated with the amendment of our credit facility in December 2004.

     Other income, net. Other income, net for the year ended December 31, 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 tax (provision) benefit in the year ended December 31, 2004 as a percentage of pre-tax income (loss) was 36.2% as compared to 39.7% for the year ended December 31, 2003. The decrease in the current year rate relates to the lower tax 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 and the recognition of certain state tax benefits on current year losses as we project future taxable income in these states due to the completion of acquisitions.

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     Cumulative effect of change in accounting principle, net of tax. The cumulative effect of change in accounting principle, net of tax for the period ended December 31, 2003 is due to the adoption of SFAS No. 143, effective January 1, 2003, which resulted in a $2.3 million benefit, net of a $1.4 million tax expense.

     Net income (loss). We had net loss of $4.4 million for the year ended December 31, 2004 as compared to net income of $5.1 million for the year ended December 31, 2003. The decrease is primarily a result of the $11.5 million non-cash compensation charge discussed above, net of a $4.0 million tax benefit and the $2.3 million benefit in 2003 from the adoption of SFAS No. 143.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

     Revenue. Total revenue for the year ended December 31, 2003 increased $2.0 million, or 3.2%, to $64.2 million from $62.2 million for the year ended December 31, 2002. The increase in revenue was primarily due to the full year impact of the business we acquired in November 2002. We integrated this business into our Texas operation and experienced an increase of $2.3 million in revenue for 2003 compared to 2002. At our remaining locations, revenue stayed fairly constant compared to 2002 despite generally weak economic conditions. Additionally, our ability to execute our acquisition strategy was constrained by our lack of capital for acquisitions under our then-existing credit facility.

     Cost of services. Total cost of services for the year ended December 31, 2003 increased $3.4 million, or 8.9%, to $41.7 million from $38.3 million for the year ended December 31, 2002. The increase was partly attributable to the full year impact of the business we acquired in November 2002 which accounted for approximately $1.7 million in incremental costs (although, as described above, the acquired operations generated an incremental increase in revenue of $2.3 million). Additionally, significant increases in diesel fuel prices and third-party hauling costs had a $1.1 million impact.

     Depreciation and amortization. Depreciation and amortization expenses for the year ended December 31, 2003 increased $1.6 million, or 25.8%, to $7.8 million from $6.2 million for the year ended December 31, 2002. The increase primarily resulted from increased landfill amortization costs due to the adoption of SFAS No. 143, effective January 1, 2003.

     General and administrative. Total general and administrative expense decreased $0.5 million, or 11.4%, to $3.9 million for the year ended December 31, 2003 from $4.4 million for the year ended December 31, 2002. The decrease was primarily due to a reduction in earned bonuses.

     Non-cash compensation charge. During the year ended December 31, 2003, we recorded a non-cash compensation charge of $1.2 million in connection with stock options outstanding as of December 31, 2003. Prior to our internal reorganization in 2004, Waste Corporation of America had options and warrants outstanding. Certain features of these options required us to record charges for the difference between the option’s exercise prices and the fair value of the underlying shares of common stock. During 2003, the charge amounted to $1.2 million.

     Interest expense, net. Interest expense, net for the year ended December 31, 2003 decreased $1.8 million, or 25.7%, to $5.2 million from $7.0 million for the year ended December 31, 2002. We experienced lower interest costs in 2003 due to the favorable impact on effective interest rates resulting from our credit facility amendments in August 2002 and August 2003, the reduction in notional amount outstanding under the terms of our interest swap agreement and the change in fair value of the interest rate swap agreement from period to period.

     Write-off of deferred financing costs and debt discount. A charge of $2.5 million for the write-off of deferred financing costs and debt discount was associated with an early debt extinguishment relating to the amendment of our credit facility existing in August 2002.

     Income tax (provision) benefit. Income tax (provision) benefit reflects an effective tax rate of 46.4% and 39.7% for the years ended December 31, 2002 and 2003, respectively. The effective tax rate deviates from the federal

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statutory rate of 35% primarily due to state income taxes and changes in the valuation allowance against deferred tax assets. Income tax (provision) benefit increased $0.1 million to $1.8 million at December 31, 2003 from $1.7 million at December 31, 2002. The increase was primarily due to increased pre-tax earnings offset by changes in the valuation allowance.

     Loss from discontinued operations, net of tax. In August 2003, we sold certain collection assets in Texas and we have presented the related operating activity as discontinued operations. These assets were sold because they did not meet our strategy of being vertically integrated in each of our operating markets. These assets generated a pre-tax operating loss of $0.3 million during 2003 on revenues of $5.8 million.

     Gain on disposal of discontinued operations, net of tax. In August 2003, we sold certain collection assets in Texas resulting in a gain on disposal of $0.2 million, net of tax. These assets were sold for $9.8 million in gross proceeds.

     Cumulative effect of change in accounting principle, net of tax. The cumulative effect of a change in accounting principle, net of tax for the period ended December 31, 2003 is due to the adoption of SFAS No. 143, effective January 1, 2003, which resulted in a $2.3 million benefit, net of a $1.4 million tax expense.

     Net income. Net income for the year ended December 31, 2003 increased $3.9 million to $5.1 million from $1.2 million for the year ended December 31, 2002. The increase was primarily attributable to the cumulative effect of a change in accounting principle and decreased interest expense partially offset by lower operating income for the year ended December 31, 2003.

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 planned acquisition strategy will also require significant capital. We plan to meet our future capital needs primarily through cash flow from operations and borrowing capacity under our credit facility. We plan to meet the capital requirements of our acquisition strategy from a variety of sources including borrowing capacity under our credit facility, seller notes, equity financings and debt financings.

     As of December 31, 2004, we had a working capital deficit of $1.5 million which had decreased $1.1 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.

     Tax-Exempt Bonds

     During 2002, we completed an issuance of $25.0 million in tax-exempt Environmental Facilities Revenue Bonds. The bonds bear interest at a variable rate and continue to mature and renew weekly through September 2022. The average rate as of December 31, 2004 was 4.0% including 2% for the direct pay letter of credit fee. Proceeds were used to reimburse us for our investment in certain assets and to repay and amend our then-outstanding credit facility. As of December 31, 2004, we had approximately $22.5 million outstanding under the tax-exempt Environmental Facilities Revenue Bonds.

     Initial Public Offering

     In June 2004, we completed the initial public offering of our common stock. In connection with the offering, we issued and sold 6,587,947 shares of our common stock at $9.50 per share, generating aggregate offering proceeds of $62.6 million. The net cash proceeds to us from the sale of these shares was $55.0 million, after deducting underwriting discounts and commissions of $4.4 million and total estimated other offering costs and

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expenses of $3.2 million. We used the net proceeds from our initial public offering to: (i) repay $10.5 million under an outstanding term loan; (ii) repay $24.5 million of indebtedness outstanding under our revolving credit facility; and (iii) pay $20.0 million to satisfy a contingent contribution obligation to our former parent, Waste Corporation of America.

     Credit Facility

     In December 2004, our operating subsidiary, WCA Waste Systems, Inc., entered into a Fourth Amended and Restated Credit Agreement (the “credit facility”) with Wells Fargo Bank, National Association, as administrative agent, Comerica Bank, as syndication agent, and the lenders party thereto.

     The aggregate revolving credit commitments available under the credit facility total $160 million and include:

	•	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 $22.5 million direct pay letter of credit.

     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. WCA Waste Systems has the right to increase the commitments under the credit facility by an additional $40 million, provided that one or more lenders that are party to the credit facility or one or more new lenders approved by WCA Waste Systems provides such increase and certain other conditions are satisfied.

     As of March 1, 2005, we had $52.1 million outstanding under the revolving line of credit and $26.2 million in letters of credit issued, leaving us with $81.7 million in availability. We intend to borrow approximately $38.5 million under the credit facility to consummate the North Carolina acquisition. See also “Executive Overview—Acquisition Strategy Overview” above.

     WCA Waste Systems must make mandatory prepayments of outstanding indebtedness under the credit facility in the amount of 100% of the net cash proceeds received from the issuance of debt or equity securities by WCA Waste or its subsidiaries.

     WCA Waste Systems’ obligations under the credit facility are guaranteed by certain of our material subsidiaries. Obligations under the credit facility are recourse obligations and are subject to cancellation and/or acceleration upon the occurrence of certain events, including, among other things, a change of control (as defined in the credit facility), nonpayment, breaches of representations, warranties and covenants (subject to cure in certain instances), bankruptcy or insolvency, defaults under other debt arrangements, failure to pay certain judgments and the occurrence of events creating material adverse effects.

     Indebtedness under any base rate loans (as defined in the credit facility) bear interest at the higher of (i) the effective federal funds rate (as defined in the credit facility) 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 (ranging from 0.75% to 2.00% depending on the leverage ratio). Indebtedness under any LIBOR loans (as defined in the credit facility) bear 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 (as defined in the credit facility) divided by (b) one minus the reserve requirement (as defined in the credit facility), plus the applicable margin for LIBOR loans (ranging from 1.75% to 3.00% depending on the leverage ratio). The commitment fee payable by WCA Waste Systems to the administrative agent on the daily average unused amount of the aggregate revolving credit commitment under the credit facility ranges from 0.25% to 0.50%, depending on WCA Waste Systems’ leverage ratio.

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     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.

     There is no limit for acquisition or expansion capital expenditures provided that the leverage ratio remains below 3.00 to 1.00 and $10 million is available under the credit facility after the applicable expenditure. However, if the leverage ratio exceeds 3.00 to 1.00, (a) the amount of acquisition expenditures shall be limited to $15 million per acquisition unless expenditures above that amount are approved by a majority of the lenders and (b) the amount of expansion capital expenditures shall be limited to $20 million per year.

     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; and (xi) amend, supplement or otherwise modify the terms of any subordinated debt or prepay, redeem or repurchase any subordinated debt. We were in compliance with all of the financial covenants under the credit facility as of December 31, 2004.

     The credit facility also contains a prohibition against the payment of cash dividends or other payments or advances by WCA Waste Systems to WCA (or any intermediary) under all circumstances. Our only source of cash to pay dividends to our stockholders is distributions or other payments or advances 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.

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     Other Financing Sources

     Other sources of financing that we have used in connection with our acquisition program include issuing debt or equity to the sellers. As of December 31, 2004, we had $3.4 million of seller notes outstanding of which $3.0 million is convertible into shares of our common stock. During the year ended December 31, 2004, in connection with an acquisition we issued 263,158 shares of restricted common stock. Subsequent to year-end in connection with the acquisition of Gecko Investments, LLC, we issued $1.5 million in 8% convertible debt and 510,515 shares of restricted common stock. Contemporaneously with the acquisition, certain sellers in the Gecko transaction and related entities purchased $2.5 million in 8% convertible debt.

     Contractual Obligations

     As of December 31, 2004, we had the following contractual obligations (in thousands). The contractual obligations do not include interest payments on long-term debt due to the variable interest rates under our credit facility and Environmental Facilities Revenue Bonds and the varying amounts outstanding under our credit facility during the year. The contractual interest rate for our credit facility is the LIBOR base rate plus a stipulated margin, which also fluctuates based on our leverage ratio. For the year ended December 31, 2004, our cash paid for interest expense was $3.8 million. Please read note 7 to our consolidated financial statements for balances and terms of our credit facility at December 31, 2004.

     Other Commitments

     As of December 31, 2004, we had the following other commitments (in thousands).

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     If our current surety bond underwriters are unwilling to renew existing bonds upon expiration, or are unwilling to issue additional bonds as needed, or if we are unable to obtain surety bonds through new underwriters as such needs arise, we would need to arrange other means of financial assurance, such as restricted cash deposits or a letter of credit. While such alternate assurance has been available, it may result in additional expense or capital outlays.

     Our workers’ compensation, general liability and automobile liability policies have a $250,000 deductible. We began this deductible policy on December 1, 2001 and have limited actual history in this type of policy. We accrue claims based on claims filed, estimated open claims and claims incurred but not reported based on actuarial-based loss development factors. As of December 31, 2004, we had accrued $1.3 million for these claims. If we experience insurance claims or costs above or below our limited history, our estimates could be materially affected.

     Cash Flows

     The following is a summary of our cash balances and cash flows for the years ended December 31, 2004, 2003 and 2002 (in thousands):

     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 expansion of our business in the periods presented as well as the cash portion of our stock compensation charge in 2004.

     Cash used in investing activities consist primarily of cash used for the acquisition of businesses and for capital expenditures with respect to our operations. Cash used to acquire businesses was $31.3 million, $6.4 million and $3.3 million for the years ended December 31, 2004, 2003 and 2002, respectively. Cash used for capital expenditures was $14.6 million, $7.3 million and $8.8 million for the years ended December 31, 2004, 2003 and 2002, respectively. Our 2004 capital expenditures included $5.6 million used to open transfer stations in Rolla, Missouri and Searcy, Arkansas, as well as expand roll-off routes around certain of our C&D landfills. During

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2003, we received $9.8 million in proceeds from the sale of discontinued operations. We expect capital expenditures related to our existing operations for 2005 to be approximately 12% of our revenue. These expenditures include the cost of vehicles, heavy equipment, containers, landfill cell development and certain systems and program improvements. Furthermore, in connection with the execution of our acquisition strategy, we expect to make substantial capital expenditures. Because of their nature, we cannot accurately predict the amount and timing of these acquisition expenditures. We believe that we will have the necessary financial sources available to fund our capital expenditures and our acquisition program. These sources include the use of borrowings under our existing credit facility, seller notes, and the issuance of new debt or equity.

     Cash provided by (used in) financing activities during the years ended December 31, 2004, 2003 and 2002 include proceeds from the sale of equity, borrowings under our credit facilities, repayments of debt in all periods, distributions to Waste Corporation of America, when it was our parent, and financing costs associated with amendments to our credit facilities in all periods.

Critical Accounting Policies

     We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

     Landfill Accounting

     Capitalized Landfill Costs

     As of December 31, 2004, we owned and operated five MSW landfills and seven C&D landfills. In addition, we own one MSW landfill and one C&D landfill which are fully permitted but were not yet constructed as of December 31, 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 December 31, 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 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;

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	•	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 unsuccessful in obtaining these permits, the previously capitalized costs will be charged to expense. As of December 31, 2004, we have included 40 million cubic yards of expansion airspace with estimated development costs of approximately $34.7 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 No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 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 and 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 and discounting the inflated total to its present value using a discount rate. The 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 discount rate and is charged 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 following table sets forth the rates we used for the amortization of landfill costs and the accrual of closure and post-closure costs for 2004, 2003 and 2002. We have also included pro forma amounts that reflect what the rates would have been had SFAS No. 143 been in effect for the year ended December 31, 2002.

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     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.

     Goodwill

     We adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142) as of January 1, 2002. Goodwill and intangible assets acquired in a business combination accounted for as a purchase and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets” (SFAS No. 144).

     In connection with SFAS No. 142’s transitional goodwill impairment evaluation, the statement required us to perform an assessment of whether there was an indication that goodwill is impaired as of the date of adoption. To accomplish this, we were required to identify our reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of January 1, 2002. We were required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit within six months of January 1, 2002. We estimated the fair value of each reporting unit by multiplying the reporting unit’s EBITDA by an average industry EBITDA multiple. To the extent the carrying amount of a reporting unit exceeded the fair value of the reporting unit, we would be required to perform the second step of the transitional impairment test, as this is an indication that the reporting unit goodwill may be impaired. This step was not required for any of our reporting units and accordingly no impairment of goodwill was indicated in connection with the adoption of SFAS No. 142 or from the annual impairment test during 2004, 2003 or 2002.

     Goodwill and intangible assets not subject to amortization are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.

     Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight-line basis over a period not greater than 40 years and assessed for recoverability by determining whether the amortization of the goodwill balance over its remaining life could be recovered through undiscounted future operating cash flows of the acquired operation. As of December 31, 2004, our goodwill balance was $47.5 million.

     Impairment of Long-Lived Assets

     We adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144) on January 1, 2002. In accordance with SFAS No. 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.

     Prior to the adoption of SFAS No. 144, we accounted for long-lived assets in accordance with SFAS No. 121, “Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” The adoption of SFAS No. 144 did not affect our financial statements.

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     Allocation of Acquisition Purchase Price

     A summary of our accounting policies for acquisitions is as follows:

	•	Acquisition purchase price is allocated to identified tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition, with any residual amounts allocated to goodwill.
	•	We deem the total remaining airspace of an acquired landfill to be a tangible asset. Therefore, for acquired landfills, the purchase price is initially allocated to identified intangible and tangible assets acquired, including landfill airspace, and liabilities assumed based on their estimated fair values at the date of acquisition.
	•	We often 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, we perform 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, we further allocate 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.
	•	We accrue 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.

Recently Adopted Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)), which revises Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation (SFAS No. 123) and supersedes APB Opinion No. 25 Accounting for Stock Issued to Employees. In general, SFAS No. 123(R) does not change the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based awards to employees to be recognized as compensation expense based on the fair value of the award at the date of grant. As such, the intrinsic value method permitted by SFAS No. 123 is no longer an alternative.

     SFAS No. 123(R) must be adopted in the first interim or annual reporting period beginning after June 15, 2005, although early adoption in periods in which financial statements or interim reports have not been issued is encouraged. SFAS No. 123(R) allows companies to adopt its provisions using one of the following two transition methods:

	(i)	The modified prospective method, which requires recognition of compensation expense using SFAS No. 123(R) for all share-based awards granted after the effective date and recognition of compensation expense using SFAS No. 123 for all previously granted share-based awards that remain unvested at the effective date.
	(ii)	The modified retrospective method, which includes the requirements of the modified prospective method, but also permits companies to restate prior periods on a basis consistent with the pro forma disclosures required by SFAS No. 123. The modified retrospective method may be applied to all prior periods presented or previously reported interim periods of the year of adoption.

     We plan to adopt SFAS No. 123(R) using the modified prospective method. The adoption of this new accounting pronouncement will have no effect on cash and is not expected to materially impact our overall

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financial position. However, our results of operations have not included recognition of compensation expense for employee stock options because we currently account for share-based awards to employees using APB No. 25’s intrinsic value method. The adoption of SFAS No. 123(R) may have a significant impact on our operating income depending on levels of share-based awards granted in the future though such impact cannot be predicted at this time.

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”, “forecast”, “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 “run rate” definitions which are estimates based upon a mixture of historical and projected results.

     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:

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	•	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;
	•	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.

     We describe these and other risks in greater detail in the section entitled “Business—Risk Factors” included elsewhere in this report. We refer you to that section for additional information.

     The forward-looking statements included in this report are only made as of the date of this report and we undertake no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

     In the normal course of business, we are exposed to market risk including changes in interest rates. We have used interest rate swap agreements in the past to manage a portion of our risks related to interest rates. In October 2003, we entered into a six-month interest rate swap agreement with a notional amount of $19.0 million. The interest rate swap agreement expired on April 30, 2004. We did not enter into the interest rate swap agreement for trading purposes. As of December 31, 2004, we were not a party to any interest rate swap agreements, although we may use them in the future to manage a portion of our risks related to interest rates.

     As of December 31, 2004, we were exposed to cash flow risk due to changes in interest rates with respect to $69.4 million in outstanding floating rate based loans under our credit facility. We are primarily affected by changes in LIBOR rates. Please read “Business—Risk Factors—Risks Relating To Our Business—Changes in interest rates may affect our profitability.” If interest rates were to change by 100 basis points, or 1%, this would result in a corresponding change of $0.7 million in annual interest charges. The table below provides scheduled principal payments and fair value information about our market-risk sensitive financial instruments as of December 31, 2004 (dollars in thousands).