Attached files
file | filename |
---|---|
EX-32.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 906 - WCA WASTE CORP | exhibit32-1.htm |
EX-24.1 - POWER OF ATTORNEY - WCA WASTE CORP | exhibit24-1.htm |
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - WCA WASTE CORP | exhibit31-1.htm |
EX-21.1 - LIST OF SUBSIDIARIES - WCA WASTE CORP | exhibit21-1.htm |
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - WCA WASTE CORP | exhibit31-2.htm |
EX-23.1 - CONSENT OF KPMG LLP - WCA WASTE CORP | exhibit23-1.htm |
EX-12.1 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - WCA WASTE CORP | exhibit12-1.htm |
EX-32.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 906 - WCA WASTE CORP | exhibit32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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, 2009
OR
£ 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
(Exact
name of registrant as specified in its charter)
Delaware
|
20-0829917
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
Number)
|
One
Riverway, Suite 1400
|
|
Houston,
Texas
|
77056
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (713) 292-2400
Securities
registered pursuant to Section 12(b) of the Act:
Title
of Each Class
|
Name
of Each Exchange On Which Registered
|
|
Common
Stock
|
The
NASDAQ Global Market
|
Securities
registered pursuant to Section 12(g) of the Act: None
Common
stock, par value $0.01 per share
Indicate
by check mark whether the registrant is a well-known seasoned issuer (as defined
in Rule 405 of the Securities Act). Yes £ No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes £ No þ
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 £
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes £ No £
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. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large
accelerated filer £
|
Accelerated
filer £
|
Non-accelerated
filer £
|
Smaller
reporting company þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes £ 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, 2009 based on the closing sales
price as reported on The Nasdaq Global Market on such date was approximately
$32.7 million.
Number of
shares of common stock outstanding as of March 2, 2010: 20,203,836 (excluding
1,073,957 shares of treasury stock).
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.
Page
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Statement Re: Computation of Ratio of Earnings to Fixed Charges | |
List of Subsidiaries | |
Consent of KPMG LLP | |
Power of Attorney | |
Rule 13a-14(a)/15d-14(a) Certification of CEO | |
Section 1350 Certification of CEO | |
Section 1350 Certification of CFO | |
Item 1. Business.
Introduction
We are a
vertically integrated, non-hazardous solid waste management company providing
non-hazardous solid waste collection, transfer, processing, and disposal
services in the United States. As of December 31, 2009, we served
approximately 346,000 commercial, industrial and residential collection
customers and 5,000 landfill and transfer station customers in Alabama,
Arkansas, Colorado, Florida, Kansas, Massachusetts, Missouri, New Mexico, North
Carolina, Ohio, Oklahoma, South Carolina, Tennessee and Texas. As of
December 31, 2009, we owned and/or operated 25 landfills, 26 collection
operations and 24 transfer stations/materials recovery facilities
(MRFs). Of these facilities, two transfer stations and two landfills
are fully permitted but not yet opened, and one transfer station is
idle. Additionally, we currently operate but do not own three of the
transfer stations.
WCA Waste
Corporation was incorporated as a Delaware corporation in 2004 and, in
connection with transactions related to its initial public offering, became the
parent of WCA Waste Systems, Inc., its principal operating
subsidiary. For information regarding acquisitions made since our
initial public offering in 2004, please read “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Executive
Overview—Acquisitions”.
WCA Waste
Corporation is a holding company and all of our operations are conducted through
our subsidiaries. Accordingly, 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 our direct and indirect subsidiaries on a consolidated
basis.
Industry
Overview
The
non-hazardous 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 primary factors that lead
to consolidation:
·
|
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 the acquisitions tend to be small relative to the overall size of
such companies. Accordingly, we believe that we have a greater
opportunity for growth through acquisitions, when calculated as a
percentage of revenue, than companies larger than
us.
|
Integration
and Acquisitions
Vertical
Integration and Internalization
Vertical
integration is a core element of our operating strategy because it allows 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. Internalization refers to the
disposal of collected waste into the landfills we own. All collected
waste must ultimately be processed or disposed of, with landfills being the main
depository for such waste. Generally, the most cost efficient
collection services 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, 2009, we owned 25 landfills throughout the regions we serve, two of
which, though fully permitted, have not yet commenced operations. We
believe that our number of landfills coupled with the geographic locations of
those landfills in the regions we serve positions us to maintain high levels of
internalization within our existing markets. As a result of our
vertical integration, for the years ended December 31, 2009 and 2008, we
internalized approximately 68% and 73% of the total waste we collected,
respectively.
Acquisition
History and Outlook
Acquisitions
have played a key role in our revenue growth and operating
history. Our acquisition history has included both strategic
acquisitions of landfill assets that have enabled us to enter new markets and
“tuck-in” acquisitions of collection operations and transfer stations that have
expanded our operations in those markets which we already
serve. Collectively, the numerous acquisitions which we have
completed since going public in June 2004 have contributed significantly to our
overall growth and continue to have a material effect on our operating
results. We strive to integrate all of our completed acquisitions
into our existing operations as soon as feasible; however, it may take up to a
year to fully realize operating synergies for those acquisitions which we
completed in 2009. Please read “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Executive
Overview—Acquisitions” for more information regarding our completed
acquisitions. For a summary of the impact of the acquisitions during
2009, 2008 and 2007 on our reported financial results for such periods, please
read note 3 to our consolidated financial statements.
Due to
weakening market conditions, particularly in the housing and construction
sectors, and mounting uncertainties in the credit and capital markets, we
reduced our acquisition efforts in 2008. While our acquisition
activity was relatively dormant for most of 2009, on December 31, 2009 we
consummated the acquisition of the operating subsidiaries of Live Earth, LLC
(collectively, the “Live Earth Companies”), which included certain assets and
related liabilities held by Live Earth, LLC that relate to the Live Earth
Companies. The acquisition of the Live Earth Companies represented
our largest acquisition to date and included the Sunny Farms Landfill, a
457-acre site permitted to accept municipal solid waste, industrial waste and
construction and demolition debris located in Seneca County, Ohio; Champion City
Recovery, a transfer station permitted to accept 1,000 tons a day located south
of Boston, Massachusetts; and a rail haul operation over a Class 1 rail
line transporting waste from the east coast to Sunny Farms
Landfill. In 2010, we intend to more actively seek and pursue
attractive acquisition opportunities that enable us to internalize waste into
our existing landfill operations, with particular emphasis being placed on
internalization opportunities at the Sunny Farms Landfill and our 2600-acre Fort
Bend Regional Landfill in our Houston market. Although we have not
established a specific capital investment target for 2010 acquisitions, we have
sufficient capacity under our senior credit facility and through available
authorized shares of our capital stock to pursue and consummate opportunistic
acquisitions that enable us to effectively leverage our existing infrastructure
and maximize the internalization of waste.
Our
Operations
Our
operations consist of the collection, transfer, processing and disposal of solid
waste. Our revenue mix for the years ended December 31, 2009, 2008
and 2007 is shown in the table below (dollars in thousands):
2009
|
2008
|
2007
|
||||||||||||||||||||||
$
|
%
|
$
|
%
|
$
|
%
|
|||||||||||||||||||
Collection
|
$
|
125,931
|
64.9
|
%
|
$
|
129,796
|
62.4
|
%
|
$
|
114,217
|
61.7
|
%
|
||||||||||||
Disposal
|
43,722
|
22.5
|
45,929
|
22.1
|
43,803
|
23.7
|
||||||||||||||||||
Transfer
and other, net
|
24,485
|
12.6
|
32,284
|
15.5
|
26,920
|
14.6
|
||||||||||||||||||
Total
revenue
|
$
|
194,138
|
100.0
|
%
|
$
|
208,009
|
100.0
|
%
|
$
|
184,940
|
100.0
|
%
|
We have a
broad and diverse customer base; no single customer accounted for more than 2%
of our revenue for any of the years ended December 31, 2009, 2008 or
2007. Please read “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and note 12 to our consolidated
financial statements for certain geographic information relating to our
operations.
Collection
Services
As of
December 31, 2009, we provided solid waste collection services to approximately
346,000 industrial, commercial and residential customers in 12 states through 26
collection operations. In 2009, our collection revenue consisted of
approximately 36% from services provided to industrial customers, 20% from
services provided to commercial customers and 44% 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 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. 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. Roll-off collection services are generally performed on a
contractual basis. Contract terms tend to be shorter in length and
may vary according to the customers’ underlying projects.
Transfer
and Disposal Services
Landfills
are the main depository for solid waste in the United States. Solid
waste landfills are built, operated, and tied to a state permit under stringent
federal, state and local 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. We do not operate hazardous waste landfills, which are
subject to even greater regulations. 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 monitoring. 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 end use 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 the 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 areas
where we conduct collection operations remote from one of our landfills, we
often pursue the acquisition or development of transfer
stations. Transfer stations allow us to consolidate waste for
subsequent transfer in larger loads, thereby making disposal in our otherwise
remote landfills economically feasible. 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 on each trip. It also
increases the efficiency of our collection personnel and equipment because it
allows them to focus more on collection. The following table reflects
the number of transfer stations/MRFs we owned and operated by state as of
December 31, 2009, 2008 and 2007.
2009
|
2008
|
2007
|
||||||
Alabama
|
3
|
(1)
|
3
|
(1)
|
3
|
(1)
|
||
Arkansas
|
2
|
(1)
|
2
|
(1)
|
2
|
(1)
|
||
Florida
|
4
|
4
|
4
|
|||||
Kansas
|
1
|
(1)
|
1
|
(1)
|
1
|
(1)
|
||
Massachusetts
|
1
|
—
|
—
|
|||||
Missouri
|
7
|
8
|
(2)
|
7
|
(2)
|
|||
North
Carolina
|
3
|
3
|
3
|
|||||
South
Carolina
|
1
|
1
|
1
|
|||||
Texas
|
2
|
2
|
2
|
|||||
Total
|
24
|
24
|
23
|
(1)
|
Includes
three transfer stations we operated but did not own, one in Alabama, one
in Arkansas and one in Kansas as of December 31, 2009, 2008 and
2007.
|
(2)
|
Includes
a transfer station in Missouri that we operated but did not own as of
December 31, 2008 and 2007.
|
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, 2009, we owned 25 non-hazardous solid waste landfills in 12 states,
two of which, though fully permitted, have not yet commenced
operations. The following table sets forth certain information as of
December 31, 2009 for each of our landfills. For information
concerning accounting principles we use for landfill accounting and a
description of our use of estimates, please refer to notes 1(f) and 2 to our
consolidated financial statements.
Landfill
|
Location
|
Permitted
Waste
|
Permitted
Capacity (1) (Cu. Yds)
|
Probable
Expansion Capacity (2)
(Cu.
Yds)
|
Total
Capacity
(3) (Cu. Yds)
|
Remaining
Permitted Life (4) (Years)
|
Total
Remaining Life (3)(4) (Years)
|
||||||||||||||
Oak
Grove
|
Arcadia,
KS
|
MSW
|
6,081,004
|
24,524,000
|
30,605,004
|
26.8
|
134.7
|
||||||||||||||
Black
Oak
|
Hartville,
MO
|
MSW
|
6,029,450
|
—
|
6,029,450
|
15.3
|
15.3
|
||||||||||||||
Central
Missouri
|
Sedalia,
MO
|
MSW
|
5,561,673
|
3,452,341
|
9,014,014
|
27.2
|
44.1
|
||||||||||||||
Eagle
Ridge
|
Bowling
Green, MO
|
MSW
|
2,528,180
|
16,335,000
|
18,863,180
|
14.6
|
108.8
|
||||||||||||||
Rolling
Meadows
|
Hazen,
AR
|
MSW
|
4,135,678
|
9,800,000
|
13,935,678
|
16.5
|
55.5
|
||||||||||||||
Union
County
|
El
Dorado, AR
|
MSW
|
3,635,553
|
496,100
|
4,131,653
|
19.7
|
22.4
|
||||||||||||||
Darrell
Dickey(5)
|
Houston,
TX
|
MSW
|
5,239,003
|
—
|
5,239,003
|
N/A
|
(5)
|
N/A
|
(5)
|
||||||||||||
Fort
Bend
|
Houston,
TX
|
MSW
|
45,251,930
|
15,861,754
|
61,113,684
|
49.4
|
66.7
|
||||||||||||||
Pauls
Valley
|
Oklahoma
City, OK
|
MSW
|
6,604,675
|
—
|
6,604,675
|
101.6
|
101.6
|
||||||||||||||
Sooner
|
Oklahoma
City, OK
|
MSW
|
1,723,198
|
3,649,284
|
5,372,482
|
23.8
|
74.1
|
||||||||||||||
Bondad
|
Durango,
CO
|
MSW
|
2,408,578
|
—
|
2,408,578
|
43.4
|
43.4
|
||||||||||||||
Sunny
Farms
|
Fostoria,
OH
|
MSW
|
6,200,000
|
31,200,000
|
37,400,000
|
5.3
|
31.9
|
||||||||||||||
Hardy
Road
|
Houston,
TX
|
C&D
|
5,022,172
|
—
|
5,022,172
|
9.1
|
9.1
|
||||||||||||||
Greenbelt
|
Houston,
TX
|
C&D
|
4,758,670
|
1,395,000
|
6,153,670
|
12.7
|
16.4
|
||||||||||||||
Ralston
Road
|
Houston,
TX
|
C&D
|
337,756
|
1,117,129
|
1,454,885
|
1.1
|
4.9
|
||||||||||||||
Applerock(5)
|
Houston,
TX
|
C&D
|
8,750,000
|
—
|
8,750,000
|
N/A
|
(5)
|
N/A
|
(5)
|
||||||||||||
Shiloh
|
Travelers
Rest, SC
|
C&D
|
1,148,722
|
3,380,905
|
4,529,627
|
10.9
|
42.9
|
||||||||||||||
Yarnell
|
Knoxville,
TN
|
C&D
|
909,609
|
—
|
909,609
|
15.8
|
15.8
|
||||||||||||||
Blount
|
Trafford,
AL
|
C&D
|
14,775,220
|
11,352,839
|
26,128,059
|
84.6
|
149.7
|
||||||||||||||
Fines
|
Alpine,
AL
|
C&D/Industrial
|
7,686,933
|
—
|
7,686,933
|
74.5
|
74.5
|
||||||||||||||
High
Point
|
High
Point, NC
|
C&D
|
3,950,951
|
—
|
3,950,951
|
37.6
|
37.6
|
||||||||||||||
Raleigh
|
Raleigh,
NC
|
C&D
|
7,112,095
|
6,612,722
|
13,724,817
|
35.2
|
68.0
|
||||||||||||||
DeSoto
|
Arcadia,
FL
|
C&D
|
6,355,244
|
1,894,068
|
8,249,312
|
39.1
|
50.7
|
||||||||||||||
Fort
Meade
|
Ft
Meade, FL
|
C&D
|
4,285,543
|
3,635,910
|
7,921,453
|
27.0
|
50.0
|
||||||||||||||
Northeast
|
Oklahoma
City, OK
|
C&D
|
4,393,109
|
—
|
4,393,109
|
16.0
|
16.0
|
||||||||||||||
Total
|
164,884,946
|
134,707,052
|
299,591,998
|
30.7
|
53.7
|
(1)
|
Permitted
capacity includes the total available airspace approved by local
regulatory agencies for our use. Additional approvals may be
required for construction and use of specific cells within the permitted
area. At any given time, certain landfills may be nearing the
full capacity of existing approved cells. The failure to obtain
a consent or approval for construction or use of additional cells could
have a material effect on our operations. If the consent or
approval is not obtained, we will evaluate alternative actions, such as
diverting waste streams and pursuing legal recourse to challenge
rulings. See “Risk Factors—Risks Relating to Our 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.”
|
(2)
|
Probable
expansion capacity includes possible expansion capacity that we believe,
based on industry practice and our experience, is likely to be
permitted. The criteria we use to determine if permit expansion
is probable include, but are not limited to, whether: (i) we believe that
the project has fatal flaws; (ii) the land is owned or controlled by us,
or under option agreement; (iii) we have committed to the expansion; (iv)
financial analysis has been completed, and the results indicate that the
expansion has the prospect of a positive financial and operational impact;
(v) personnel are actively working to obtain land use, local, and state
approvals for an expansion of an existing landfill; (vi) we believe the
permit is likely to be received; and (vii) we believe that the timeframe
to complete the permitting is reasonable. Please read
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and notes 1 and 2 to our consolidated financial statements
for information regarding our landfill accounting and use of
estimates.
|
(3)
|
Includes
expansions that we classify as “probable.” Please read
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and notes 1 and 2 to our consolidated financial statements
for information regarding our landfill accounting and use of
estimates.
|
(4)
|
Based
on current and estimated future disposal
volumes.
|
(5)
|
Fully
permitted but has not yet commenced operations, and therefore remaining
permitted life and total remaining life cannot be
calculated.
|
As
indicated in the table above, as of December 31, 2009, 12 of our landfills were
permitted to accept municipal solid waste. The remaining 13 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.
Based on
remaining permitted capacity (including probable expansions) as of December 31,
2009 and projected annual disposal volumes, the average remaining landfill life
of our 23 operating landfills at December 31, 2009 was approximately 53.7
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(f) 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. The table above includes a column reflecting expansions
that we believe to be “probable” based on various estimates and
assumptions. For a description of how we make determinations whether
permit expansion is probable, please read “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Critical Accounting Estimates
and Assumptions—Landfill Accounting” and note 1(f) to our consolidated financial
statements. However, we note that we may not be able to obtain
permits for expansions, including expansions that we considered to be
probable. Therefore, the average remaining landfill life of our 23
operating landfills as of December 31, 2009 may not be 53.7 years when
considering remaining permitted capacity, probable expansion capacity and
projected annual disposal volume. Please read “Risk Factors—Risks
Relating to Our 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.”
Available
Airspace
The
following table reflects airspace activity for landfills owned or operated by us
for the years ended December 31, 2009, 2008 and 2007.
Balance
as of December 31, 2008
|
New
Expansions Undertaken
|
Landfills
Acquired, Net of Divestiture
|
Permits
Granted
|
Airspace
Consumed
|
Changes
in Engineering Estimates and Design
|
Balance
as of December 31, 2009
|
||||||||||||||||||||||
Permitted
airspace:
|
||||||||||||||||||||||||||||
Cubic
yards (in thousands)
|
144,057
|
—
|
6,200
|
18,668
|
(4,933
|
)
|
893
|
164,885
|
||||||||||||||||||||
Number
of sites
|
24
|
—
|
1
|
—
|
—
|
—
|
25
|
|||||||||||||||||||||
Expansion
airspace:
|
||||||||||||||||||||||||||||
Cubic
yards (in thousands)
|
139,124
|
—
|
31,200
|
(18,668
|
)
|
—
|
(16,949
|
)
|
134,707
|
|||||||||||||||||||
Number
of sites
|
15
|
—
|
1
|
(1
|
)
|
—
|
—
|
15
|
||||||||||||||||||||
Total
available airspace:
|
||||||||||||||||||||||||||||
Cubic
yards (in thousands)
|
283,181
|
—
|
37,400
|
—
|
(4,933
|
)
|
(16,056
|
)
|
299,592
|
|||||||||||||||||||
Number
of sites
|
24
|
1
|
25
|
Balance
as of December 31, 2007
|
New
Expansions Undertaken
|
Landfills
Acquired, Net of Divestiture
|
Permits
Granted
|
Airspace
Consumed
|
Changes
in Engineering Estimates and Design
|
Balance
as of December 31, 2008
|
||||||||||||||||||||||
Permitted
airspace:
|
||||||||||||||||||||||||||||
Cubic
yards (in thousands)
|
149,967
|
—
|
—
|
—
|
(5,730
|
)
|
(180
|
)
|
144,057
|
|||||||||||||||||||
Number
of sites
|
24
|
—
|
—
|
—
|
—
|
—
|
24
|
|||||||||||||||||||||
Expansion
airspace:
|
||||||||||||||||||||||||||||
Cubic
yards (in thousands)
|
155,524
|
1,805
|
—
|
—
|
—
|
(18,205
|
)
|
139,124
|
||||||||||||||||||||
Number
of sites
|
15
|
—
|
—
|
—
|
—
|
—
|
15
|
|||||||||||||||||||||
Total
available airspace:
|
||||||||||||||||||||||||||||
Cubic
yards (in thousands)
|
305,491
|
1,805
|
—
|
—
|
(5,730
|
)
|
(18,385
|
)
|
283,181
|
|||||||||||||||||||
Number
of sites
|
24
|
—
|
24
|
Balance
as of December 31, 2006
|
New
Expansions Undertaken
|
Landfills
Acquired, Net of Divestiture
|
Permits
Granted
|
Airspace
Consumed
|
Changes
in Engineering Estimates and Design
|
Balance
as of December 31, 2007
|
||||||||||||||||||||||
Permitted
airspace:
|
||||||||||||||||||||||||||||
Cubic
yards (in thousands)
|
95,676
|
—
|
53,222
|
7,036
|
(5,456
|
)
|
(511
|
)
|
149,967
|
|||||||||||||||||||
Number
of sites
|
20
|
—
|
4
|
—
|
—
|
—
|
24
|
|||||||||||||||||||||
Expansion
airspace:
|
||||||||||||||||||||||||||||
Cubic
yards (in thousands)
|
127,409
|
8,604
|
26,547
|
(7,036
|
)
|
—
|
—
|
155,524
|
||||||||||||||||||||
Number
of sites
|
12
|
1
|
3
|
(1
|
)
|
—
|
—
|
15
|
||||||||||||||||||||
Total
available airspace:
|
||||||||||||||||||||||||||||
Cubic
yards (in thousands)
|
223,085
|
8,604
|
79,769
|
—
|
(5,456
|
)
|
(511
|
)
|
305,491
|
|||||||||||||||||||
Number
of sites
|
20
|
4
|
24
|
We
perform periodic engineering reviews of our landfill capacity. Based
on these reviews, there may be changes in the estimated available remaining
capacity of a landfill or changes in the utilization of such landfill capacity,
affecting the amount of waste that can be placed in the future. Estimates of the
amount of waste that can be placed in the future are reviewed annually and are
based on a number of factors, including site-specific factors such as current
and projected mix of waste type; initial and projected waste density; estimated
number of years of life remaining; and depth of underlying waste. We continually
focus on improving the utilization of airspace through efforts that include
recirculating landfill leachate where allowed by permit; optimizing the
placement and utilization of alternative daily cover; and increasing initial
compaction through improved landfill equipment, operations and
training.
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 damage 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 or otherwise unavailable.
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 $1,000 per loss under our
employee practices to $100,000 for general liability and $250,000 per occurrence
or loss under our 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
13(e) 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 our financial responsibility requirements by obtaining bank letters of
credit, insurance policies, performance bonds or making cash
deposits.
As of
December 31, 2009, we obtained performance bonds in an aggregate amount of
approximately $76.5 million and letters of credit in an aggregate amount of
approximately $12.5 million, supporting performance of landfill closure and
post-closure requirements, insurance contracts, municipal contracts and other
financial assurance obligations. For a description of the surety
bonds and letter of credit commitments we had in place as of December 31, 2009,
please read “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources—Other
Commitments.” 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 large, publicly-held, national waste companies such as Waste
Management, Inc. and Republic Services, Inc. (including Allied Waste Industries,
Inc.) as well as numerous other public and privately-held waste
companies. 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 share 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. Competition exists not only for
collection, transfer and disposal volume but also for acquisition
candidates. We generally compete for acquisition candidates with
large, publicly-held waste management companies, private equity backed firms 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.
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 on a company-wide basis, 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 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.
Climate Change. A
variety of regulatory developments, proposals or requirements have been
introduced that are focused on restricting the emission of carbon dioxide,
methane and other gases known as greenhouse gases. Congress has
considered recent proposed legislation directed at reducing greenhouse gas
emissions and President Obama has indicated his support of legislation aimed at
reducing greenhouse gases. There has been support in various regions
of the country for legislation that requires reductions in greenhouse gas
emissions, and some states have already adopted legislation addressing
greenhouse gas emissions from various sources. In 2007, the U.S.
Supreme Court held in Massachusetts, et al. v. EPA that greenhouse gases are an
“air pollutant” under the federal Clean Air Act and, thus, subject to future
regulation. In a move toward regulating greenhouse gases, on December
15, 2009, the EPA published its findings that emission of carbon dioxide,
methane and other greenhouse gases present an endangerment to human health and
the environment because greenhouse gases are, according to EPA, contributing to
climate change. On October 30, 2009, the EPA published
the greenhouse gas reporting final rule, effective December 29, 2009,
which establishes a new comprehensive scheme requiring certain specified
industries as well as operators of stationary sources emitting more than
established annual thresholds of carbon dioxide-equivalent greenhouse gases to
inventory and report their greenhouse gas emissions
annually. Municipal solid waste landfills are subject to the
rule. EPA proposed regulations that would require a reduction in
emissions of greenhouse gases from motor vehicles. Finally, according
to the EPA, the final motor vehicle greenhouse gas standards will trigger
construction and operating permit requirements for stationary
sources. As a result, the EPA has proposed to tailor these programs
such that only large stationary sources will be required to have air permits
that authorize greenhouse gas emissions.
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.
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. These seasonal variations are primarily due to fluctuations
in waste volumes. 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
Business—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, 2009, we had approximately 996 full-time employees. A
group of 18 employees at one of our locations is represented by a
union. In 2006, we negotiated with the union for a new collective
bargaining agreement which has a term extending until March 2011. We
have not experienced any work stoppages, and we believe our relations with our
employees are good.
Available
Information
We
electronically file certain documents with the Securities and Exchange
Commission (the SEC). We file annual reports on Form 10-K; quarterly
reports on Form 10-Q; and current reports on Form 8-K (as appropriate); along
with any related amendments and supplements thereto. From
time-to-time, we may also file registration statements and related documents in
connection with equity or debt offerings. You may read and copy any
materials we file with the SEC at the SEC’s Public Reference Room at 100 F
Street, NE, Washington, DC 20549. You may obtain information
regarding the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an internet website at
www.sec.gov
that contains reports and other information regarding registrants that file
electronically with the SEC.
Our
internet website is www.wcawaste.com. We
make available free of charge 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 1A. Risk Factors.
Our
business, financial condition, and financial results are subject to various
risks, including the following:
Risks
Relating To Our Business
Current
U.S. economic conditions and the related decline in construction activity, as
well as any future downturns, has reduced and may continue to reduce our volume
and/or pricing on our services, resulting in decreases in our revenue,
profitability and cash flows.
Our
business is affected by changes in national and general economic factors that
are outside of our control, including economic activity, consumer confidence,
interest rates and access to capital markets. Although our services
are of an essential nature, a weak economy generally results in decreases in
volumes of waste generated, which decreases our revenues. Throughout
2009, we believe that weakening economic conditions have impacted the volume of
waste we have collected and disposed of.
Additionally,
consumer uncertainty and the loss of consumer confidence may limit the number or
amount of services requested by customers and our ability to increase customers’
pricing. During weak economic conditions we may also be adversely
impacted by customers’ inability to pay us in a timely manner, if at all, due to
their financial difficulties, which could include bankruptcies.
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. 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.
Changes
in interest rates may affect our profitability.
Our
acquisitions 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. In connection with the restructuring of our
long-term debt in July 2006, we entered into a swap agreement effective July 11,
2006, where we agreed to pay a fixed-rate of 5.64% in exchange for three-month
floating rate LIBOR. This interest rate swap expires on November 1,
2010. With the placement of this swap agreement, we bear exposure to,
and are primarily affected by, changes in LIBOR rates on the unused portion of
up to $150 million of our credit facility. As of December 31, 2009,
$82.5 million was subject to the effect of the swap agreement. A 100
basis point increase in LIBOR interest rates would result in swap income of
approximately $0.8 million annually while a 100 basis point decrease in interest
rates would result in $0.8 million in swap expense, in addition to any mark to
market effect on the fair value of the swap. As a result of the swap,
the decrease in interest rates that began in September 2007 reduced our cash
flow and negatively impacted our pre-tax earnings by $7.2 million, $3.2 million
and $0.5 million in 2009, 2008 and 2007, respectively. Considering
the rates in effect at December 31, 2009, the impact of the swap agreement is
estimated to result in a $6.8 million loss related to the realized portion of
the interest rate swap over the next 12 months.
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
regarding the construction of specific cells 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.
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 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 up to 30 years, based on
engineering estimates of future requirements associated with the final landfill
design and closure and post-closure process. Please read
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Estimates and Assumptions.” 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.
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. 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.
Governmental
authorities may enact climate change regulations that could increase our costs
to operate.
Environmental
advocacy groups and regulatory agencies in the United States have been focusing
considerable attention on the emissions of greenhouse gases and their potential
role in climate change. Congress has considered recent proposed
legislation directed at reducing greenhouse gas emissions and President Obama
has indicated his support of legislation aimed at reducing greenhouse
gases. EPA has proposed rules to regulate greenhouse gases, regional
initiatives have formed to control greenhouse gases and certain of the states in
which we operate are contemplating air pollution control regulations that are
more stringent than existing and proposed federal regulations, in particular the
regulation of emissions of greenhouse gases. The adoption of laws and
regulations to implement controls of greenhouse gases, including the imposition
of fees or taxes, could adversely affect our collection and disposal
operations. Changing environmental regulations could require us to
take any number of actions, including the purchase of emission allowances or
installation of additional pollution control technology, and could make some
operations less profitable, which could adversely affect our results of
operations.
Increases
in the costs of disposal may reduce our operating margins.
We
dispose of approximately one-third 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. 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 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.
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 includes large national, publicly-traded waste management companies;
regional, publicly-held and privately-owned companies; and numerous small,
local, privately-owned 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 revenue 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 revenue from contracts lost through competitive bidding or early
termination or from lowering prices or from the renegotiation of existing
contracts with other revenue within a reasonable time period, our revenue 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 revenue 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.
Efforts
by labor unions to organize our employees could divert management attention and
increase our operating expenses.
In 2006,
we negotiated with the union for a new collective bargaining agreement which has
a term extending until March 2011. As of December 31, 2009, there
were 18 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.
Current
and proposed laws may restrict our ability to operate across local borders which
could affect our manner, cost and feasibility of doing business.
For the
year ended December 31, 2009, approximately $2.0 million, or 1.1%, of our
revenue was earned from the disposal of waste that is generated in a state other
than the state where it is disposed. As a result of the acquisition
of Live Earth, LLC and its operating subsidiaries, we anticipate that an
increasing portion of our revenue will be earned from the disposal of
out-of-state waste, including waste that is disposed of at our Sunny Farms
Landfill in Ohio. Some states have imposed restrictions on collection
routes and disposal locations. Other states, like Ohio, impose
certain fees on out-of-state waste that is disposed of in Ohio, which may reduce
operating margins to the extent such fees cannot be passed on to our
customers. Furthermore, 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.
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 by
our inability to compete effectively with our competitors.
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 revenue typically lowest in the first
quarter, higher in the second and third quarters, and again lower in the fourth
quarter. This seasonality generally reflects the lower volume of
waste 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 operating results 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.
Risks
Relating to Our Acquisitions
On
December 31, 2009, we consummated the acquisition of the Live Earth Companies,
which included certain assets and related liabilities held by Live Earth, LLC
that relate to the Live Earth Companies. The consideration for the
Live Earth Companies consisted of $19.7 million in cash which includes working
capital of $0.9 million, the issuance of up to 5,555,556 shares of
our common stock, which includes 3,555,556 shares that were issued at closing
and up to 2,000,000 shares of our common stock that may be issued pursuant to
certain earn-out provisions (the “Earn-Out Shares”). The acquisition
of the Live Earth Companies is subject to various risks, including the
following:
·
|
Following
the acquisition of the Live Earth Companies, individuals affiliated with
Live Earth beneficially own approximately 16.3% of our outstanding common
stock and could beneficially own up to 21.8% of our common stock if the
Earn-out Shares are issued. Accordingly, these individuals have
significant voting power and potential influence and control over our
company. This concentration of ownership and the potential
ability to significantly influence our management and affairs may have the
effect of preventing or discouraging transactions involving a potential
change of control or may otherwise adversely affect
us.
|
·
|
Cash
expenditures and capital commitments associated with our acquisition of
the Live Earth Companies may create significant liquidity and cash flow
risks for us, and we may incur substantial debt in order to satisfy our
obligations.
|
·
|
The
integration of WCA and the Live Earth Companies may not be completed
successfully, cost-effectively or on a timely
basis.
|
·
|
If
railway access to the Sunny Farms Landfill, which is one of the Live Earth
assets that we acquired, were limited or prohibited due to the termination
of the current contract with a Class 1 railroad operator or otherwise, the
operations of the landfill would
suffer.
|
·
|
Our
limited experience with rail-based waste disposal may reduce the expected
benefits of the acquisition.
|
·
|
If
approval of the transfer of control of the Sunny Farms Landfill by the
Ohio Environmental Protection Agency is delayed or denied, the acquisition
of the Live Earth Companies could be at risk or completely
unwound.
|
·
|
If
material disposed of at the Sunny Farms Landfill is reclassified by the
Ohio Attorney General or another regulatory authority, we could face
higher fees or civil money penalties that could negatively affect the
profitability of our operations at the Sunny Farms
Landfill.
|
·
|
If
we are unable to identify and successfully acquire and integrate
additional waste collection operations in the eastern United States that
permit us to leverage the acquisition of the Live Earth Companies, the
long-term benefits of the acquisition could be
diminished.
|
·
|
As
shares of our common stock issued in the acquisition the Live Earth
Companies become eligible for resale (which in most instances is not
earlier than 18 months from the closing date), our stock price may suffer
a significant decline as a result of the sudden increase in the number of
shares sold in the public market or market perception that the increased
number of shares available for sale will exceed the demand for our common
stock.
|
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 equity including common stock or preferred stock which
would dilute the ownership percentage of existing stockholders.
We intend
to finance acquisitions with available cash, borrowings under our credit
facility, our equity including common stock or preferred stock, or a combination
of these means. As a result, we may incur additional indebtedness or
issue additional equity which would dilute the ownership percentage of existing
stockholders. Our credit facility contains covenants restricting,
among other things, the amount of additional indebtedness. We may
offer equity as some or all of the consideration for certain
acquisitions. Our ability to do so will depend in part on the
attractiveness of our equity. This attractiveness may depend largely
on the capital appreciation prospects of our equity compared to the equity of
our competitors.
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.
Pursuing
acquisitions requires 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.
Our
acquisitions have resulted and future acquisitions we make may continue to
result in significant goodwill and other intangible assets, which may need to be
written down if performance is not as expected.
As of
December 31, 2009, we had approximately $72.4 million of goodwill and other
intangible assets, representing approximately 16.8% of our total
assets. If we complete acquisitions at prices greater than the fair
value of the assets acquired, we would generate additional
goodwill. We are required to test our goodwill at least annually for
impairment, which would require us to incur a charge if we determine there is a
reduction in value. Any such charge would reduce our assets and
earnings.
We
may incur charges and other unforeseen expenses related to acquisitions, which
could lower our earnings.
In the
past, we capitalized some expenditures and advances relating to acquisitions and
pending acquisitions, but expense indirect acquisition costs, including general
corporate overhead, as they are incurred. We charged against earnings
any unamortized capitalized expenditures and advances (net of any amount that we
estimated we would recover, through sale or otherwise) that related to any
pending acquisition that was not consummated. Starting in 2009, all
acquisition-related transaction and restructuring costs are expensed as incurred
rather than capitalized as part of the acquisition costs. As of
December 31, 2009, we expensed $1.0 million of such costs. We may
incur more charges related to acquisitions in future periods, which could lower
our earnings.
Risks
Relating to Our Operations and Corporate Organization
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 acquisitions 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.
A
controlling interest in our voting stock is held by one fund and a small number
of individuals (including management), which when combined with various
agreements and rights of the fund, may discourage a change of control
transaction and may exert control over our strategic direction.
As of
March 1, 2010,
·
|
Joseph
E. LoConti, Daniel J. Clark and certain of their affiliates beneficially
owned approximately 13.5% of the outstanding shares of our common
stock.
|
·
|
Ares
Corporate Opportunities Fund II L.P (Ares) held preferred shares
convertible into our common stock at a price of $9.60 per
share. The preferred shares were issued on July 27, 2006 and
carry a 5% payment-in-kind (PIK) dividend payable
semi-annually. As of March 1, 2010, the preferred shares were
immediately convertible into 9,330,246 shares of our common stock
(representing approximately 31.6% of the outstanding common stock on a
post-conversion basis). Dividends are solely PIK for the first
five years — that is, they are payable solely by adding the amount of
dividends to the stated value of each share. At the end of five
years the preferred shares would be convertible into approximately
10,000,661 shares of common stock, which based on the currently
outstanding shares would represent approximately 33.1% of the
post-conversion shares outstanding. Ares is entitled to vote
its preferred shares as if converted (subject to contractual restrictions
with us), is entitled to elect two directors, and is entitled to other
contractual rights. Please read “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources—Preferred Stock” for a description of the various
arrangements with Ares.
|
·
|
Our
executive officers, directors and their related entities owned or
controlled approximately 17.7% of the outstanding shares of our common
stock.
|
Accordingly,
these parties collectively held a controlling vote and will have the ability to
significantly influence our management and affairs. This
concentration of ownership and the potential ability to significantly influence
our management and affairs 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 preclude 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
|
·
|
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.
On July
13, 2006, our stockholders approved the issuance of 750,000 shares of
convertible preferred stock at $100.00 per share in the private placement with
Ares. The shares were issued on July 27, 2006. The
preferred stock is convertible into shares of our common stock at a price of
$9.60 per share and carries a 5% PIK dividend payable
semi-annually.
The
preferred shares were convertible into 7,812,500 shares of our common stock on
the issuance date and with the effect of the cumulative PIK dividends at the end
of five years would be convertible into 10,000,661 shares of common
stock. Under the terms of the preferred agreement, under certain
circumstances, all five years’ worth of cumulative PIK dividends would
accelerate and become payable to the preferred holder. The preferred
shareholder holds certain preferential rights, including the appointment of two
directors.
Risks
Associated with Our Indebtedness
Adverse
capital and credit market conditions may significantly affect our ability to
meet liquidity needs, access to capital and cost of capital.
The
capital and credit markets have been experiencing extreme volatility and
disruption for more than 12 months. In many cases, the markets have
exerted downward pressure on availability of liquidity and credit capacity for
certain issuers.
We need
liquidity to pay our operating expenses and interest on our debt and to fund our
acquisitions. The lack of sufficient liquidity may have a materially
adverse effect on our operations and financial results. The principal
sources of our liquidity are cash on hand, cash flow from our operations, and
access to borrowings under our credit facility. Sources of liquidity
in normal markets also include a variety of short- and long-term instruments,
including repurchase agreements, commercial paper, medium- and long-term debt,
junior subordinated debt securities, capital securities and stockholders’
equity.
In the
event current resources do not satisfy our needs, we may have to seek additional
financing. The availability of additional financing will depend on a
variety of factors such as market conditions, the general availability of
credit, the volume of trading activities, our credit ratings and credit
capacity, as well as the possibility that customers or lenders could develop a
negative perception of our long- or short-term financial prospects if the level
of our business activity decreased due to a market
downturn. Similarly, our access to funds may be impaired if
regulatory authorities or rating agencies take negative actions against
us. Our internal sources of liquidity may prove to be insufficient,
and in such case, we may not be able to successfully obtain additional financing
on favorable terms, or at all.
The
inability or failure of any syndicate bank to meet its obligations under our
senior credit facility could adversely impact our short-term and/or long-term
capital or cash needs by limiting our access to swing-line loans, increasing the
cost of issuing letters of credit, or reducing the total capacity available
under the revolving credit facility.
The
capital and credit markets have been experiencing extreme volatility and
disruption for more than twelve months. This instability has been
accompanied by numerous bank failures. While we are not aware of any
issues affecting the participant banks under our senior credit facility, if a
participant bank were to fail or otherwise become unable to fund its lending
commitment to us, and we were unable to replace any lending commitments, we may
not be able to access funds from our credit facility as needed to fully fund our
operations and/or our cost of obtaining working capital, letters of credit and
other forms of funding could increase significantly and materially impact our
operations and earnings.
We
have a substantial amount of debt which could adversely affect our operations
and financial performance.
As of
March 1, 2010, we had approximately $223.5 million of consolidated total
indebtedness outstanding and approximately $91.0 million of additional borrowing
capacity available under our credit agreement.
Our
substantial debt could have important consequences. For example, it
could:
·
|
make
it more difficult for us to satisfy our obligations with respect to our
debt;
|
·
|
increase
our vulnerability to general adverse economic and industry
conditions;
|
·
|
limit
our ability to obtain additional financing for future working capital,
capital expenditures, acquisitions and other general corporate
purposes;
|
·
|
require
us to dedicate a substantial portion of our cash flow from operations to
payments on our debt, thereby reducing the availability of our cash flow
for operations and other purposes;
|
·
|
limit
our flexibility in planning for, or reacting to, changes in our business
and the industry in which we
operate;
|
·
|
make
us more vulnerable to increases in interest rates;
and
|
·
|
place
us at a competitive disadvantage compared to our competitors that have
less debt.
|
In
addition, we may incur substantial additional debt in the future. If
new debt is added to our current debt levels, these related risks could
increase. We may not maintain sufficient revenue and cash flow to
meet our capital expenditure requirements and our financial obligations,
including our debt service obligations.
Our
ability to make scheduled payments or to refinance our obligations with respect
to our debt will depend on our financial and operating performance, which, in
turn, is subject to prevailing economic conditions and to certain financial,
business, and other factors beyond our control. If our cash flow and
capital resources are insufficient to fund our debt service obligations, we may
be forced to reduce or delay scheduled expansion and capital expenditures, sell
material assets or operations, obtain additional capital or restructure our debt
on less than favorable terms.
The
provisions in our debt instruments impose restrictions on us that may limit the
discretion of management in operating our business.
Our
senior credit agreement and the indenture governing our senior notes contain
various restrictive covenants that limit management’s discretion in operating
our business. In particular, these covenants limit our ability to,
among other things:
·
|
incur
additional debt or issue additional preferred
stock;
|
·
|
make
certain investments or pay dividends or distributions on our capital stock
or subordinated indebtedness or purchase or redeem or retire capital
stock;
|
·
|
sell
or transfer assets, including capital stock of our restricted
subsidiaries;
|
·
|
restrict
dividends or other payments by restricted
subsidiaries;
|
·
|
incur
liens;
|
·
|
enter
into transactions with affiliates;
and
|
·
|
consolidate,
merge, sell or lease all or substantially all of our
assets.
|
The
credit agreement also requires us to maintain specified financial ratios and
satisfy certain financial tests. Our ability to maintain or meet such
financial ratios and tests may be affected by events beyond our control,
including changes in general economic and business conditions, and we cannot
assure you that we will maintain or meet such ratios and tests or that the
lenders under the credit agreement will waive any failure to meet such ratios or
tests.
These
covenants could materially and adversely affect our ability to finance our
future operations or capital needs. Furthermore, they may restrict
our ability to expand, to pursue our business strategies and otherwise to
conduct our business. Our ability to comply with these covenants may
be affected by circumstances and events beyond our control, such as prevailing
economic conditions and changes in regulations. A breach of these
covenants could result in a default under the indenture governing the senior
notes and/or the credit agreement. If there were an event of default
under the indenture governing the senior notes and/or the credit agreement, the
affected creditors could cause all amounts borrowed under these instruments to
be due and payable immediately. Additionally, if we fail to repay
indebtedness under our credit agreement when it becomes due, the lenders under
the credit agreement could proceed against substantially all of our assets which
we have pledged to them as security. Please read “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Bank Credit Facility.”
We are a
holding company and do not conduct any business operations of our
own. Our principal assets are the equity interests we own in our
operating subsidiaries, either directly or indirectly. As a result,
we are dependent upon cash dividends, distributions or other transfers we
receive from our subsidiaries in order to make dividend payments to our
stockholders, to repay any debt we may incur, and to meet our other
obligations. The ability of our subsidiaries to pay dividends and
make payments to us will depend on their operating results and may be restricted
by, among other things, applicable corporate, tax and other laws and regulations
and agreements of those subsidiaries, as well as by the terms of the credit
agreement and the indenture governing our senior notes.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our
principal executive offices are located at One Riverway, Suite 1400, Houston,
Texas 77056, where we currently lease 14,360 square feet of office
space. Currently, we also own or lease field-based administrative
offices in Alabama, Arkansas, Colorado, Florida, Kansas, Massachusetts,
Missouri, New Mexico, North Carolina, Ohio, Oklahoma, 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, 2009, we owned and/or operated 25
landfills, 26 collection operations and 24 transfer stations/MRFs. Of
these facilities, two transfer stations and two landfills are fully permitted
but not yet opened, and one transfer station is idle. We also
operated but did not own three of the transfer stations as of December 31,
2009. For a description of our landfills, please read
“Business—Our Operations—Landfills.” We believe that our office
space, operating properties, vehicles and equipment are adequately maintained
and sufficient for our current operations. However, we expect to
continue to make investments in additional equipment and property for expansion,
for replacement of assets, and in connection with future
acquisitions.
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.
On
December 31, 2009, we held a special meeting of stockholders to approve the
issuance of up to a maximum of 5,555,556 shares of WCA Waste Corporation common
stock as consideration in connection with the acquisition by us of the Live
Earth Companies and certain assets and related liabilities. At the
special meeting, the acquisition consideration proposal was approved based on
the following vote tabulation:
Votes For
|
Votes Against
|
Abstentions
|
||
14,287,348
|
3,690,287
|
556,646
|
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 Global Market under the symbol
“WCAA.” As of March 1, 2010, there were approximately 147 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.
High
|
Low
|
|||||||
2008
|
||||||||
First
Quarter
|
$
|
7.95
|
$
|
5.27
|
||||
Second
Quarter
|
$
|
6.72
|
$
|
4.57
|
||||
Third
Quarter
|
$
|
6.44
|
$
|
4.40
|
||||
Fourth
Quarter
|
$
|
5.25
|
$
|
2.29
|
||||
2009
|
||||||||
First
Quarter
|
$
|
3.06
|
$
|
1.42
|
||||
Second
Quarter
|
$
|
4.21
|
$
|
1.46
|
||||
Third
Quarter
|
$
|
5.10
|
$
|
3.29
|
||||
Fourth
Quarter
|
$
|
4.70
|
$
|
3.67
|
||||
2010
|
||||||||
First
Quarter (through March 2, 2010)
|
$
|
4.69
|
$
|
4.00
|
On March
2, 2010, the closing sales price of our common stock was $4.55.
Performance
Graph
The
following performance graph compares the performance of our common stock to the
S&P 500 Index and the Dow Jones Waste & Disposal Services
Index. The graph covers the five-year period ended December 31, 2009
and assumes that a $100 investment was made on December 31, 2004 and that all
dividends were reinvested.
December
31,
|
||||||||||||||||||||||||
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
|||||||||||||||||||
WCA
Waste Corporation
|
$
|
100.00
|
$
|
75.60
|
$
|
76.84
|
$
|
61.82
|
$
|
24.02
|
$
|
41.15
|
||||||||||||
S&P
500 Index
|
$
|
100.00
|
$
|
103.00
|
$
|
117.03
|
$
|
121.16
|
$
|
74.53
|
$
|
92.01
|
||||||||||||
Dow
Jones Waste & Disposal Services Index
|
$
|
100.00
|
$
|
104.08
|
$
|
125.72
|
$
|
129.35
|
$
|
119.18
|
$
|
132.37
|
Our stock
performance may not continue into the future with the same or similar trends
depicted in the performance graph above. We will not make or endorse
any predictions as to future stock performance.
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 debt agreements prohibit 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 debt
agreements. Please read “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital
Resources—Bank 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. For a discussion of the PIK
dividends accrued under our preferred stock, please read “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources— Preferred Stock.”
Purchases
of Equity Securities by Company and Affiliated Purchasers
Period
|
(a)
Total
number of shares (or units) purchased
|
(b)
Average
price paid per share (or unit)
|
(c)
Total
number of shares (or units) purchased as part of publicly announced plans
or programs
|
(d)
Maximum
number (or approximate dollar value) of shares (or units) that may yet be
purchased under the plans or programs
|
||||||||||||
October
1 - October 31, 2009
|
— | — | — | — | ||||||||||||
November
1 - November 30, 2009
|
— | — | — | — | ||||||||||||
December
1 - December 31, 2009
|
396 | (1) | $ | 4.35 | — | — | ||||||||||
Total
|
396 | (1) | $ | 4.35 | — | — |
(1)
|
Represents
shares of our common stock surrendered to satisfy minimum tax withholding
obligations on the vesting of restricted
stock.
|
Item 6. Selected Financial Data.
The
following tables set forth certain selected historical consolidated financial
data derived from our consolidated financial statements included elsewhere in
this report, except for the information for 2005 and 2006 (in thousands except
per share data). 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.
Year
Ended December 31,
|
||||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
Consolidated
Statements of Operations Data:
|
||||||||||||||||||||
Revenue
|
$
|
194,138
|
$
|
208,009
|
$
|
184,940
|
$
|
149,497
|
$
|
114,143
|
||||||||||
Expenses:
|
||||||||||||||||||||
Cost
of services (1),(2)
|
130,287
|
142,129
|
121,853
|
95,991
|
73,933
|
|||||||||||||||
Depreciation
and amortization
|
26,357
|
27,151
|
24,234
|
19,070
|
14,795
|
|||||||||||||||
Impairment
of goodwill
|
—
|
41,725
|
—
|
—
|
—
|
|||||||||||||||
General
and administrative (3)
|
13,496
|
12,335
|
12,768
|
11,010
|
8,311
|
|||||||||||||||
Total
expenses
|
170,140
|
223,340
|
158,855
|
126,071
|
97,039
|
|||||||||||||||
Operating
income (loss)
|
23,998
|
(15,331
|
)
|
26,085
|
23,426
|
17,104
|
||||||||||||||
Other
income (expense):
|
||||||||||||||||||||
Interest
expense, net
|
(18,052
|
)
|
(18,560
|
)
|
(16,765
|
)
|
(15,385
|
)
|
(10,201
|
)
|
||||||||||
Write-off
of deferred financing costs and debt discount (4)
|
—
|
—
|
—
|
(3,240
|
)
|
(1,308
|
)
|
|||||||||||||
Impact
of interest rate swap
|
(2,063
|
)
|
(7,547
|
)
|
(4,442
|
)
|
340
|
(165
|
)
|
|||||||||||
Other
income (expense), net
|
83
|
(62
|
)
|
387
|
192
|
286
|
||||||||||||||
Other
income (expense)
|
(20,032
|
)
|
(26,169
|
)
|
(20,820
|
)
|
(18,093
|
)
|
(11,388
|
)
|
||||||||||
Income
(loss) before income taxes
|
3,966
|
(41,500
|
)
|
5,265
|
5,333
|
5,716
|
||||||||||||||
Income
tax (provision) benefit
|
(2,958
|
)
|
13,737
|
(2,343
|
)
|
(2,313
|
)
|
(2,248
|
)
|
|||||||||||
Net
income (loss)
|
1,008
|
(27,763
|
)
|
2,922
|
3,020
|
3,468
|
||||||||||||||
Accrued
payment-in-kind dividend on preferred stock
|
(4,278
|
)
|
(4,076
|
)
|
(3,876
|
)
|
(1,603
|
)
|
—
|
|||||||||||
Net
income (loss) available to common stockholders
|
$
|
(3,270
|
)
|
$
|
(31,839
|
)
|
$
|
(954
|
)
|
$
|
1,417
|
$
|
3,468
|
|||||||
Per
Share Data — basic and diluted:
|
||||||||||||||||||||
Net
income (loss)
|
0.06
|
(1.71
|
)
|
0.18
|
0.19
|
0.22
|
||||||||||||||
Accrued
payment-in-kind dividend on preferred stock
|
(0.27
|
)
|
(0.25
|
)
|
(0.24
|
)
|
(0.10
|
)
|
—
|
|||||||||||
Net
income (loss) available to common stockholders
|
$
|
(0.21
|
)
|
$
|
(1.96
|
)
|
$
|
(0.06
|
)
|
$
|
0.09
|
$
|
0.22
|
|||||||
Weighted
average shares outstanding — basic
|
15,824
|
16,257
|
16,460
|
16,360
|
15,579
|
|||||||||||||||
Weighted
average shares outstanding — diluted
|
15,824
|
16,257
|
16,460
|
16,385
|
15,641
|
|||||||||||||||
Other
Financial Data:
|
||||||||||||||||||||
Capital
expenditures
|
$
|
23,827
|
$
|
29,301
|
$
|
29,158
|
$
|
29,110
|
$
|
18,003
|
As
of December 31,
|
||||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
Consolidated
Balance Sheet Data:
|
||||||||||||||||||||
Property
and equipment, net
|
$
|
320,724
|
$
|
276,483
|
$
|
270,384
|
$
|
207,441
|
$
|
186,299
|
||||||||||
Total
assets
|
431,374
|
387,958
|
426,723
|
371,249
|
291,538
|
|||||||||||||||
Current
maturities of long-term debt
|
500
|
64
|
699
|
916
|
1,910
|
|||||||||||||||
Long-term
debt, less current maturities and discount
|
219,516
|
200,295
|
198,149
|
165,958
|
174,353
|
|||||||||||||||
Total
stockholders’ equity
|
160,529
|
139,503
|
170,364
|
167,779
|
91,707
|
(1)
|
We
acquired prepaid disposal rights in connection with our acquisition of
assets from Waste Management, Inc. (WMI) in 2000. All remaining prepaid
disposal rights with WMI were fully utilized in 2007. Additionally in each
of the years 2007, 2006 and 2005, we paid $1,000 to acquire prepaid
disposal rights at a Texas landfill from Waste Services, Inc. (WSI). At
the time we acquired the landfill from WSI in 2007, the remaining prepaid
disposal rights of $1,270 were utilized as part of the consideration
given. During the years ended December 31, 2007, 2006 and 2005, we
recorded $1,037, $2,383 and $1,834, respectively, for the use of such
disposal rights as a component of cost of services. Please read note 3 to
our consolidated financial
statements.
|
(2)
|
We
have material financial commitments for the costs associated with our
future obligations for final closure and post-closure maintenance of the
landfills we own and operate. During the years ended December 31, 2009,
2008, 2007, 2006 and 2005, we have recorded $628, $558, $483, $284 and
$159, respectively, as a non-cash component of cost of services for the
provision and accretion expense relating to these future obligations.
Although these are non-cash expenses for the periods presented, the
ultimate liability will be settled in cash. Please read “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Estimates and Assumptions—Landfill
Accounting” for further discussion of landfill
accounting.
|
(3)
|
General
and administrative expenses include stock-based compensation expense of
$1,737, $2,212, $1,977, $1,118 and $509 during the years ended December
31, 2009, 2008, 2007, 2006 and 2005. The stock-based compensation expense
during these years includes earned compensation of $1,653, $2,182, $1,765,
$1,118 and $509, respectively, under the 2004 WCA Waste Corporation
Incentive Plan, as amended and restated. In addition, the compensation
expense of $84, $30 and $212 during the years ended December 31, 2009,
2008 and 2007, respectively, relates to the stock portion of the executive
bonus plan.
|
(4)
|
The
$3,240 write-off of deferred financing costs and debt discount in 2006
reflects the write-off of costs associated with our first and second lien
credit agreements that were repaid and retired in connection with our
financing transactions in July 2006. The $1,308 write-off of deferred
financing costs and debt discount in 2005 is associated with the
restructuring of our credit facility in April 2005 as well as the
repayment of the Environmental Facilities Revenue Bonds in June
2005.
|
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 “Risk Factors” included elsewhere in this report and “—Cautionary
Statement About Forward-Looking Statements” below.
Executive
Overview
General
Overview of Our Business
Our
operations consist of the collection, transfer, processing and disposal of
non-hazardous solid waste. Our revenue is generated primarily from
our landfill disposal services and our collection operations provided to
residential, commercial and roll-off customers. Roll-off service is
the hauling and disposal of large waste containers (typically between 10 and 50
cubic yards) that are loaded on to and off of the collection
vehicle. The following table reflects our total revenue by source for
the previous three years (dollars in thousands):
2009
|
2008
|
2007
|
||||||||||||||||||||||
$
|
%
|
$
|
%
|
$
|
%
|
|||||||||||||||||||
Collection:
|
||||||||||||||||||||||||
Residential
|
$
|
55,086
|
28.4
|
%
|
$
|
50,433
|
24.2
|
%
|
$
|
41,647
|
22.5
|
%
|
||||||||||||
Commercial
|
25,082
|
12.9
|
21,607
|
10.4
|
19,069
|
10.3
|
||||||||||||||||||
Roll-off
|
45,763
|
23.6
|
57,756
|
27.8
|
53,501
|
28.9
|
||||||||||||||||||
Total
collection
|
125,931
|
64.9
|
129,796
|
62.4
|
114,217
|
61.7
|
||||||||||||||||||
Disposal
|
68,831
|
75,456
|
70,797
|
|||||||||||||||||||||
Less
intercompany
|
25,109
|
29,527
|
26,994
|
|||||||||||||||||||||
Disposal,
net
|
43,722
|
22.5
|
45,929
|
22.1
|
43,803
|
23.7
|
||||||||||||||||||
Transfer
and other
|
35,924
|
46,413
|
40,986
|
|||||||||||||||||||||
Less
intercompany
|
11,439
|
14,129
|
14,066
|
|||||||||||||||||||||
Transfer
and other, net
|
24,485
|
12.6
|
32,284
|
15.5
|
26,920
|
14.6
|
||||||||||||||||||
Total
revenue
|
$
|
194,138
|
100.0
|
%
|
$
|
208,009
|
100.0
|
%
|
$
|
184,940
|
100.0
|
%
|
2010
Financial Objectives
Before
the impact of potential acquisitions, we anticipated 2010 to be a year with
improving operating results which included moderate increases in revenue
resulting from a balance of price increases and stabilized volume in our
construction and demolition business. Earnings per share prior to the
effect of potential acquisitions are expected to improve as well. We
believe our available capacity should enable us to remain opportunistic in
pursuing potential acquisitions, including acquisitions that would enable us to
internalize waste into our existing landfills with particular attention being
focused on internalization opportunities for our Sunny Farms Landfill in Ohio
and our Fort Bend Regional Landfill in our Houston market. Although
we have already identified 43 potential acquisition targets, these opportunities
may or may not materialize, and, as such, we do not have a specifically
quantified 2010 acquisition goal.
2009
Business Performance
During
2009, our revenue was $194.1 million, which represents a 6.7% decrease over
2008. Our operating income (loss) was $24.0 million in 2009, compared
to $(15.3) million in 2008. Net loss available to common stockholders
for 2009 was $3.3 million, or $0.21 per share, compared to $31.8 million, or
$1.96 per share, for 2008. Adjusted EBITDA for 2009 was $51.5
million, a decrease of 4.4% over 2008. We recorded charges of $1.3
million and $4.7 million (net of tax) due to the impact of interest rate swap
agreements, $0.7 million and $0.1 million (net of tax) related to merger and
acquisition related expenses, and $0.4 million and $0.2 million due to the tax
impact of vested restricted shares in 2009 and 2008,
respectively. Our net loss in 2008 also included an expense of $27.0
million (net of tax) related to the impairment of goodwill and a net loss of
$0.1 million (net of tax) associated with the early disposition of notes
receivable/payable.
Our
earnings in 2009 were impacted by the existence of our interest rate swap
arrangement with Comerica Bank. Our swap agreement resulted in
limiting the underlying base interest rate for $150 million of our debt to 5.64%
plus any applicable margin. However, with the reduction in interest
rates that began in September 2007, we were obligated to fund the difference
between 5.64% and the market rate for three-month floating rate
LIBOR. This reduced our cash flow and negatively impacted our pre-tax
earnings by $7.2 million in 2009. Considering the rates in effect at
December 31, 2009, the impact of the swap agreement is estimated to result in a
pre-tax cash cost of $6.8 million in 2010. Our swap agreement expires
on November 1, 2010.
During
2009, the total PIK dividend on preferred stock was $4.3 million. In
2010, the PIK preferred dividend will be $4.5 million. For more
information regarding the PIK dividend associated with the outstanding shares of
our preferred stock, please read “—Liquidity and Capital Resources—Preferred
Stock.”
In 2009,
we invested approximately $42.6 million on a combination of newly acquired
companies and similar expansion and growth expenditures, including $22.9 million
of cash, 3,555,556 shares of our common stock valued at $15.3 million, 2,000,000
contingent earn-out shares valued at $3.2 million on the acquisition date, and a
seller note valued at $0.9 million with two future payments of $0.5 million due
on January 15, 2010 and 2011 in the three acquisitions in 2009. The
remaining $0.3 million was related to initial capital expenditures associated
with acquisitions. As of December 31, 2009, we had approximately
$95.0 million available under our existing credit facility.
Non-GAAP
Measures
Our
management evaluates our performance based on non-GAAP measures, of which the
primary performance measure is adjusted EBITDA. EBITDA, as commonly
defined, refers to earnings before interest, taxes, depreciation and
amortization. Our adjusted EBITDA consists of earnings (net income or
loss) available to common stockholders before preferred stock dividend, interest
expense (including write-off of deferred financing costs and debt discount),
impact of interest rate swap agreements, income tax expense, depreciation and
amortization, impairment of goodwill, net loss on early disposition of notes
receivable/payable, and merger and acquisition related expenses. We
also use these same measures when evaluating potential acquisition
candidates.
We
believe adjusted 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 the
impact of our interest rate swap agreements and payment-in-kind (PIK)
dividend) and asset base (primarily depreciation and amortization of our
landfills and vehicles) from our operating results;
and
|
·
|
it
helps investors identify items that are within our operational
control. Depreciation charges, while a component of operating
income, are fixed at the time of the asset purchase in accordance with the
depreciable lives of the related asset and as such are not a directly
controllable period operating
charge.
|
Our
management uses adjusted 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 to estimate a purchase price (often expressed as a multiple of
EBITDA or adjusted EBITDA) for solid waste companies we intend to
acquire. The appropriate EBITDA or adjusted EBITDA multiple
will vary from acquisition to acquisition depending on factors such as the
size of the operation, the type of operation, the anticipated growth in
the market, 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 component of incentive cash and stock bonuses paid to our executive
officers and other employees;
|
·
|
to
assess compliance with financial ratios and covenants included in our
credit agreements; and
|
·
|
in
communications with investors, lenders, and others, concerning our
financial performance.
|
The
following presents a reconciliation of our adjusted EBITDA to net loss available
to common stockholders (in thousands):
2009
|
2008
|
2007
|
||||||||||
Adjusted
EBITDA
|
$
|
51,468
|
$
|
53,819
|
$
|
50,750
|
||||||
Depreciation
and amortization
|
(26,357
|
)
|
(27,151
|
)
|
(24,234
|
)
|
||||||
Impairment
of goodwill
|
—
|
(41,725
|
)
|
—
|
||||||||
Merger
and acquisition related expenses
|
(1,030
|
)
|
(115
|
)
|
(44
|
)
|
||||||
Interest
expense, net
|
(18,052
|
)
|
(18,560
|
)
|
(16,765
|
)
|
||||||
Impact
of interest rate swap
|
(2,063
|
)
|
(7,547
|
)
|
(4,442
|
)
|
||||||
Net
loss on early disposition of notes receivable/payable
|
—
|
(221
|
)
|
—
|
||||||||
Income
tax (provision) benefit
|
(2,958
|
)
|
13,737
|
(2,343
|
)
|
|||||||
Accrued
payment-in-kind dividend on preferred stock
|
(4,278
|
)
|
(4,076
|
)
|
(3,876
|
)
|
||||||
Net
loss available to common stockholders
|
$
|
(3,270
|
)
|
$
|
(31,839
|
)
|
$
|
(954
|
)
|
Our
adjusted EBITDA, as we define it, may not be comparable to similarly titled
measures employed by other companies and is not a measure of performance
calculated in accordance with GAAP. 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 operating
expenses, equipment maintenance, disposal fees paid to third-party disposal
facilities, insurance premiums and claims expense, selling expenses, wages and
salaries of field personnel located at operating facilities, third-party
transportation expense and state and local waste taxes. We are
self-insured for up to $100,000, $250,000 and $250,000 of our general liability,
workers’ compensation and automobile liability per claim,
respectively. 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, information technology and cash
management costs and other overhead costs associated with our corporate
office.
Depreciation
and amortization expense includes depreciation of fixed assets over their
estimated useful lives using the straight-line method and amortization of
landfill costs and asset retirement costs based on the consumption of
airspace.
In the
past, we capitalized third-party expenditures related to pending acquisitions,
such as legal, engineering, and accounting expenses, and certain direct
expenditures such as travel costs. We expensed indirect acquisition
costs, such as salaries, commissions and other corporate services, as we
incurred them. We routinely evaluated all capitalized costs, and
expensed those related to projects that we believed were not likely to
succeed. Starting in 2009, all acquisition-related transaction and
restructuring costs are expensed as incurred rather than capitalized as part of
the acquisition costs.
After an
acquisition is completed, we incur integration expenses related to (i)
incorporating newly-acquired truck fleets into our preventative maintenance
program, (ii) testing new employees to comply with Department of Transportation
regulations, (iii) implementing our safety program, (iv) re-routing trucks and
equipment to assure maximization of routing efficiencies and disposal
internalization, and (v) converting customers to our billing
system. We generally expect that the costs of acquiring and
integrating an acquired business will be incurred primarily during the first 12
months after acquisition. Synergies from tuck-in acquisitions can
also take as long as 12 months to be realized.
Goodwill
represents the excess of the purchase price over the fair value of the net
assets of the acquired operations. 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.
Acquisitions
As we
discussed in “Business—Integration and Acquisitions,” any acquisitions that we
may make 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 through
tuck-in acquisitions. Tuck-in acquisitions are sought to provide
growth in revenue and increase market share and enable disposal internalization
and consolidation of duplicative facilities and functions to maximize cost
efficiencies and economies of scale. If we find an attractive new
market, we seek to enter that market by acquiring a permitted landfill, followed
by acquiring collection and/or transfer operations and internalizing waste into
the landfill.
Any
acquisition we make would be financed by cash on hand and available capacity
under our revolving credit facility, and through additional debt, and/or
additional equity, including common stock or preferred stock.
Since
completing our initial public offering in June 2004 through the year ended
December 31, 2009, we have completed 37 acquisitions. The purchase
price for these acquisitions consisted of approximately $256.6 million of cash
and accrued future payments, $1.3 million of prepaid airspace, $6.1 million of
convertible debt, a seller note valued at $0.9 million, $11.9 million of assumed
debt (net of $0.5 million of debt discount), $4.4 million of assumed deferred
tax liabilities, 5,281,892 shares of our common stock and 2,000,000 contingent
earn-out shares, less a note receivable valued at $7.2 million.
On
December 31, 2009, we consummated the acquisition of the Live Earth Companies,
which included certain assets and related liabilities held by Live Earth that
relate to the Live Earth Companies, including the Sunny Farms Landfill, a
457-acre site permitted to accept municipal solid waste, industrial waste and
construction and demolition debris located in Seneca County,
Ohio. Additional operations we acquired from Live Earth include
Champion City Recovery, a transfer station permitted to accept 1,000 tons a day
located south of Boston, Massachusetts and a rail haul operation over a
Class 1 rail line transporting waste from the east coast to the Sunny Farms
Landfill. Total consideration for this acquisition consisted of $19.7
million of cash (which includes working capital of $0.9 million), 3,555,556
shares of our common stock valued at $15.3 million, and 2,000,000 contingent
earn-out shares valued at $3.2 million on the acquisition date. The
Live Earth acquisition represents an important component of our acquisition
strategy in 2010 and beyond as we intend to seek attractive and opportunistic
acquisitions that enable us to efficiently internalize additional waste volume
into the Sunny Farms Landfill.
We
completed three acquisitions during the year ended December 31, 2009 including
the Live Earth acquisition. Total consideration for these
acquisitions included $22.9 million of cash, 3,555,556 shares of our common
stock valued at $15.3 million, 2,000,000 contingent earn-out shares valued at
$3.2 million on the acquisition date, and a seller note valued at $0.9 million
with two future payments of $0.5 million due on January 15, 2010 and 2011,
respectively. Information concerning our acquisitions may be found in
the table below and in our previously filed periodic and current reports and in
note 3 to our consolidated financial statements.
The
following sets forth additional information regarding the acquisitions since our
initial public offering through December 31, 2009:
Company
|
Location
|
Region
|
Completion
Date
|
Operations
|
||||
Texas
Environmental Waste
|
Houston,
TX
|
II
|
July
13, 2004
|
Collection
|
||||
Ashley
Trash Service
|
Springfield,
MO
|
I
|
August
17, 2004
|
Collection
|
||||
Power
Waste
|
Birmingham,
AL
|
III
|
August
31, 2004
|
Collection
|
||||
Blount
Recycling
|
Birmingham,
AL
|
III
|
September
3, 2004
|
Collection,
Landfill & Transfer Station
|
||||
Translift,
Inc.
|
Little
Rock, AR
|
III
|
September
17, 2004
|
Collection
|
||||
Rural
Disposal, Inc.
|
Willow
Springs, MO
|
I
|
November
12, 2004
|
Collection
|
||||
Trash
Away, Inc.
|
Piedmont,
SC
|
III
|
November
30, 2004
|
Collection
& Transfer Station
|
||||
Gecko
Investments (Eagle Ridge)
|
St.
Louis, MO
|
I
|
January
11, 2005
|
Collection
& Landfill
|
||||
MRR
Southern, LLC
|
High
Point/Raleigh, NC
|
III
|
April
1, 2005
|
Landfill,
Transfer Station & MRF
|
||||
Triangle
Environmental
|
Raleigh,
NC
|
III
|
May
16, 2005
|
Collection
|
||||
Foster
Ferguson
|
El
Dorado Springs, MO
|
I
|
May
16, 2005
|
Collection
|
||||
Triad
Waste
|
High
Point, NC
|
III
|
May
31, 2005
|
Collection
|
||||
Proper
Disposal
|
Chanute,
KS
|
I
|
May
31, 2005
|
Collection
|
||||
Fort
Meade Landfill
|
Fort
Meade, FL
|
II
|
October
3, 2005
|
Landfill
|
||||
Meyer
& Gabbert
|
Sarasota/Arcadia,
FL
|
II
|
October
3, 2005
|
Collection,
Landfill & Transfer Station
|
||||
Pendergrass
Refuse
|
Springfield,
MO
|
I
|
October
4, 2005
|
Collection
|
||||
Andy’s
Hauling
|
Sarasota,
FL
|
II
|
October
21, 2005
|
Collection
|
||||
Transit
Waste
|
Durango,
CO/Bloomfield, NM
|
II
|
February
10, 2006
|
Collection
& Landfill
|
||||
Fort
Myers Transfer Station (*)
|
Fort
Myers, FL
|
II
|
August
10, 2006
|
Transfer
Station
|
||||
WCA
of St. Lucie, LLC
|
St.
Lucie, FL
|
II
|
October
2, 2006
|
Transfer
Station
|
||||
Sunrise
Disposal, LLC
|
Springfield,
MO
|
I
|
December
28, 2006
|
Collection
|
||||
Southwest
Dumpster, Inc. (*)
|
Fort
Myers, FL
|
II
|
January
3, 2007
|
Collection
|
||||
American
Waste, Inc.
|
Oklahoma
City, OK
|
II
|
February
21, 2007
|
Collection
& Landfill
|
||||
Klean
Way Disposal, Inc.
|
Springfield,
MO
|
I
|
March
30, 2007
|
Collection
|
||||
Carpenter
Waste Systems, LLC
|
Oklahoma
City, OK
|
II
|
May
31, 2007
|
Collection
|
||||
Fort
Bend Regional Landfill
|
Houston,
TX
|
II
|
June
29, 2007
|
Collection,
Landfill & Transfer Station
|
||||
Big
Red Containers, Inc.
|
Ardmore,
OK
|
II
|
August
14, 2007
|
Collection
|
||||
Roll-Off
Rentals
|
Huntsville,
AL
|
III
|
September
4, 2007
|
Collection
|
||||
Waste
Pro Services, LLC
|
Houston,
TX
|
II
|
October
1, 2007
|
Collection
|
||||
DH
Griffin Container Services, LLC
|
Greensboro,
NC
|
III
|
October
1, 2007
|
Collection
|
||||
DH
Griffin Container of Raleigh, LLC
|
Raleigh,
NC
|
III
|
October
1, 2007
|
Collection
|
||||
Maguire
Disposal, Inc.
|
Oklahoma
City, OK
|
II
|
January
2, 2008
|
Collection
|
||||
Advantage
Waste Services
|
Springfield/Verona,
MO
|
I
|
October
1, 2008
|
Collection
& Transfer Station
|
||||
Advanced
Waste Services
|
Houston,
TX
|
II
|
October
31, 2008
|
Collection
|
||||
MRR
Southern, LLC
|
Greensboro,
NC
|
III
|
January
15, 2009
|
Transfer
Station
|
||||
Disposal
Doctor, Inc.
|
Houston,
TX
|
II
|
August
21, 2009
|
Collection
|
||||
Live
Earth, LLC
|
Fostoria,
OH/Brockton, MA
|
IV
|
December
31, 2009
|
Landfill
& Transfer Station
|
(*) These
assets were exchanged as part of the consideration for the acquisition of Fort
Bend Regional Landfill.
At
December 31, 2009, we owned and/or operated a total of 25 landfills, 26
collection operations and 24 transfer stations/MRFs, had approximately 352
routes and handled approximately 12,000 landfill tons per day at our
landfills.
We
continue to seek acquisition opportunities that enable us to effectively
leverage our existing infrastructure and maximize the internalization of
waste. We are also evaluating opportunistic potential acquisitions
both within and outside our existing footprint.
For a
description of our accounting for acquisitions and acquisition-related expenses,
please read “—Executive Overview—Other Considerations” above and notes 1 and 3
to the consolidated financial statements.
Results
of Operations
Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008
The
following table sets forth the components of operating income (loss) by major
operating segments (Region I: Kansas, Missouri; Region II: Colorado, Florida,
New Mexico, Oklahoma, Texas; Region III: Alabama, Arkansas, North Carolina,
South Carolina, Tennessee) for the years ended December 31, 2009 and 2008 and
the changes between the segments for each category (dollars in
thousands). The acquisition of Region IV (Massachusetts, Ohio) was
not completed until December 31, 2009. Therefore, Region IV is not
included in this analysis.
Region
I
|
Region
II
|
Region
III
|
Corporate
|
Total
|
%
of Revenue
|
|||||||||||||||||||
Year
ended December 31, 2009:
|
||||||||||||||||||||||||
Revenue
|
$
|
50,846
|
$
|
101,749
|
$
|
41,543
|
$
|
—
|
$
|
194,138
|
100.0
|
|||||||||||||
Cost
of services
|
36,092
|
66,239
|
27,956
|
—
|
130,287
|
67.1
|
||||||||||||||||||
Depreciation
and amortization
|
5,783
|
12,811
|
7,276
|
487
|
26,357
|
13.6
|
||||||||||||||||||
Impairment
of goodwill
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
General
and administrative
|
3,205
|
5,925
|
2,712
|
1,654
|
|
13,496
|
6.9
|
|||||||||||||||||
Operating
income (loss)
|
$
|
5,766
|
$
|
16,774
|
$
|
3,599
|
|
$
|
(2,141
|
)
|
$
|
23,998
|
|
12.4
|
|
|||||||||
Year
ended December 31, 2008:
|
||||||||||||||||||||||||
Revenue
|
$
|
53,773
|
$
|
104,550
|
$
|
49,686
|
$
|
—
|
$
|
208,009
|
100.0
|
|||||||||||||
Cost
of services
|
38,676
|
68,256
|
35,197
|
—
|
142,129
|
68.3
|
||||||||||||||||||
Depreciation
and amortization
|
5,415
|
13,195
|
8,041
|
500
|
27,151
|
13.1
|
||||||||||||||||||
Impairment
of goodwill
|
—
|
25,944
|
15,781
|
—
|
41,725
|
20.1
|
||||||||||||||||||
General
and administrative
|
3,375
|
7,262
|
3,816
|
(2,118
|
)
|
12,335
|
5.9
|
|||||||||||||||||
Operating
income (loss)
|
$
|
6,307
|
$
|
(10,107
|
)
|
$
|
(13,149
|
)
|
$
|
1,618
|
$
|
(15,331
|
)
|
(7.4
|
)
|
|||||||||
Increase/(decrease)
in 2009 compared to 2008:
|
||||||||||||||||||||||||
Revenue
|
$
|
(2,927
|
)
|
$
|
(2,801
|
)
|
$
|
(8,143
|
)
|
$
|
—
|
$
|
(13,871
|
)
|
||||||||||
Cost
of services
|
(2,584
|
)
|
(2,017
|
)
|
(7,241
|
)
|
—
|
(11,842
|
)
|
|||||||||||||||
Depreciation
and amortization
|
368
|
(384
|
)
|
(765
|
)
|
(13
|
)
|
(794
|
)
|
|||||||||||||||
Impairment
of goodwill
|
—
|
(25,944
|
)
|
(15,781
|
)
|
—
|
(41,725
|
)
|
||||||||||||||||
General
and administrative
|
(170
|
)
|
(1,337
|
)
|
(1,104
|
)
|
3,772
|
1,161
|
|
|||||||||||||||
Operating
income (loss)
|
$
|
(541
|
)
|
$
|
26,881
|
|
$
|
16,748
|
$
|
(3,759
|
)
|
$
|
39,329
|
|
Revenue. Total
revenue for the year ended December 31, 2009 decreased $13.9 million, or 6.7%,
to $194.1 million from $208.0 million for the year ended December 31,
2008. This decline was primarily due to volume decreases of $15.5
million and decreases in fuel surcharges of $5.3 million which were partially
offset by operational price increases of $2.2 million and acquisition growth of
$4.7 million. The above table reflects the change in revenue in each
operating region. The financial results of completed acquisitions are
generally blended with existing operations and do not have separate financial
information available, with the exception of new regions acquired which can be
analyzed individually. Revenue in Region I decreased $2.9 million due
to volume decreases of $5.3 million and decreases in fuel surcharges of $1.3
million, partially offset by price increases of $0.6 million and acquisition
growth of $3.1 million. The revenue decrease of $2.8 million in
Region II was attributed to volume decreases of $3.4 million and fuel surcharge
decreases of $1.9 million, partially offset by price increases of $0.9 million
and acquisition growth of $1.6 million. The Region II volume
decreases were most notable in Florida and Oklahoma. Revenue in
Region III decreased $8.1 million due to volume decreases of $6.8 million and
decreases in fuel surcharges of $2.1 million, partially offset by price
increases of $0.8 million. The volume decreases were primarily from
Alabama, North Carolina and South Carolina as a result of general market
conditions. During 2009 we believe the weakening economy has had a
significant adverse effect on our revenues, specifically the decrease in the
number of active construction projects that has resulted from this
downturn. Waste generated from construction projects represents a
significant revenue stream especially for roll-off collection and landfill
operations. We believe this to be the cause of a significant portion
of our revenue decline. Future changes in revenue and cost of
services (discussed below) may be impacted by volume changes as a result of
market conditions. For more information on the factors affecting our
estimates, please see “—Executive Overview—Acquisitions” above.
Cost of
services. Total cost of services for the year ended December
31, 2009 decreased $11.8 million, or 8.3%, to $130.3 million from $142.1 million
for the year ended December 31, 2008. Cost of services in all regions
decreased mainly as a result of the decrease in revenue. The decrease
in cost of services included a $8.0 million reduction in fuel costs, decreases
of $2.0 million in third party hauling and $0.8 million in lower outside repair
costs.
Overall
cost of services decreased to 67.1% of revenue for the year ended December 31,
2009 from 68.3% during the same period last year. Decreases in
operating costs as a percentage of revenue were primarily attributable to lower
fuel prices. Diesel fuel costs as a percentage of revenue decreased
from 9.0% for the year ended December 31, 2008 to 5.5% for the year ended
December 31, 2009. Other than periodic volatility in fuel prices,
inflation has not materially affected our operations.
Depreciation and
amortization. Depreciation and amortization expenses for the
year ended December 31, 2009 decreased $0.8 million, or 2.9%, to $26.4 million
from $27.2 million for the year ended December 31, 2008. The decrease
in depreciation and amortization expenses can be attributed to decreased
amortization corresponding with decreased landfill volume usage, partially
offset by slight increases due to acquisitions and capital
expenditures.
Impairment of
goodwill. We did not recognize any goodwill impairment charges
for the year ended December 31, 2009. We recognized a non-cash
impairment charge of $41.7 million as of December 31, 2008 as a result of the
annual impairment test. We determined that there was impairment of
goodwill due to a decline in our market capitalization and the market turmoil
driven by the economic recession that became certain in
2008. Specifically, we concluded that the fair market value of our
assets was less than book value in the following reporting units: Florida, North
Carolina, Oklahoma and Tennessee. We performed the annual impairment
test and concluded that there was no impairment of goodwill in
2009. Please see “—Critical Accounting Estimates and
Assumptions—Goodwill, Intangible Assets and Other Long-Lived Assets” for more
information.
General and
administrative. Total general and administrative expenses
increased $1.2 million, or 9.4%, to $13.5 million for the year ended December
31, 2009 from $12.3 million for the year ended December 31, 2008. The
increase in general and administrative expenses was primarily attributable to
$0.9 million in increased merger and acquisition related expenses since all
acquisition-related transaction and restructuring costs are expensed as incurred
rather than capitalized starting in 2009. Such increase also resulted
in the increase of overall general and administrative expenses from 5.9% of
revenue during the year ended December 31, 2008 to 6.9% of revenue during the
year ended December 31, 2009.
The
following table sets forth items below operating income (loss) in our condensed
consolidated statement of operations and as a percentage of revenue for the
years ended December 31, 2009 and 2008 (dollars in thousands):
Years
Ended December 31,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Operating
income (loss)
|
$
|
23,998
|
12.4
|
%
|
$
|
(15,331
|
)
|
(7.4
|
)%
|
|||||||
Interest
expense, net
|
(18,052
|
)
|
(9.3
|
)
|
(18,560
|
)
|
(8.9
|
)
|
||||||||
Impact
of interest rate swap
|
(2,063
|
)
|
(1.1
|
)
|
(7,547
|
)
|
(3.6
|
)
|
||||||||
Other
income (expense), net
|
83
|
—
|
(62
|
)
|
—
|
|||||||||||
Income
tax (provision) benefit
|
(2,958
|
)
|
(1.5
|
)
|
13,737
|
6.6
|
||||||||||
Accrued
payment-in-kind dividend on preferred stock
|
(4,278
|
)
|
(2.2
|
)
|
(4,076
|
)
|
(2.0
|
)
|
||||||||
Net
loss available to common stockholders
|
$
|
(3,270
|
)
|
(1.7
|
)%
|
$
|
(31,839
|
)
|
(15.3
|
)%
|
Interest expense,
net. Interest expense, net for the year ended December 31,
2009 decreased $0.5 million, or 2.7%, to $18.1 million from $18.6 million for
the year ended December 31, 2008. The decrease was partially caused
by lower LIBOR interest rate on the revolving credit facility and repayments of
Environmental Facilities Revenue Bonds and various seller
notes. Additionally, interest expense for the year ended December 31,
2009 included $0.4 million additional amortization of deferred financing costs
related to the amendment of our revolving credit agreement while interest
expense for the year ended December 31, 2008 included $0.4 million amortization
of remaining debt discount associated with the early repayment of Environmental
Facilities Revenue Bonds.
Impact of interest rate
swap. The impact of interest rate swap for the year ended
December 31, 2009 was attributable to a $7.2 million loss related to the
realized portion of the interest rate swap we entered into in July 2006 and a
$5.2 million gain related to the unrealized portion in the mark to market of the
swap. The impact of interest rate swap for the year ended December
31, 2008 consisted of a $3.2 million loss related to the realized portion of the
interest rate swap and a $4.3 million gain related to the unrealized portion in
the mark to market of the swap. At the time we entered into the swap,
we had no floating rate debt and therefore no floating rate interest payments
were anticipated. As a result, the swap transaction was not
designated as a hedging transaction and any changes in the unrealized fair value
of the swap are recognized in the statement of operations. Please
read note 1(p) to the financial statements included in Item 8 and “Quantitative
and Qualitative Disclosures About Market Risk” elsewhere in this report for more
information.
Income tax (provision)
benefit. Income tax (provision)
benefit for the year ended December 31, 2009 as a percentage of pre-tax income
(loss) was 74.6% as compared to 33.1% for the year ended December 31,
2008. The increase in our annual effective tax rate is primarily
attributable to the increase in valuation allowance associated with state net
operating loss carryforwards for the year ended December 31, 2009 as compared to
the year ended December 31, 2008 and to the increase in non-deductible expenses
for the year ended December 31, 2009 as compared to the year ended December 31,
2008.
Accrued payment-in-kind dividend on
preferred stock. The $4.3 million and $4.1 million in accrued
PIK dividend on preferred stock relates to the accretion of the 5% PIK dividend
on our Series A Convertible Preferred Stock during the years ended December 31,
2009 and 2008, respectively. Please read “—Liquidity and Capital
Resources—Preferred Stock.”
Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007
The
following table sets forth the components of operating income (loss) by major
operating segments (Region I: Kansas, Missouri; Region II: Colorado, Florida,
New Mexico, Oklahoma, Texas; Region III: Alabama, Arkansas, North Carolina,
South Carolina, Tennessee) for the years ended December 31, 2008 and 2007 and
the changes between the segments for each category (dollars in
thousands):
Region
I
|
Region
II
|
Region
III
|
Corporate
|
Total
|
%
of Revenue
|
|||||||||||||||||||
Year
ended December 31, 2008:
|
||||||||||||||||||||||||
Revenue
|
$
|
53,773
|
$
|
104,550
|
$
|
49,686
|
$
|
—
|
$
|
208,009
|
100.0
|
|||||||||||||
Cost
of services
|
38,676
|
68,256
|
35,197
|
—
|
142,129
|
68.3
|
||||||||||||||||||
Depreciation
and amortization
|
5,415
|
13,195
|
8,041
|
500
|
27,151
|
13.1
|
||||||||||||||||||
Impairment
of goodwill
|
—
|
25,944
|
15,781
|
—
|
41,725
|
20.1
|
||||||||||||||||||
General
and administrative
|
3,375
|
7,262
|
3,816
|
(2,118
|
)
|
12,335
|
5.9
|
|||||||||||||||||
Operating
income (loss)
|
$
|
6,307
|
$
|
(10,107
|
)
|
$
|
(13,149
|
)
|
$
|
1,618
|
$
|
(15,331
|
)
|
(7.4
|
)
|
|||||||||
Year
ended December 31, 2007:
|
||||||||||||||||||||||||
Revenue
|
$
|
52,543
|
$
|
84,917
|
$
|
47,480
|
$
|
—
|
$
|
184,940
|
100.0
|
|||||||||||||
Cost
of services
|
35,040
|
54,757
|
32,056
|
—
|
121,853
|
65.9
|
||||||||||||||||||
Depreciation
and amortization
|
5,261
|
11,079
|
7,460
|
434
|
24,234
|
13.1
|
||||||||||||||||||
General
and administrative
|
3,945
|
4,756
|
3,379
|
688
|
12,768
|
6.9
|
||||||||||||||||||
Operating
income (loss)
|
$
|
8,297
|
$
|
14,325
|
$
|
4,585
|
$
|
(1,122
|
)
|
$
|
26,085
|
14.1
|
||||||||||||
Increase/(decrease)
in 2008 compared to 2007:
|
||||||||||||||||||||||||
Revenue
|
$
|
1,230
|
$
|
19,633
|
$
|
2,206
|
$
|
—
|
$
|
23,069
|
||||||||||||||
Cost
of services
|
3,636
|
13,499
|
3,141
|
—
|
20,276
|
|||||||||||||||||||
Depreciation
and amortization
|
154
|
2,116
|
581
|
66
|
2,917
|
|||||||||||||||||||
Impairment
of goodwill
|
—
|
25,944
|
15,781
|
—
|
41,725
|
|||||||||||||||||||
General
and administrative
|
(570
|
)
|
2,506
|
437
|
(2,806
|
)
|
(433
|
)
|
||||||||||||||||
Operating
income (loss)
|
$
|
(1,990
|
)
|
$
|
(24,432
|
)
|
$
|
(17,734
|
)
|
$
|
2,740
|
$
|
(41,416
|
)
|
Revenue. Total
revenue for the year ended December 31, 2008 increased $23.1 million, or 12.5%,
to $208.0 million from $184.9 million for the year ended December 31,
2007. Our growth in revenue between the years has been primarily
driven by acquisitions. We estimate that acquisitions contributed
$15.1 million of the revenue increase in 2008 while internal volume decreased
$5.3 million, operational price increases contributed $7.9 million, and pricing
from fuel surcharges contributed $5.4 million. The above table
reflects the change in revenue in each operating region. The
financial results of completed acquisitions are generally blended with existing
operations and do not have separate financial information available with the
exception of new regions acquired which can be analyzed
individually. The revenue increase of $19.6 million in Region II was
primarily attributable to the revenue increase in Texas of $23.3
million. Such revenue increase was driven by volume and price
increases associated with new collection and hauling contracts in our Texas
residential operations as well as the acquisition of a landfill and a transfer
station in late June of 2007. We acquired a majority of our Oklahoma
operations in Region II in February 2007. Those operations were not
fully integrated until the second quarter of 2007. We estimate that
the Oklahoma acquisition contributed $4.6 million of the increase in
revenue. There was also a $8.3 million revenue decrease in Region II
as a result of weakening general economic conditions in Florida and our
divestiture of a transfer station and collection operations in Fort Myers,
Florida. The revenue increase of $2.2 million in Region III was
mainly due to the two North Carolina acquisitions completed in October
2007. Future changes in revenue and cost of services (discussed
below) may be impacted by volume changes as a result of market
conditions. For more information on the factors affecting our
estimates, please see “—Executive Overview—Acquisitions” above.
Cost of
services. Total cost of services for the year ended December
31, 2008 increased by 16.6% to $142.1 million from $121.9 million for the year
ended December 31, 2007. We believe that our acquisition program
accounted for most of the increase in cost of services. Fuel prices,
which increased 32.1% nationally from the year ended December 31, 2007 to the
year ended December 31, 2008, was the largest non-acquisition related component
of the increase in cost of services. Other factors that led to the
increase included labor and disposal costs. For acquisitions within
our existing markets, the acquired entities are merged into our existing
operations and those results are indistinguishable from the remainder of the
operations. As indicated above, Region II and Region III experienced
growth through either acquisition or expanded volumes and they each reflected a
corresponding increase in their cost of services. An estimated $14.1
million increase in cost of services in Region II was due to the rapid growth of
our Texas residential collection operations as we expanded our utilization of
Fort Bend Regional Landfill acquired at the end of June 2007. More
employees and vehicles were added in this region, which caused the increase in
labor, insurance, fuel and vehicle-related costs. In addition, third
party disposal and hauling costs increased sharply as we disposed of more
residential waste to a third party landfill and contracted third party hauling
operations to transport waste from our transfer station to the landfill acquired
in 2007. The acquisitions of Oklahoma operations during 2007
contributed to an estimated $3.2 million increase in cost of services in Region
II. There was also a $3.8 million decrease in cost of services in
Region II as a result of the decrease in revenue in Florida. Cost of
services in Region I went up by $3.6 million due to the rising fuel costs and
the increase in third party disposal costs. The increase in third
party disposal was due to the temporary redirection of waste from one of our
landfills and increased disposal at a third party landfill. The
increase of $3.1 million in cost of services in Region III was mainly
attributable to a combination of rising fuel costs and the North Carolina
acquisitions in 2007. For more information on the factors affecting
our estimates, please see “—Executive Overview—Acquisitions” above.
Overall
cost of services increased to 68.3% of revenue for the year ended December 31,
2008 from 65.9% during the same period last year. Increases in
operating costs as a percentage of revenue were primarily attributable to higher
payroll-related costs, fuel, outside repairs, landfill site maintenance and
disposal costs. Diesel fuel costs as a percentage of revenue
increased from 7.0% for the year ended December 31, 2007 to 9.0% for the year
ended December 31, 2008. Since a majority of our fuel cost increase
was experienced from March to July 2008, there is a lag between the actual
increase in fuel costs and the recovery through fuel
surcharges. Other than periodic volatility in fuel prices, inflation
has not materially affected our operations.
Depreciation and
amortization. Depreciation and amortization expenses for the
year ended December 31, 2008 increased by 12.0% to $27.2 million from $24.2
million for the year ended December 31, 2007. These increases can be
attributed to acquisitions, capital expenditures, and increased amortization
corresponding with increased landfill volume usage.
Impairment of
goodwill. During the performance of the annual impairment test
in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” we
determined that there was impairment of goodwill due to a decline in our market
capitalization and the recent market turmoil driven by the economic
recession. Specifically, we concluded that the fair market value of
our assets was less than book value in the following reporting units: Florida,
North Carolina, Oklahoma and Tennessee. Accordingly, we recognized a
non-cash impairment charge of $41.7 million as of December 31,
2008. Please see “—Critical Accounting Estimates and
Assumptions—Goodwill, Intangible Assets and Other Long-Lived Assets” for more
information.
General and
administrative. Total general and administrative expenses
decreased by 3.4% to $12.3 million for the year ended December 31, 2008 from
$12.8 million for the year ended December 31, 2007. The decrease in
general and administrative expenses was primarily attributable to decreases in
payroll-related expenses. Such decrease also resulted in the decrease
of overall general and administrative expenses from 6.9% of revenue during the
year ended December 31, 2007 to 5.9% of revenue during the year ended December
31, 2008.
The
following table sets forth items below operating income (loss) in our condensed
consolidated statement of operations and as a percentage of revenue for the
years ended December 31, 2008 and 2007 (dollars in thousands):
Years
Ended December 31,
|
||||||||||||||||
2008
|
2007
|
|||||||||||||||
Operating
income (loss)
|
$
|
(15,331
|
)
|
(7.4
|
)%
|
$
|
26,085
|
14.1
|
%
|
|||||||
Interest
expense, net
|
(18,560
|
)
|
(8.9
|
)
|
(16,765
|
)
|
(9.0
|
)
|
||||||||
Impact
of interest rate swap
|
(7,547
|
)
|
(3.6
|
)
|
(4,442
|
)
|
(2.4
|
)
|
||||||||
Other
income (expense), net
|
(62
|
)
|
—
|
387
|
0.2
|
|||||||||||
Income
tax (provision) benefit
|
13,737
|
6.6
|
(2,343
|
)
|
(1.3
|
)
|
||||||||||
Accrued
payment-in-kind dividend on preferred stock
|
(4,076
|
)
|
(2.0
|
)
|
(3,876
|
)
|
(2.1
|
)
|
||||||||
Net
loss available to common stockholders
|
$
|
(31,839
|
)
|
(15.3
|
)%
|
$
|
(954
|
)
|
(0.5
|
)%
|
Interest expense,
net. Interest expense, net for the year ended December 31,
2008 increased $1.8 million, or 10.7%, to $18.6 million from $16.8 million for
the year ended December 31, 2007. The increase was mainly caused by
higher debt balances due to borrowings to finance acquisitions. The
increase was also attributed to a $0.7 million decrease in interest income and a
$0.4 million amortization of remaining debt discount associated with the early
repayment of Environmental Facilities Revenue Bonds.
Impact of interest rate
swap. The impact of interest rate swap for the year ended
December 31, 2008 was attributable to a $3.2 million loss related to the
realized portion of the interest rate swap we entered into in July 2006 and a
$4.3 million loss related to the unrealized portion in the mark to market of the
swap. The impact of interest rate swap for the year ended December
31, 2007 consisted of a $0.5 million loss related to the realized portion of the
interest rate swap and a $3.9 million loss related to the unrealized portion in
the mark to market of the swap. At the time we entered into the swap,
we had no floating rate debt and therefore no floating rate interest payments
were anticipated. As a result, the swap transaction was not
designated as a hedging transaction and any changes in the unrealized fair value
of the swap will be recognized in the statement of operations. Please
read note 1(p) to the financial statements included in Item 8 and “Quantitative
and Qualitative Disclosures About Market Risk” elsewhere in this report for more
information.
Income tax (provision)
benefit. Income tax (provision)
benefit for the year ended December 31, 2008 as a percentage of pre-tax income
(loss) was 33.1% as compared to 44.5% for the year ended December 31,
2007. The decrease in our annual effective tax rate is attributable
to the decrease in our pre-tax financial reporting income (loss) for the year
ended December 31, 2008 as compared to that for the year ended December 31,
2007. The impairment of goodwill (discussed above) resulted in an
income tax benefit of $14.7 million, reducing income tax expense for the year
ended December 31, 2008.
Accrued payment-in-kind dividend on
preferred stock. The $4.1 million and $3.9 million in accrued
PIK dividend on preferred stock relates to the accretion of the 5% PIK dividend
on our Series A Convertible Preferred Stock during the years ended December 31,
2008 and 2007, respectively. Please read “—Liquidity and Capital
Resources—Preferred Stock.”
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. Any acquisitions that we make will also
require significant capital. We plan to meet our future capital needs
primarily through cash on hand, cash flow from operations and borrowing capacity
under our credit facility. Additionally, our acquisitions may use
seller notes, equity issuances and debt financings. The availability
and level of our financing sources cannot be assured, particularly in light of
the current market conditions. Recent disruptions in the credit
markets have resulted in greater volatility, less liquidity, widening of credit
spreads and more limited availability of financing. In addition, the
availability under our credit facility is limited by compliance with certain
covenants and ratios. Our inability to obtain funding necessary for
our business on acceptable terms would have a material adverse impact on
us.
To
address potential credit and liquidity issues, we consider several items.
In spite of decreased volume at many of our locations as a result of current
economic conditions, our adjusted EBITDA remained steady ($51.5 million for the
year ended December 31, 2009 as compared to $53.8 million for the same period in
2008). Our customer base is broad and diverse with no single customer
making up any significant portion of our business. We are not dependent on
individual vendors to meet the needs of our operations. Furthermore, we
had approximately $95.0 million in available capacity under our current
revolving credit agreement as of December 31, 2009 subject to customary covenant
compliance.
The
revolving credit facility is in effect until July 5, 2011. We routinely
evaluate the financial stability of the syndicate banks making up the credit
facility. For further information about credit risks, please see
“Risk Factors and Cautionary Statement About Forward-Looking Statements” in this
report.
A portion
of our capital additions is discretionary, giving us the ability to modify the
timing of such expenditures to preserve cash if appropriate in the
future. We have evaluated our insurance carriers and bond providers
and have not seen any indication that such providers would be unable to continue
to meet their obligations to us or provide coverage to us in the
future.
As of
December 31, 2009, we had total outstanding long-term debt of approximately
$220.0 million, consisting of $150 million of senior notes, $67.5 million
outstanding under our credit facilities, and approximately $2.5 million of
various seller notes. This represented an increase of $19.7 million
over our total debt outstanding as of December 31, 2008. The increase
in outstanding debt since December 31, 2008 was primarily due to $18.9 million
in additional borrowings under the credit facility to finance the Live Earth
acquisition, the addition of a $0.9 million seller note, partially offset by the
repayment of a $0.1 million seller note and repayments of equipment
notes. As of December 31, 2009, we had $67.5 million outstanding
under the revolving credit facility and approximately $12.5 million in letters
of credit that serve as collateral for insurance claims and bonding, leaving
$95.0 million in available capacity under the facility. With $4.3
million cash on hand at December 31, 2009, our total capacity was approximately
$99.3 million.
9.25% Senior Notes Due
2014
On July
5, 2006, we issued $150 million aggregate principal amount of 9.25% senior notes
due 2014. The senior notes pay interest semi-annually on June 15 and
December 15, commencing December 15, 2006 with the following redemption
provisions:
·
|
Prior
to June 15, 2010, we may redeem all or part of the notes by paying a
make-whole premium, plus accrued and unpaid interest;
and
|
·
|
The
notes may be callable beginning on June 15, 2010, 2011, and 2012 and
thereafter at redemption prices of 104.625%, 102.313% and 100% of the
principal amount plus accrued
interest.
|
The
senior notes are senior unsecured obligations and rank equally with our existing
and future senior unsecured indebtedness and senior to any of our existing and
future subordinated indebtedness. The senior notes will be
effectively subordinated to any existing or future secured indebtedness, to the
extent of the assets securing such indebtedness. The senior notes are
guaranteed by all of our subsidiaries. The guarantees are senior
unsecured obligations of the guarantors. The guarantees rank equally
with all existing and future senior unsecured indebtedness of the guarantors and
senior to any existing and future subordinated indebtedness of the
guarantors. The guarantees are effectively subordinated to any
existing or future secured indebtedness of the guarantors to the extent of the
assets securing such indebtedness.
The
senior notes were issued under an indenture between WCA Waste and The Bank of
New York Trust Company, N.A., as Trustee. The indenture contains
covenants that, among other things, limits our ability to incur additional
indebtedness, make capital expenditures, create liens, sell assets and make
dividend and other payments. In addition, the indenture includes
financial covenants including a covenant allowing us to incur indebtedness or
issue disqualified stock or preferred stock only if the Fixed Charge Coverage
Ratio (as defined in the indenture) for the four full fiscal quarters most
recently ended prior to issuance would have been at least 2.0 to 1, determined
on a pro forma basis, as if the additional indebtedness had been incurred or the
disqualified stock or preferred stock had been issued at the beginning of such
four-quarter period. The defined terms are set forth in the
indenture. As of December 31, 2009, we were in compliance with all
covenants under the senior notes indenture.
Bank Credit Facility
Additionally,
on July 5, 2006, we entered into a $100 million revolving secured credit
facility with Comerica Bank maturing July 5, 2011 (as amended, the “Credit
Agreement”). On July 28, 2006, Comerica syndicated the credit
facility to a group of banks and we agreed to increase the capacity of the
revolving credit facility to $175 million. The credit commitment
available under the credit facility includes sub-facilities for standby letters
of credit in the aggregate principal amount of up to $50.0 million and a
swing-line feature for up to $10.0 million for same day advances. The
credit facility includes covenants related to interest margins associated with
various leverage ratios. These interest margins were amended in
October 2008 and again on February 19, 2009. Applicable fees and
margins are determined based on our leverage ratio for the trailing 12-month
reporting period on each quarterly reporting date. The following
table highlights the revised margins included in the October 2008 (Commitment
Fee) and February 2009 (LIBOR Margin and Prime Margin) amendments:
LIBOR
|
Prime
|
Commitment
|
|||||
Leverage
Ratio
|
Margin
|
Margin
|
Fee
|
||||
Less
than 3.0x
|
2.500
|
2.250
|
0.500
|
||||
Equal
to or greater than 3.0 and less than 3.5x
|
2.750
|
2.500
|
0.500
|
||||
Equal
to or greater than 3.5 and less than 4.0x
|
3.000
|
2.750
|
0.500
|
||||
Equal
to or greater than 4.0 and less than 4.5x
|
3.250
|
3.000
|
0.750
|
||||
Equal
to or greater than 4.5x
|
3.500
|
3.250
|
1.000
|
Our
obligations under the credit facility are secured by the capital stock of our
subsidiaries and all tangible (including real estate) and intangible assets
belonging to us and our subsidiaries. The obligations are also
guaranteed by substantially all of our operating
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 Agreement), nonpayment, breaches of representations,
warranties and covenants (subject to cure periods 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.
Our
credit facility is subject to various financial and other covenants including,
but not limited to, limitations on debt, consolidations, mergers, and sales of
assets. The credit facility also contains financial covenants
requiring us to limit leverage (both in terms of senior secured debt and total
leverage), maintain specified debt service ratios, limit capital expenditures,
and maintain a minimum tangible net worth. Each of the financial
covenants incorporates specially defined terms that would not correspond to GAAP
or Non-GAAP measures disclosed in this report and that in
certain instances are based on determinations and information not derived from
or included in our financial statements. The financial covenants
include the following:
·
|
our
maximum “Leverage Ratio” (as defined in the Credit Agreement) for the
trailing 12-month reporting period on each quarterly reporting date is
4.75 to 1.00;
|
·
|
we
maintain a Pro Forma Adjusted EBITDA Debt Service Ratio (as defined in the
Credit Agreement) for the trailing 12-month period of not less than 2.25
to 1.00 until maturity;
|
·
|
our
maximum Senior Secured Funded Debt Leverage Ratio (as defined in the
Credit Agreement) is 2.50 to 1.00;
|
·
|
we
cannot make any Maintenance Capital Expenditures (as defined in the Credit
Agreement) exceeding 15% of our consolidated total revenue as calculated
at the end of a fiscal year; and
|
·
|
we
maintain minimum Tangible Net Worth (as defined in the Credit Agreement)
of not less than $30.0 million as of December 31, 2008, plus, as of the
end of each fiscal quarter thereafter, 50% of our after-tax consolidated
net income (but excluding any quarterly losses), plus 100% of
any increase in our net worth resulting from the net cash proceeds of any
future equity offerings;
|
In
February 2010, the definitions of “Pro Forma Adjusted EBITDA” and
“Pro Forma Adjusted EBITDA Debt Service Ratio” were amended and “Consolidated
Net Interest Expense” was added as a further defined term to the Credit
Agreement (the “Amendment”). The purpose of such definitional
modifications and addition are as follows:
·
|
to
exclude cash and non-cash income or expense attributable to any interest
rate hedging agreement, now existing or which we enter into in the future,
from the determination of our compliance with the Leverage Ratio under the
terms of the Credit Agreement; and
|
·
|
to
include cash income or expense (but not non-cash items) attributable to
any interest rate hedging agreement that we enter into in the future from
the determination of our compliance with the Pro Form Adjusted EBITDA Debt
Service Ratio under the terms of the Credit
Agreement.
|
The
Amendment also provides that the applicable margin and fee schedule from the
date of the Amendment until June 30, 2010, shall be at Level IV, unless our
Leverage Ratio is greater than 4.50:1.00 in which case the applicable margin
will be set at Level V, which applicable margins and fees are as
follows:
Base
Rate
|
LIBOR
|
Letter
of
|
|||||
Applicable
Margin
|
Loan
|
Loan
|
Credit
Fees
|
||||
Level
IV applicable margin
|
3.00
|
3.25
|
3.25
|
||||
Level
V applicable margin
|
3.25
|
3.50
|
3.50
|
As of
December 31, 2009, we were in compliance with all covenants under the credit
facility.
Preferred
Stock
On June
12, 2006, we entered into a privately negotiated Preferred Stock Purchase
Agreement with Ares Corporate Opportunities Fund II L.P., which provided for us
to issue and sell 750,000 shares of Series A Convertible Preferred Stock, par
value $0.01 per share, to Ares. The purchase price per preferred share was
$100.00, for an aggregate purchase price of $75 million. The
preferred stock is convertible into our common stock, par value $0.01 per share,
at a price of $9.60 per share and carries a 5% PIK dividend payable
semi-annually. The closing of the sale and issuance of the full amount of
preferred shares pursuant to the purchase agreement was completed on July 27,
2006. The original issuance date for the preferred stock is the
commitment date for both the preferred stock and the initial five years’ worth
of dividends as the payment of the dividends through in-kind payments is
non-discretionary for that initial five-year period. Based on the
fair value of our underlying common stock on the issuance date and the stated
conversion date, there is no beneficial conversion feature associated with the
issuance of the preferred stock.
The
preferred shares are immediately convertible at Ares’ discretion into 9,330,246
shares of our common stock, which would represent approximately 31.6% of our
outstanding common stock on a post-conversion basis as of March 1,
2010. Dividends are solely PIK through July 2011 — that is, they are
payable solely by adding the amount of dividends to the stated value of each
share. After July 2011, the preferred shares would be convertible
into approximately 10,000,661 shares of common stock, which, based on the
currently outstanding shares, would represent approximately 33.1% of the
post-conversion shares outstanding. If the preferred shares are not
converted after five years, we have the option to PIK or pay a cash dividend at
the rate of 5% per annum. The preferred shares have no stated
maturity.
Other
material terms of the preferred stock are as follows:
·
|
all
dividends that would otherwise be payable through the fifth anniversary of
issuance shall automatically be accelerated and paid in kind immediately
prior to the occurrence of any of the following acceleration
events:
|
·
|
liquidation;
|
·
|
bankruptcy;
|
·
|
closing
of a public offering of common stock pursuant to an effective registration
statement (except for Form S-4, solely for sales by third parties, or
pursuant to Ares’ own registration rights
agreement);
|
·
|
the
average of the closing price of our common stock for each of 20
consecutive trading days exceeds $14.40 per share;
and
|
·
|
upon
a “fundamental transaction,” including a “group” (defined in the
Securities Exchange Act of 1934, as amended) acquiring more than 35% of
outstanding voting rights; replacement of more than one-half of the
directors without approval of the existing board of directors; a merger,
consolidation, sale of substantially all assets, going-private
transaction, tender offer, reclassification, or other transaction that
results in the transfer of a majority of voting
rights;
|
·
|
Ares
can convert the preferred stock into common stock at any time at a
conversion price of $9.60 per share, with conversion being calculated by
taking the stated value (initially $100.00 per share) plus any amount
added to stated value by way of dividends, then dividing by $9.60 to
produce the number of shares of common stock
issuable;
|
·
|
we
can force a conversion into common stock following either (i) the average
of the closing price of our common stock for each of 20 consecutive
trading days exceeding $14.40 per share or (ii) a fundamental transaction
that Ares does not treat as a
liquidation;
|
·
|
after
the fifth anniversary of issuance, we can redeem for cash equal to the
liquidation preference;
|
·
|
after
the fifth anniversary of issuance, we can pay dividend in cash at our
discretion;
|
·
|
upon
our liquidation, prior to any holder of common stock or other junior
securities, Ares shall receive in cash the greater of (i) the stated value
plus any amount added by way of dividends (accelerated to include a full
five years) or (ii) the amount it would receive if all shares of preferred
stock were converted into common stock (calculated to include dividends
accelerated to include a full five
years);
|
·
|
Ares
can elect to treat any fundamental transaction as a liquidation event,
which will entitle Ares to their liquidation
preferences. Following such election, in the event that we
elect to make any payment such as a dividend or stock repurchase payment
to a common shareholder, we will be required to repay Ares the full amount
of the liquidation preference associated with the preferred
stock. However, if securities of another company are issued as
consideration in a fundamental transaction, we have the option of
requiring Ares to accept such common shares to satisfy the liquidation
preference if shares are then quoted on the Nasdaq Global Market or listed
on the New York Stock Exchange. The value of such shares is
determined at 98% of the closing price on the trading day preceding the
transaction and the shares are freely transferable without legal or
contractual restrictions;
|
·
|
the
preferred stock voting as a separate class elects (i) two directors to our
board of directors for so long as Ares continues to hold preferred stock
representing at least 20% of our “post-conversion equity” (outstanding
common stock assuming conversions into common shares of all securities,
including the preferred stock and assuming preferred stock dividends
accelerated to include a full five years), (ii) one director for so long
as it continues to hold at least 10% of post-conversion equity, and (iii)
no directors below 10%;
|
·
|
the
preferred stock voting as a separate class must approve (i) any alteration
in its powers, preferences or rights, or in the certificate of
designation, (ii) creation of any class of stock senior or pari passu with
it, (iii) any increase in the authorized shares of preferred stock, and
(iv) any dividends or distribution to common stock or any junior
securities, except for pro rata dividends on common stock paid in common
stock. These protective rights terminate on the first date on which there
are outstanding less than 20% of the number of shares of preferred stock
outstanding on the date the preferred stock was first issued;
and
|
·
|
except
for the election of directors and special approvals described above, the
preferred stock votes on all matters and with the common stock on an
as-converted basis.
|
In
connection with the issuance and sale of the preferred shares, we also entered
into other agreements as contemplated by the purchase agreement, including a
stockholder’s agreement, a registration rights agreement, and a management
rights letter. The purchase agreement, the stockholder’s agreement,
the registration rights agreement, the management rights letter and the
certificate of designation pursuant to which the preferred shares were created,
are described in our current report on Form 8-K filed on June 16,
2006.
Contractual
Obligations
As of
December 31, 2009, we had the following contractual obligations (in
thousands). For the year ended December 31, 2009, our cash paid for
interest expense was $16.9 million. Please read note 7 to our
consolidated financial statements for balances and terms of our credit facility
at December 31, 2009.
Payments
Due By Period
|
||||||||||||||||||||
Contractual
Obligations
|
Total
|
Less
Than 1 Year
|
1-3
Years
|
3-5
Years
|
More
Than 5 Years
|
|||||||||||||||
Long-term
debt principal amount outstanding (1)
|
$
|
220,075
|
$
|
500
|
$
|
69,575
|
$
|
150,000
|
$
|
—
|
||||||||||
Closure
and post-closure costs (2)
|
185,374
|
—
|
1,801
|
2,571
|
181,002
|
|||||||||||||||
Operating
leases
|
4,803
|
1,077
|
1,604
|
685
|
1,437
|
|||||||||||||||
Note
payable
|
1,231
|
1,231
|
—
|
—
|
—
|
|||||||||||||||
Estimated
interest payments on long-term debt (3)
|
65,468
|
16,204
|
29,030
|
20,234
|
—
|
|||||||||||||||
Estimated
interest payments on note payable
|
28
|
28
|
—
|
—
|
—
|
|||||||||||||||
Estimated
payments on interest rate swap (4)
|
6,827
|
6,827
|
—
|
—
|
—
|
|||||||||||||||
Total
|
$
|
483,806
|
$
|
25,867
|
$
|
102,010
|
$
|
173,490
|
$
|
182,439
|
(1)
|
The
long-term debt principal amount outstanding includes a seller note valued
at $0.9 million with two future payments of $0.5 million due on January
15, 2010 and 2011, respectively.
|
(2)
|
The
closure and post-closure costs amounts included reflect the amounts
recorded in our consolidated balance sheet as of December 31, 2009,
without the impact of discounting and inflation. We believe the
amount and timing of these activities are reasonably
estimable. The cost in current dollars is inflated (2.5% at
December 31, 2009) until the expected time of payment, and then discounted
to present value (8.5% at December 31, 2009). Accretion expense
is then applied to the closure and post-closure liability based on the
effective interest method and is included in cost of
services. Our recorded closure and post-closure liabilities
will increase as we continue to place additional volumes within the
permitted airspace at our
landfills.
|
(3)
|
Estimated
interest payments on fixed-rate debt including our senior notes are
computed by using the fixed rates of interest on the balances of the debt
according to the principal repayment schedule. Estimated
interest payments on debt with variable rates such as our credit facility
are computed by using the applicable LIBOR rate plus interest margin and
the balance of the debt as of the reporting
date.
|
(4)
|
Estimated
payments on interest rate swap are computed by using the notional amount
of $150 million on the swap and the interest rate spread between 5.64% and
three-month floating rate LIBOR as of the reporting
date.
|
Other
Commitments
As of
December 31, 2009, we had the following other commitments (in
thousands):
Commitment
Expiration By Period
|
||||||||||||||||||||
Other
Commitments
|
Total
|
Less
Than 1 Year
|
1-3
Years
|
3-5
Years
|
More
Than 5 Years
|
|||||||||||||||
Financial
surety bonds (1)
|
$
|
76,519
|
$
|
76,519
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||||
Standby
letters of credit (2)
|
12,491
|
12,491
|
—
|
—
|
—
|
|||||||||||||||
Total
|
$
|
89,010
|
$
|
89,010
|
$
|
—
|
$
|
—
|
$
|
—
|
(1)
|
We
use financial surety bonds for landfill closure and post-closure financial
assurance required under certain environmental regulations and may use
other mechanisms including insurance, letters of credit and restricted
cash deposits. These surety bonds are renewed on an annual
basis. Our commitments for financial surety bonds are not
recorded in our financial statements. Our surety bonds relate
to closure and post-closure obligations relating to our landfills and
would not create debt unless and until we closed such landfills and were
unable to satisfy closure and post-closure
obligations.
|
(2)
|
We
provide standby letters of credit to the surety bond underwriters as
discussed in note (1) above. As of December 31, 2009, $4.7
million had been provided to the surety bond underwriters. We
also provide standby letters of credit and restricted cash deposits to our
insurance underwriters for the self insured portion of outstanding
claims. As of December 31, 2009, we had provided $7.8 million
in standby letters of credit. All of these standby letters of
credit are renewed on an annual basis. Our commitments for
standby letters of credit are not recorded in our financial
statements. The standby letters of credit relate to the portion
of claims covered by insurance policies as to which we had retained
responsibility and would not create debt unless we were unable to satisfy
such claims from our operating income. However, we currently
satisfy such claims from our cash flows from
operations.
|
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.
We accrue
claims related to our self-insurance programs based on claims filed, estimated
open claims and claims incurred but not reported based on actuarial-based loss
development factors. As of December 31, 2009, we had accrued
approximately $2.3 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, 2009, 2008 and 2007 (in thousands):
Years
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Cash
and cash equivalents at the end of the period
|
$
|
4,329
|
$
|
955
|
$
|
1,138
|
||||||
Net
cash provided by operating activities
|
$
|
31,747
|
$
|
34,294
|
$
|
39,606
|
||||||
Net
cash used in investing activities
|
$
|
(46,868
|
)
|
$
|
(30,943
|
)
|
$
|
(121,013
|
)
|
|||
Net
cash provided by (used in) financing activities
|
$
|
18,495
|
$
|
(3,534
|
)
|
$
|
30,338
|
Net cash
provided by operating activities for the years ended December 31, 2009, 2008 and
2007 was $31.7 million, $34.3 million and $39.6 million,
respectively. The changes in cash flows from operating activities are
primarily due to the changes in net income (loss), deferred taxes and the
components of working capital from year to year as well as the impairment of
goodwill in 2008. Other items impacting operating cash flows include
depreciation and amortization, stock-based compensation, unrealized gain or loss
on interest rate swap as well as prepaid disposal usage in 2007, all of which
were non-cash expenses.
Net cash
used in investing activities consists primarily of cash used for capital
expenditures and the acquisition of businesses. Cash used for capital
expenditures, including acquisitions, was $47.2 million, $37.9 million and
$121.3 million for the years ended December 31, 2009, 2008 and 2007,
respectively. The fluctuation is mainly caused by acquisitions over
the years. We spent substantially more on acquisitions in
2007. In 2008, we reduced our acquisition activity in response to
weakening market conditions. Cash spent on acquisitions increased in
2009 as we completed our largest acquisition to date on December 31,
2009. On the other hand, capital expenditures related to our existing
operations remained steady in 2007 and 2008. Such capital
expenditures reduced in 2009 in anticipation of weaker markets and revenue
decreases.
Net cash
provided by (used in) financing activities during the years ended December 31,
2009, 2008 and 2007 was $18.5 million, $(3.5) million and $30.3 million,
respectively. Net cash provided by (used in) financing activities
during the years ended December 31, 2009, 2008 and 2007 mainly includes a
combination of borrowings under our revolving credit facilities, repayments of
debt, payments under the common stock repurchase program which was terminated on
December 18, 2008, changes in restricted cash, and financing costs associated
with our credit facilities.
Critical
Accounting Estimates and Assumptions
We make
several estimates and assumptions during the course of preparing our financial
statements. Since some of the information that we must present
depends on future events, it cannot be readily computed based on generally
accepted methodologies, or may not be appropriately calculated from available
data. Some estimates require us to exercise substantial judgment in
making complex estimates and assumptions and, therefore, have the greatest
degree of uncertainty. This is especially true with respect to
estimates made in accounting for landfills, environmental remediation
liabilities and asset impairments. We describe the process of making
such estimates and other significant accounting policies in notes 1 and 2 to our
consolidated financial statements.
Landfill
Accounting
Capitalized
Landfill Costs
At
December 31, 2009, we owned 25 landfills. Two of these landfills are
fully permitted but not constructed and had not commenced operations as of
December 31, 2009.
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, 2009, no capitalized interest
was 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 prepare 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/or
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;
|
·
|
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, 2009, we have included 135 million cubic yards of expansion
airspace with estimated development costs of approximately $96.5 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
depending on type and location.
Standards
related to accounting for obligations associated with the retirement of
long-lived assets and the associated asset retirement costs require that we
record closure and post-closure obligations 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 2009, 2008 and
2007:
2009
|
2008
|
2007
|
||||||||||
Number
of landfills owned
|
25
|
24
|
24
|
|||||||||
Landfill
depletion and amortization expense (in thousands)
|
$
|
9,680
|
$
|
11,058
|
$
|
10,483
|
||||||
Accretion
expense (in thousands)
|
628
|
558
|
483
|
|||||||||
Closure
and post-closure cost (in thousands)
|
—
|
—
|
513
|
|||||||||
$
|
10,308
|
$
|
11,616
|
11,479
|
||||||||
Airspace
consumed (in thousands of cubic yards)
|
4,933
|
5,730
|
5,456
|
|||||||||
Depletion,
amortization, accretion, closure and post-closure costs per cubic yard of
airspace consumed
|
$
|
2.09
|
$
|
2.03
|
$
|
2.10
|
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,
Intangible Assets and Other Long-Lived Assets
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. Intangible assets
with estimable useful lives are amortized over their respective estimated useful
lives to their residual values, and reviewed for impairment. Other
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.
We assess
potential impairment of our goodwill, intangible assets and other long-lived
assets annually on October 31 and more frequently if there is evidence that
recent events or changes in circumstances have made recovery of an asset’s
carrying less likely. If indicators of impairment were present for
intangible assets used in operations and future undiscounted cash flows were not
expected to be sufficient to recover the asset’s carrying amount, an impairment
loss would be charged to expense in the period identified. The amount
of an impairment loss would be recognized as the excess of the asset’s carrying
value over its fair value. Factors we consider important, that may
cause impairment include: significant changes in the manner of use of the
acquired asset, negative industry or economic trends, and significant
underperformance relative to historical or projected operating
results.
Under the
guidance of ASC Topic 350, the first step for the goodwill impairment test
requires us to estimate the fair value of each reporting unit and to compare the
fair value to the reporting unit’s carrying value. We estimated the
fair value of our reporting units using a discounted cash flow
approach. The key assumptions we used in preparing our discounted
cash flow analysis were (1) projected cash flows, (2) expected long-term growth
rate, and (3) discount rate. We based our projected cash flows on
budgeted operating results for 2010. For 2011 and future periods, we
assumed a growth rate of 2.5% based on the 20-year inflation rate as published
by the Federal Reserve. We used an average discount rate of 9.9%,
which represented our weighted average cost of capital and was evaluated by
independent third parties for reasonableness. Our reporting units
carry the majority of assets and liabilities related to their operations on
their respective balance sheets, except for obligations associated with debt,
self-insurance and deferred tax liabilities, as well as assets such as cash and
deferred tax assets, which are primarily recorded on Corporate’s balance
sheet. To determine the carrying value of each reporting unit at the
measurement date, we allocated assets and liabilities accounted for within
Corporate’s balance sheet to each of the reporting units based on the size of
their respective operations. The Corporate assets and liabilities
relate to the operations of each of the reporting units, therefore, management
believe they should be allocated to each of the reporting units to determine the
appropriate fair values for each of the reporting units. If the fair
value of the reporting unit exceeds the carrying value of the net assets
assigned to that unit, then goodwill is not impaired and no further testing is
required. If the carrying value of the net assets assigned to the
reporting unit were to exceed its fair value, then the second step is performed
in order to determine the implied fair value of the reporting unit’s goodwill
and an impairment loss is recorded for an amount equal to the difference between
the implied fair value and the carrying value of the goodwill.
In our
discounted cash flow analysis in 2009, the estimated fair value for each of our
reporting units exceeded their respective carrying
value. Accordingly, there was no indication of
impairment. During the goodwill impairment test in 2008, we made an
impairment adjustment of $41.7 million as the fair market value was less than
the book value in the following reporting units: Florida, North Carolina,
Oklahoma and Tennessee.
As a test
of the reasonableness of the estimated fair values for our reporting units, we
compared the fair value of our reporting units under the discounted cash flow
approach less outstanding debt (implied fair value of equity) to our market
capitalization as of the measurement date. We compared the implied
fair value of our equity to our market capitalization noting that the implied
fair value of equity exceeded the market capitalization. We
considered the excess amount of implied fair value over market capitalization to
be a control premium. A control premium represents the ability of an
acquirer to control the operations of the business. The control
premium determined as of the measurement date appeared reasonable as it is
consistent with historical control premium levels observed in acquisitions of
controlling interests in publicly-traded companies. We will continue
to monitor our market capitalization and expectations of future cash flows and
will perform additional interim impairment testing if deemed
necessary.
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 accrue the fair value of the payment of contingent
purchase price, which takes into consideration the probability of the
events surrounding the contingency.
|
·
|
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.
|
Recent
Accounting Pronouncements
In
June 2009, the FASB issued the FASB Accounting Standards Codification (the
Codification or ASC) as the single source of authoritative U.S. generally
accepted accounting principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. The Codification does not change current
GAAP, but is intended to simplify user access to all authoritative GAAP by
providing all the authoritative literature related to a particular topic in one
place. The Codification is effective for interim and annual periods
ending after September 15, 2009 and supersedes all existing non-SEC
accounting and reporting standards. As a result, this report on Form
10-K and all subsequent public filings will reference the Codification as the
sole source of authoritative literature.
In June
2009, the FASB issued a pronouncement which enhances information reported to
users of financial statements by providing greater transparency about transfers
of financial assets and an entity’s continuing involvement in transferred
financial assets. This pronouncement is effective for fiscal years
beginning after November 15, 2009 and earlier adoption is
prohibited. The adoption of this pronouncement is not expected to
have any impact on our financial condition, results of operations or cash
flows.
In
June 2009, the FASB issued a pronouncement regarding certain guidance for
determining whether an entity is a variable interest entity and modifies the
methods allowed for determining the primary beneficiary of a variable interest
entity in order to improve financial reporting by companies involved with
variable interest entities and to provide more relevant and reliable information
to users of financial statements. This pronouncement is effective for
fiscal years beginning after November 15, 2009 and earlier adoption is
prohibited. The adoption of this pronouncement is not expected to
have any impact on our financial condition, results of operations or cash
flows.
In August
2009, the FASB issued Accounting Standards Update 2009-05 (ASU 2009-05), “Fair
Value Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair
Value.” This update provides clarification for the fair value
measurement of liabilities in circumstances in which a quoted price in an active
market for an identical liability is not available. ASU 2009-05 is
effective for the Company on October 1, 2009. The adoption of this
standard is not expected to have a material impact on our financial condition,
results of operations or cash flows.
In
October 2009, the FASB issued ASU 2009-13 (ASU 2009-13), “Revenue Recognition
(Topic 605): Multiple-Deliverable Revenue Arrangements—a consensus of the FASB
Emerging Issues Task Force.” This update amends the criteria for
revenue recognition of multi-deliverable arrangements and expands the required
disclosures of those arrangements. ASU 2009-13 is effective for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. We are currently evaluating
the impact of ASU 2009-13 on our financial position, results of operations or
cash flows.
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,” “should,” “outlook,” “project,” “intend,” “seek,” “plan,” “believe,”
“anticipate,” “expect,” “estimate,” “potential,” “continue,” or “opportunity,”
the negatives of these words, or similar words or
expressions. Similarly, statements that describe our future plans,
objectives or goals are also forward-looking statements. This is true
of our description of our acquisitions 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.
Our
business is 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:
·
|
current
U.S. economic conditions and the related decline in construction activity,
as well as any future downturns, has reduced and may continue to reduce
our volume and/or pricing on our services, resulting in decreases in our
revenue, profitability and cash
flows;
|
·
|
increases
in the costs of fuel could reduce our operating
margins;
|
·
|
changes
in interest rates may affect our
profitability;
|
·
|
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;
|
·
|
we
are subject to environmental and safety laws, which restrict our
operations and increase our costs;
|
·
|
we
may become subject to environmental clean-up costs or litigation that
could curtail our business operations and materially 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
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;
|
·
|
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;
|
·
|
increases
in the costs of disposal, labor and insurance could reduce our operating
margins;
|
·
|
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;
|
·
|
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;
|
·
|
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 revenue 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;
|
·
|
efforts
by labor unions to organize our employees could divert management
attention and increase our operating
expenses;
|
·
|
current
and proposed laws may restrict our ability to operate across local borders
which could affect our manner, cost and feasibility of doing
business;
|
·
|
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
are vulnerable to factors affecting our local markets, which could
adversely affect our stock price relative to our competitors;
and
|
·
|
seasonal
fluctuations will cause our business and results of operations to vary
among quarters, which could adversely affect our stock
price.
|
Our
future financial performance may also depend on our ability to pursue
acquisitions, which will be subject to many risks and uncertainties including,
but not limited to, the following:
·
|
on
December 31, 2009, we consummated the acquisition of the Live Earth
Companies with cash and the issuance of our common stock. The
acquisition of the Live Earth Companies is subject to various
risks;
|
·
|
we
may be unable to identify, complete or integrate future acquisitions,
which may harm our prospects;
|
·
|
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;
|
·
|
in
connection with financing acquisitions, we may incur additional
indebtedness, or may issue additional equity including common stock or
preferred stock which would dilute the ownership percentage of existing
stockholders;
|
·
|
businesses
that we acquire may have unknown liabilities and require unforeseen
capital expenditures, 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;
|
·
|
our
acquisitions have resulted and future acquisitions we make may continue to
result in significant goodwill and other intangible assets, which may need
to be written down if performance is not as expected;
and
|
·
|
we
may incur charges and other unforeseen expenses related to acquisitions,
which could lower our earnings.
|
Our
business and the performance of our stock price are subject to risks related to
our management, governance and capital structure. They include, but
are not limited to, the following:
·
|
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;
|
·
|
a
controlling interest in our voting stock is held by one fund and a small
number of individuals (including management), which when combined with
various agreements and rights of the fund, may discourage a change of
control transaction and may exert control over our strategic
direction;
|
·
|
provisions
in our amended and restated certificate of incorporation, our amended and
restated bylaws and Delaware law could preclude a change of control that
our stockholders may favor and which could negatively affect our stock
price;
|
·
|
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;
and
|
·
|
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
business is capital intensive and depends on our ability to generate sufficient
cash flow from operations and, from time to time, to access our credit facility
or other capital sources, each of which are subject to various risks and
uncertainties including, but not limited to, the following:
·
|
adverse
capital and credit market conditions may significantly affect our ability
to meet liquidity needs, access to capital and cost of
capital;
|
·
|
the
inability or failure of any syndicate bank to meet its obligations under
our senior credit facility could adversely impact our short-term and/or
long-term capital or cash needs by limiting our access to swing-line
loans, increasing the cost of issuing letters of credit, or reducing the
total capacity available under the revolving credit
facility;
|
·
|
we
have a substantial amount of debt which could adversely affect our
operations and financial performance;
and
|
·
|
the
provisions in our debt instruments impose restrictions on us that may
limit the discretion of management in operating our
business.
|
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.
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 use interest rate swap agreements to manage a
portion of our risks related to interest rates. We entered into a
swap agreement effective July 11, 2006, where we agreed to pay a fixed-rate of
5.64% in exchange for three-month floating rate LIBOR which was 5.51% at the
time the swap was entered. This interest rate swap expires on
November 1, 2010. At December 31, 2009, the related floating rate was
0.25%. The intention of this swap agreement is to limit our exposure
to a rising rate interest environment. For the year ended December
31, 2009, the net difference between the fixed amount we paid and the floating
amount we received was $7.2 million. Considering the rates in effect
at December 31, 2009, the impact of the swap agreement is estimated to result in
a $6.8 million loss related to the realized portion of the interest rate swap
over the next 12 months. At the time we entered into the swap, we had
no floating rate LIBOR debt and therefore no floating rate interest payments
were anticipated. As a result, the swap transaction was not
designated as a hedging transaction. Accordingly, any changes in the
unrealized fair value of the swap are recognized in the statement of
operations. We did not enter into the interest rate swap agreements
for trading purposes.
As of
December 31, 2009 and 2008, we had no debt outstanding that bears interest at
variable or floating rates. With the placement of the swap agreement,
we bear exposure to, and are primarily affected by, changes in LIBOR rates on
$82.5 million. A 100 basis point increase in LIBOR interest rates
would result in swap income of approximately $0.8 million annually while a 100
basis point decrease in interest rates would result in $0.8 million in swap
expense, in addition to any mark-to-market effect on the fair value of the
swap. Please read “Business—Risk Factors—Risks Relating To Our
Business—Changes in interest rates may affect our profitability.” The
table below provides scheduled principal payments and fair value information
about our market-risk sensitive financial instruments as of December 31, 2009
(dollars in thousands):
Expected
Maturity Dates
|
||||||||||||||||||||||||||||
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
Total
|
||||||||||||||||||||||
Debt:
|
||||||||||||||||||||||||||||
Senior
notes
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
150,000
|
$
|
—
|
$
|
150,000
|
||||||||||||||
Average
interest rate (a)
|
||||||||||||||||||||||||||||
Revolving
credit agreement
|
$
|
—
|
$
|
67,500
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
67,500
|
||||||||||||||
Average
interest rate (b)
|
||||||||||||||||||||||||||||
Other
borrowings
|
$
|
500
|
$
|
500
|
$
|
1,575
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
2,575
|
||||||||||||||
Average
interest rate
|
10.0
|
%
|
10.0
|
%
|
5.5
|
%
|
—
|
—
|
—
|
7.25
|
%
|
|||||||||||||||||
Note
payable
|
$
|
1,231
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
1,231
|
||||||||||||||
Average
interest rate
|
5.5
|
%
|
—
|
—
|
—
|
—
|
—
|
5.5
|
%
|
(a)
|
The
interest rate of our senior notes is 9.25% as stipulated by the
indenture.
|
(b)
|
Borrowings
under the revolving credit agreement bear interest at a floating rate, at
our option, of either (i) the base rate loans plus the applicable margin
or (ii) the LIBOR loans plus the applicable margin. The base rate is equal
to the higher of the federal funds rate plus 1/2 of 1% or the prime
rate. The applicable margin is determined based on our leverage
ratio for the trailing 12-month reporting period on each quarterly
reporting date. As of December 31, 2009, the interest rate in
effect for the revolving credit agreement was
3.2%.
|
Our
financial instruments that are potentially sensitive to changes in interest
rates also include our 9.25% senior notes. As of December 31, 2009,
the fair value of these notes, based on quoted market prices, was the same as
the carrying amount of $150 million.
Item 8. Financial Statements and Supplementary
Data.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and
15d-15(f). Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we conducted
an evaluation to assess the effectiveness of our internal control over financial
reporting as of December 31, 2009 based on the framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on this assessment, our
management concluded that our internal control over financial reporting was
effective as of December 31, 2009.
There are
inherent limitations in the effectiveness of any system of internal controls
over financial reporting. Therefore, internal control over financial reporting
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and may not prevent or detect all misstatements.
Further, because of changes in conditions, the effectiveness of internal control
over financial reporting may vary over time.
Management’s
assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2009 has been audited by KPMG LLP, an independent registered
public accounting firm, as stated in their report which is included
herein.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
WCA Waste
Corporation:
We have
audited the accompanying consolidated balance sheets of WCA Waste Corporation
(the Company) as of December 31, 2009 and 2008 and the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the
years in the three-year period ended December 31, 2009. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2009 and 2008 and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2009, in
conformity with U.S. generally accepted accounting principles.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), WCA Waste Corporation’s internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 8,
2010 expressed an unqualified opinion on the effectiveness of internal control
over financial reporting.
/s/ KPMG
LLP
Houston,
Texas
March 8,
2010
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
WCA Waste
Corporation:
We have
audited WCA Waste Corporation’s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). WCA Waste Corporation’s management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, WCA Waste Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of WCA Waste
Corporation as of December 31, 2009 and 2008 and the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the
years in the three-year period ended December 31, 2009 and our report dated
March 8, 2010 expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG
LLP
Houston,
Texas
March 8,
2010
WCA
WASTE CORPORATION
Consolidated
Balance Sheets
(in
thousands, except per share data)
December
31,
|
||||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
4,329
|
$
|
955
|
||||
Accounts
receivable, net of allowance for doubtful accounts of $318 and
$1,173
|
21,767
|
24,956
|
||||||
Deferred
tax assets
|
1,452
|
3,354
|
||||||
Prepaid
expenses and other
|
4,575
|
2,108
|
||||||
Total
current assets
|
32,123
|
31,373
|
||||||
Property
and equipment, net
|
320,724
|
276,483
|
||||||
Goodwill,
net
|
65,318
|
64,580
|
||||||
Intangible
assets, net
|
7,051
|
7,486
|
||||||
Deferred
financing costs, net
|
3,628
|
4,654
|
||||||
Deferred
tax assets
|
2,385
|
2,992
|
||||||
Other
assets
|
145
|
390
|
||||||
Total
assets
|
$
|
431,374
|
$
|
387,958
|
||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
10,013
|
$
|
9,830
|
||||
Accrued
liabilities and other
|
17,290
|
17,275
|
||||||
Interest
rate swap
|
6,489
|
6,379
|
||||||
Note
payable
|
1,231
|
123
|
||||||
Current
maturities of long-term debt
|
500
|
64
|
||||||
Total
current liabilities
|
35,523
|
33,671
|
||||||
Long-term
debt, less current maturities and discount
|
219,516
|
200,295
|
||||||
Interest
rate swap
|
—
|
5,278
|
||||||
Accrued
closure and post-closure liabilities
|
13,993
|
7,398
|
||||||
Other
long-term liabilities
|
1,813
|
1,813
|
||||||
Total
liabilities
|
270,845
|
248,455
|
||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity:
|
||||||||
Series
A convertible preferred stock, $0.01 par value per share. Authorized 8,000
shares; issued and outstanding 870 shares and 828 shares, respectively
(liquidation preference $96,006)
|
9
|
8
|
||||||
Common
stock, $0.01 par value per share. Authorized 50,000 shares; issued 21,121
shares and 17,399 shares
|
211
|
174
|
||||||
Treasury
stock
|
(5,322
|
)
|
(5,322
|
)
|
||||
Additional
paid-in capital
|
193,821
|
172,788
|
||||||
Contingent
considerations
|
3,225
|
—
|
||||||
Retained
earnings (deficit)
|
(31,415
|
)
|
(28,145
|
)
|
||||
Total
stockholders’ equity
|
160,529
|
139,503
|
||||||
Total
liabilities and stockholders’ equity
|
$
|
431,374
|
$
|
387,958
|
WCA
WASTE CORPORATION
Consolidated
Statements of Operations
(in
thousands, except per share data)
Years
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Revenue
|
$
|
194,138
|
$
|
208,009
|
$
|
184,940
|
||||||
Expenses:
|
||||||||||||
Cost
of services
|
130,287
|
142,129
|
121,853
|
|||||||||
Depreciation
and amortization
|
26,357
|
27,151
|
24,234
|
|||||||||
Impairment
of goodwill
|
—
|
41,725
|
—
|
|||||||||
General
and administrative (including stock-based compensation of $1,737, $2,212
and $1,977, respectively)
|
13,496
|
12,335
|
12,768
|
|||||||||
170,140
|
223,340
|
158,855
|
||||||||||
Operating
income (loss)
|
23,998
|
|
(15,331
|
)
|
26,085
|
|||||||
Other
income (expense):
|
||||||||||||
Interest
expense, net
|
(18,052
|
)
|
(18,560
|
)
|
(16,765
|
)
|
||||||
Impact
of interest rate swap
|
(2,063
|
)
|
(7,547
|
)
|
(4,442
|
)
|
||||||
Other
income (expense), net
|
83
|
|
(62
|
)
|
387
|
|||||||
(20,032
|
)
|
(26,169
|
)
|
(20,820
|
)
|
|||||||
Income
(loss) before income taxes
|
3,966
|
|
(41,500
|
)
|
5,265
|
|||||||
Income
tax (provision) benefit
|
(2,958
|
)
|
13,737
|
(2,343
|
)
|
|||||||
Net
income (loss)
|
1,008
|
|
(27,763
|
)
|
2,922
|
|||||||
Accrued
payment-in-kind dividend on preferred stock
|
(4,278
|
)
|
(4,076
|
)
|
(3,876
|
)
|
||||||
Net
loss available to common stockholders
|
$
|
(3,270
|
)
|
$
|
(31,839
|
)
|
$
|
(954
|
)
|
|||
Net
loss available to common stockholders:
|
||||||||||||
Earnings
per share – basic
|
$
|
(0.21
|
)
|
$
|
(1.96
|
)
|
$
|
(0.06
|
)
|
|||
Earnings
per share – diluted
|
$
|
(0.21
|
)
|
$
|
(1.96
|
)
|
$
|
(0.06
|
)
|
|||
Weighted
average shares outstanding — basic
|
15,824
|
16,257
|
16,460
|
|||||||||
Weighted
average shares outstanding — diluted
|
15,824
|
16,257
|
16,460
|
WCA
WASTE CORPORATION
Consolidated
Statements of Stockholders’ Equity
(in
thousands)
Additional
Paid-in
Capital
|
Contingent
Considerations
|
Retained
Earnings (Deficit)
|
Total
Stockholders’
Equity
|
|||||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Treasury
Stock
|
||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||
Balance,
December 31, 2006
|
750
|
$
|
8
|
16,859
|
$
|
169
|
18
|
$
|
(174
|
)
|
$
|
161,316
|
$
|
—
|
$
|
6,460
|
$
|
167,779
|
||||||||||||||||||||||
Cumulative
effect of change in accounting principle (ASC Topic 740)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,812
|
)
|
(1,812
|
)
|
||||||||||||||||||||||||||||
Accrued
payment-in-kind dividend on preferred stock
|
—
|
—
|
—
|
—
|
—
|
—
|
3,876
|
—
|
(3,876
|
)
|
—
|
|||||||||||||||||||||||||||||
Issuance
of preferred stock
|
55
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||
Restricted
shares withheld
|
—
|
—
|
(37
|
)
|
—
|
—
|
—
|
(285
|
)
|
—
|
—
|
(285
|
)
|
|||||||||||||||||||||||||||
Equity
transaction costs
|
—
|
—
|
—
|
—
|
—
|
—
|
(5
|
)
|
—
|
—
|
(5
|
)
|
||||||||||||||||||||||||||||
Issuance
of restricted shares to employees and directors
|
—
|
—
|
261
|
2
|
—
|
—
|
(2
|
)
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
Accretion
of unearned compensation
|
—
|
—
|
—
|
—
|
—
|
—
|
1,765
|
—
|
—
|
1,765
|
||||||||||||||||||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
2,922
|
2,922
|
||||||||||||||||||||||||||||||
Balance,
December 31, 2007
|
805
|
$
|
8
|
17,083
|
$
|
171
|
18
|
$
|
(174
|
)
|
$
|
166,665
|
$
|
—
|
$
|
3,694
|
$
|
170,364
|
||||||||||||||||||||||
Accrued
payment-in-kind dividend on preferred stock
|
—
|
—
|
—
|
—
|
—
|
—
|
4,076
|
—
|
(4,076
|
)
|
—
|
|||||||||||||||||||||||||||||
Issuance
of preferred stock
|
23
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||
Restricted
shares withheld
|
—
|
—
|
(53
|
)
|
(1
|
)
|
—
|
—
|
(345
|
)
|
—
|
—
|
(346
|
)
|
||||||||||||||||||||||||||
Issuance
of restricted shares to employees and directors
|
—
|
—
|
351
|
4
|
—
|
—
|
(4
|
)
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
Accretion
of unearned compensation
|
—
|
—
|
—
|
—
|
—
|
—
|
2,396
|
—
|
—
|
2,396
|
||||||||||||||||||||||||||||||
Common
stock repurchased under repurchase program
|
—
|
—
|
(1,056
|
)
|
—
|
1,056
|
(5,148
|
)
|
—
|
—
|
—
|
(5,148
|
)
|
|||||||||||||||||||||||||||
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(27,763
|
)
|
(27,763
|
)
|
||||||||||||||||||||||||||||
Balance,
December 31, 2008
|
828
|
$
|
8
|
16,325
|
$
|
174
|
1,074
|
$
|
(5,322
|
)
|
$
|
172,788
|
$
|
—
|
$
|
(28,145
|
)
|
$
|
139,503
|
|||||||||||||||||||||
Accrued
payment-in-kind dividend on preferred stock
|
—
|
—
|
—
|
—
|
—
|
—
|
4,278
|
—
|
(4,278
|
)
|
—
|
|||||||||||||||||||||||||||||
Issuance
of preferred stock
|
42
|
1
|
—
|
—
|
—
|
—
|
(1
|
)
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
Issuance
of common shares and earn-out shares grants
|
—
|
—
|
3,555
|
35
|
—
|
—
|
15,253
|
3,225
|
—
|
18,513
|
||||||||||||||||||||||||||||||
Restricted
shares withheld
|
—
|
—
|
(73
|
)
|
(1
|
)
|
—
|
—
|
(174
|
)
|
—
|
—
|
(175
|
)
|
||||||||||||||||||||||||||
Issuance
of restricted shares to employees and directors
|
—
|
—
|
240
|
3
|
—
|
—
|
(3
|
)
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
Accretion
of unearned compensation
|
—
|
—
|
—
|
—
|
—
|
—
|
1,680
|
—
|
—
|
1,680
|
||||||||||||||||||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
1,008
|
1,008
|
||||||||||||||||||||||||||||||
Balance,
December 31, 2009
|
870
|
$
|
9
|
20,047
|
$
|
211
|
1,074
|
$
|
(5,322
|
)
|
$
|
193,821
|
$
|
3,225
|
$
|
(31,415
|
)
|
$
|
160,529
|
WCA
WASTE CORPORATION
Consolidated
Statements of Cash Flows
(in
thousands)
Years
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income (loss)
|
$
|
1,008
|
$
|
(27,763
|
)
|
$
|
2,922
|
|||||
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||||||
Depreciation
and amortization
|
26,357
|
27,151
|
24,234
|
|||||||||
Impairment
of goodwill
|
—
|
41,725
|
—
|
|||||||||
Non-cash
compensation charge
|
1,737
|
2,212
|
1,977
|
|||||||||
Amortization
of deferred financing costs and debt discount
|
1,247
|
1,303
|
897
|
|||||||||
Deferred
tax provision (benefit)
|
2,416
|
(14,339
|
)
|
1,749
|
||||||||
Accretion
expense for closure and post-closure obligations
|
628
|
558
|
483
|
|||||||||
Gain
on sale of assets
|
(86
|
)
|
(178
|
)
|
(387
|
)
|
||||||
Net
loss on early disposition of notes receivable/payable
|
—
|
221
|
—
|
|||||||||
Unrealized
(gain) loss on interest rate swap
|
(5,168
|
)
|
4,316
|
3,948
|
||||||||
Prepaid
disposal usage
|
—
|
—
|
1,037
|
|||||||||
Changes
in assets and liabilities, net of effects of acquisitions:
|
||||||||||||
Accounts
receivable, net
|
6,657
|
(2,196
|
)
|
(3,302
|
)
|
|||||||
Prepaid
expenses and other
|
(2,570
|
)
|
(287
|
)
|
(1,851
|
)
|
||||||
Accounts
payable and other liabilities
|
(479
|
)
|
1,571
|
7,899
|
||||||||
Net
cash provided by operating activities
|
31,747
|
34,294
|
39,606
|
|||||||||
Cash
flows from investing activities:
|
||||||||||||
Acquisitions
of businesses, net of cash acquired
|
(23,375
|
)
|
(8,144
|
)
|
(92,835
|
)
|
||||||
Proceeds
from sale of fixed assets
|
334
|
477
|
376
|
|||||||||
Principal
of note receivable
|
—
|
304
|
—
|
|||||||||
Proceeds
from disposition of note receivable
|
—
|
6,225
|
—
|
|||||||||
Cost
incurred on possible acquisitions
|
—
|
—
|
(71
|
)
|
||||||||
Capital
expenditures
|
(23,827
|
)
|
(29,805
|
)
|
(28,483
|
)
|
||||||
Net
cash used in investing activities
|
(46,868
|
)
|
(30,943
|
)
|
(121,013
|
)
|
||||||
Cash
flows from financing activities:
|
||||||||||||
Principal
payments on long-term debt
|
(167
|
)
|
(16,130
|
)
|
(931
|
)
|
||||||
Net
change in revolving line of credit
|
18,883
|
17,340
|
31,277
|
|||||||||
Payments
under common stock repurchase program
|
—
|
(5,148
|
)
|
—
|
||||||||
Decrease
in restricted cash
|
—
|
1,339
|
9
|
|||||||||
Equity
transaction costs
|
—
|
—
|
(5
|
)
|
||||||||
Deferred
financing costs
|
(221
|
)
|
(935
|
)
|
(12
|
)
|
||||||
Net
cash provided by (used in) financing activities
|
18,495
|
(3,534
|
)
|
30,338
|
||||||||
Net
change in cash and cash equivalents
|
3,374
|
(183
|
)
|
(51,069
|
)
|
|||||||
Cash
and cash equivalents at beginning of period
|
955
|
1,138
|
52,207
|
|||||||||
Cash
and cash equivalents at end of period
|
$
|
4,329
|
$
|
955
|
$
|
1,138
|
WCA
WASTE CORPORATION
Consolidated
Statements of Cash Flows — Continued
(in
thousands)
Years
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Supplemental
cash flow information:
|
||||||||||||
Cash
paid during the year for:
|
||||||||||||
Interest
|
$
|
16,914
|
$
|
17,797
|
$
|
16,903
|
||||||
Taxes
|
509
|
355
|
105
|
|||||||||
Non-cash
investing and financing activities:
|
||||||||||||
Insurance
premiums financed by direct debt
|
3,135
|
305
|
4,721
|
|||||||||
Acquisitions
of operations, net of divestitures:
|
||||||||||||
Accounts
receivable
|
3,514
|
(186
|
)
|
2,479
|
||||||||
Prepaid
expenses and other
|
167
|
(25
|
)
|
(1,265
|
)
|
|||||||
Long-term
note receivable, including current maturities
|
—
|
—
|
7,200
|
|||||||||
Property
and equipment, net
|
44,507
|
3,405
|
55,201
|
|||||||||
Goodwill
|
738
|
4,193
|
28,566
|
|||||||||
Intangible
assets
|
408
|
948
|
2,944
|
|||||||||
Debt
and liabilities issued or assumed, net of debt discount
|
2,243
|
191
|
665
|
|||||||||
Long-term
debt
|
859
|
—
|
1,575
|
|||||||||
Accrued
closure post-closure liabilities
|
4,344
|
—
|
50
|
|||||||||
Common
stock
|
35
|
—
|
—
|
|||||||||
Additional
paid-in capital
|
15,253
|
—
|
—
|
|||||||||
Contingent
considerations
|
3,225
|
—
|
—
|
See
accompanying notes to consolidated financial statements.
62
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements
(dollars
in thousands unless otherwise indicated)
(1) Organization
and Summary of Significant Accounting
(a) Business
WCA Waste
Corporation (WCA or the Company) is an integrated company engaged in the
collection, transfer, processing and disposal of non-hazardous solid
waste. The Company currently provides services to customers in
Alabama, Arkansas, Colorado, Florida, Kansas, Massachusetts, Missouri, New
Mexico, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee and
Texas.
(b) Basis of
Presentation
The
consolidated financial statements included herein have been prepared in
accordance with generally accepted accounting principles in the United States
and pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC) for annual reports on Form 10-K.
Certain
reclassifications have been made to the prior period financial statements to
conform to the current presentation.
(c) Principles of
Consolidation
The
consolidated financial statements include the accounts of WCA Waste Corporation
and its majority-owned and controlled subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
(d)
Cash Equivalents
The
Company considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
(e)
Property and Equipment
Property
and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized while minor replacements, maintenance, and
repairs are charged to expense as incurred.
When
property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is included in the results of operations as increases or offsets to
operating expense for the respective period. Depreciation is provided
over the estimated useful lives of the related assets using the straight-line
method. The estimated useful lives for significant property and
equipment categories are as follows (in years):
Vehicles
and equipment
|
3
to 10
|
Containers
|
5
to 12
|
Buildings
and improvements
|
15
to 25
|
Computers
and software
|
3
to 5
|
Furniture
and fixtures
|
3
to 10
|
63
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
(f)
Landfill Accounting
Capitalized
Landfill Costs
At
December 31, 2009, the Company owned 25 landfills. Two of these
landfills are fully permitted but not constructed and have not yet commenced
operations as of December 31, 2009.
Capitalized
landfill costs include expenditures for the acquisition of land and related
airspace, engineering and permitting costs, cell construction costs and direct
site improvement costs. At December 31, 2009, no capitalized interest
had been included in capitalized landfill costs, however, in the future interest
could be capitalized on landfill construction projects but only during the
period the assets are undergoing activities to ready them for their intended
use. Capitalized landfill costs are amortized ratably using the
units-of-production method over the estimated useful life of the site as
airspace of the landfill is consumed. Landfill amortization rates are
determined periodically (not less than annually) based on ground surveys and
other density measures and estimates made by the Company’s engineers, outside
engineers, management and financial personnel.
Total
available airspace includes the total of estimated permitted airspace plus an
estimate of probable expansion airspace that the Company believes is likely to
be permitted. Where the Company believes permit expansions are
probable, the expansion airspace, and the projected costs related to developing
the expansion airspace are included in the airspace amortization rate
calculation. The criteria the Company uses to determine if permit
expansion is probable include but are not limited to whether: (i) the Company
believes the project has fatal flaws; (ii) the land is owned or controlled by
the Company, or under option agreement; (iii) the Company has committed to the
expansion; (iv) financial analysis has been completed and the results indicate
that the expansion has the prospect of a positive financial and operational
impact; (v) personnel are actively working to obtain land use, local and state
approvals for an expansion; (vi) the Company believes that the permit is likely
to be received; and (vii) the Company believes that the timeframe to complete
the permitting is reasonable.
The
Company may be unsuccessful in obtaining expansion permits for airspace that has
been considered probable. If unsuccessful in obtaining these permits,
certain previously capitalized costs will be charged to expense.
Closure
and Post-Closure Obligations
The
Company has material financial commitments for the costs associated with its
future obligations for final closure, which is the closure of the landfill and
the capping of the final uncapped areas of a landfill and post-closure
maintenance of those facilities, which is generally expected to be for a period
of up to 30 years depending on type and location.
The
impact of changes determined to be changes in estimates, based on an annual
update, is accounted for on a prospective basis. The Company’s
ultimate liability for such costs may increase in the future as a result of
changes in estimates, legislation, or regulations.
64
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
The
changes to landfill assets and closure and post-closure liabilities for the
years ended December 31, 2009, 2008 and 2007 are as follows (in
thousands):
Landfill
Assets, Net
|
Closure
and Post-closure Liabilities
|
|||||||
December
31, 2006
|
$
|
132,799
|
$
|
3,751
|
||||
Capital
expenditures
|
9,198
|
—
|
||||||
Acquisition
of landfill and other adjustments
|
43,393
|
(466
|
)
|
|||||
Amortization
expense
|
(10,483
|
)
|
—
|
|||||
Obligations
incurred and capitalized
|
453
|
453
|
||||||
Revisions
to estimates of closure and post-closure activities
|
2,339
|
2,339
|
||||||
Interest
accretion
|
—
|
483
|
||||||
December
31, 2007
|
$
|
177,699
|
$
|
6,560
|
||||
Capital
expenditures
|
12,657
|
—
|
||||||
Acquisition
of landfill and other adjustments
|
10
|
—
|
||||||
Amortization
expense
|
(11,058
|
)
|
—
|
|||||
Obligations
incurred and capitalized
|
516
|
516
|
||||||
Revisions
to estimates of closure and post-closure activities
|
(236
|
)
|
(236
|
)
|
||||
Interest
accretion
|
—
|
558
|
||||||
December
31, 2008
|
$
|
179,588
|
$
|
7,398
|
||||
Capital
expenditures
|
18,320
|
—
|
||||||
Acquisition
of landfill and other adjustments
|
28,401
|
4,344
|
||||||
Amortization
expense
|
(9,680
|
)
|
—
|
|||||
Obligations
incurred and capitalized
|
414
|
414
|
||||||
Revisions
to estimates of closure and post-closure activities
|
1,209
|
1,209
|
||||||
Interest
accretion
|
—
|
628
|
||||||
December
31, 2009
|
$
|
218,252
|
$
|
13,993
|
The
Company’s liabilities for closure and post-closure costs for the years ended
December 31, 2009, 2008 and 2007 are as follows (in thousands):
December
31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Recorded
amounts:
|
||||||||||||
Current
portion
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
Noncurrent
portion
|
13,993
|
7,398
|
6,560
|
|||||||||
Total
recorded
|
$
|
13,993
|
$
|
7,398
|
$
|
6,560
|
The
Company’s total anticipated cost for closure and post-closure activities is
$185.4 million, as
measured in current dollars. The recorded liabilities as of December
31, 2009 include the impact of inflating these costs through the date the costs
are estimated to be incurred and the discounting of these costs to present
value. The Company believes the amount and timing of these activities
are reasonably estimable. Anticipated payments of currently
identified closure and post-closure liabilities for the next five years and
thereafter are reflected below (in thousands):
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
|||||||||||||||||
$
|
—
|
$
|
—
|
$
|
1,801
|
$
|
182
|
$
|
2,389
|
$
|
181,002
|
65
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
Where the
Company believes that both the amount of a particular closure and post-closure
liability and the timing of the payments are reliably determinable, the cost in
current dollars is inflated (2.5% for each of the years ended December 31, 2009,
2008 and 2007) until expected time of payment and then discounted to present
value (8.5% for each of the years ended December 31, 2009, 2008 and
2007). Accretion expense is applied to the closure and post-closure
liability based on the effective interest method and is included in cost of
services. Had the Company not discounted any portion of its
liability, the amount recorded would have been $39.4 million, $29.6 million and
$26.9 million at December 31, 2009, 2008 and 2007, respectively.
The table
below presents the Company’s methodology of accounting for landfill closure and
post-closure activities.
Description
|
Methodology
|
|
Definitions:
|
||
Closure
|
Includes
final capping event, final portion of methane gas collection system to be
constructed, demobilization, and the routine maintenance costs incurred
after site ceases to accept waste, but prior to being certified as
closed.
|
|
Post-closure
|
Includes
routine monitoring and maintenance of a landfill after it has closed,
ceased to accept waste and been certified as closed by the applicable
state regulatory agency.
|
|
Discount
Rate:
|
Obligations
discounted at a credit- adjusted, risk-free rate (8.5% for 2009, 2008 and
2007).
|
|
Cost
Estimates:
|
Costs
were estimated based on performance, by either third parties or the
Company, except that the cost of any activities expected to be performed
internally must be increased to represent an estimate of the amount a
third party would charge to perform such activity.
|
|
Inflation:
|
Inflation
rate of 2.5% for 2009, 2008 and 2007.
|
|
Recognition
of Assets and Liabilities:
|
||
Asset
Retirement Cost
|
An
amount equal to the discounted cash flow associated with the fair value of
closure and post-closure obligation is recorded as an addition to
capitalized landfill costs as airspace is consumed.
|
|
Closure
and Post-Closure
|
The
discounted cash flow associated with the fair value of the liability is
recorded with a corresponding increase in capitalized landfill costs as
airspace is consumed. Accretion expense is recorded to cost of
services and the corresponding liability until the liability is
paid.
|
|
Statement
of Operations Expense:
|
||
Landfill
asset amortization
|
Landfill
asset is amortized to depreciation and amortization expense as airspace is
consumed over life of landfill.
|
|
Accretion
|
Expense,
charged to cost of services, is accreted at credit-adjusted, risk-free
rate (8.5% for 2009, 2008 and
2007).
|
(g)
Allocation of Acquisition Purchase Price
A summary
of the Company’s accounting for acquisitions is as follows:
Acquisition
purchase price is allocated to identified intangible assets and tangible assets
acquired and liabilities assumed based on their estimated fair values at the
dates of acquisition, with any residual amounts allocated to
goodwill.
66
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
The
Company deems the total remaining airspace of an acquired landfill to be a
tangible asset. Therefore, for acquired landfills, it initially
allocates the purchase price to identified intangible and tangible assets
acquired, including landfill airspace, and liabilities assumed based on their
estimated fair values at the date of acquisition.
The
Company may consummate single acquisitions that include a combination of
collection operations and landfills. For each separately identified
collection operation and landfill acquired in a single acquisition, the Company
performs an initial allocation of total purchase price to the identified
collection operations and landfills based on their relative fair
values. Following this initial allocation of total purchase price to
the identified collection operations and landfills, the Company further
allocates the identified intangible assets and tangible assets acquired and
liabilities assumed for each collection operation and landfill based on their
estimated fair values at the dates of acquisition, with any residual amounts
allocated to either goodwill or landfill site costs, as discussed
above.
The
Company accrues the fair value of the payment of contingent purchase price,
which takes into consideration the probability of the events surrounding the
contingency. Contingent purchase price related to landfills is
allocated to landfill airspace and contingent purchase price for acquisitions
other than landfills is allocated to the assets purchased and then to goodwill
to the extent that the purchase price exceeds the fair value of the assets
acquired. At December 31, 2009, the Company recorded approximately
$3.2 million of contingent consideration related to the fair value of 2,000,000
shares of the Company’s common stock that are issuable pursuant to certain
earn-out provisions in the Live Earth acquisition agreement.
(h) Goodwill
and Other Intangible Assets
Goodwill
and intangible assets acquired in a business combination and determined to have
an indefinite useful life are not amortized, but instead tested for impairment
at least annually. Intangible assets with estimable useful lives are
amortized over their respective estimated useful lives to their residual values,
and reviewed for impairment.
The
Company’s intangible assets consist primarily of customer contracts, customer
lists, and covenants not-to-compete. Customer contracts and customer
lists are generally amortized over 7 to 20 years. Covenants
not-to-compete are amortized over the term of the non-compete covenant, which is
generally five years.
(i) Impairment
of Long-Lived Assets
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 or asset group to estimated
undiscounted future cash flows expected to be generated by the asset or asset
group. 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.
(j)
Costs Incurred on Possible Acquisitions
In the
past, costs incurred on possible acquisitions were capitalized as incurred and
consisted primarily of third-party accounting, legal and other consulting fees
as well as travel costs incurred in the negotiation and due diligence process,
and nonrefundable down payments. Upon consummation of an acquisition
accounted for as a purchase, deferred costs were capitalized as part of the
purchase price. Capitalized costs were reviewed for reasonableness on
a periodic basis, and costs that management believed related to transactions
that would not be consummated were charged to expense. During 2007
and 2008, the Company expensed $44 and $115, respectively, of such costs, which
are included in general and administrative cost in WCA’s consolidated statements
of operations. In accordance with ASC Topic 805, starting in 2009 all
acquisition-related transaction and restructuring costs are expensed as incurred
rather than capitalized as part of the acquisition costs. The Company
expensed $1.0 million of such costs during 2009.
67
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
(k)
Deferred Financing Costs
Deferred
financing costs are amortized as a component of interest expense using the
effective interest method. During 2009, 2008 and 2007, the Company
expensed $1,246, $896 and $844, respectively, of such costs, which are reflected
as interest expense in WCA’s consolidated statements of operations.
(l)
Interest Expense
Interest
expense, net includes interest accrued on outstanding note payable and long-term
debt, amortization of deferred financing costs, accretion of debt discount,
offset by interest income earned on the Company’s cash balances. For
the years ended December 31, 2009, 2008 and 2007, interest expense consists of
the following (in thousands):
2009
|
2008
|
2007
|
||||||||||
Note
payable and long-term debt
|
$
|
16,837
|
$
|
17,616
|
$
|
16,940
|
||||||
Amortization
of deferred financing costs
|
1,246
|
896
|
844
|
|||||||||
Amortization
of debt discount
|
—
|
406
|
53
|
|||||||||
18,083
|
18,918
|
17,837
|
||||||||||
Less
interest income
|
31
|
358
|
1,072
|
|||||||||
Interest
expense, net
|
$
|
18,052
|
$
|
18,560
|
$
|
16,765
|
(m)
Income Taxes
The
Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying values of existing assets
and liabilities and their respective tax bases based on enacted tax
rates. The Company provides a valuation allowance when, based on
management’s estimates, it is more likely than not that a deferred tax asset
will not be realized in future periods.
Income
taxes have been calculated in accordance with ASC Topic 740. All tax
amounts have been provided to show the effect of temporary differences between
the recognition of revenue and expenses for financial and income tax reporting
purposes and between the tax basis of assets and liabilities and their reported
amounts in the financial statements. Income taxes payable are
included with accrued liabilities on the Company’s balance
sheets. See note 5 “Certain Balance Sheet Accounts” for detail of
accrued liabilities. Tax positions measured and recognized in
accordance with guidance issued by the FASB in 2006 (“Accounting for Uncertainty
in Income Taxes”) are recorded in other long-term liabilities on the Company’s
balance sheets.
(n)
Insurance
The
Company has retained a portion of the risks related to its general liability,
automobile and workers’ compensation insurance programs. The exposure
for unpaid claims and associated expenses, including incurred but not reported
losses, is based on estimates of ultimate losses on claims and
actuarially-determined development factors.
68
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
(o)
Revenue Recognition and Accounts Receivable
The
Company recognizes revenue upon the receipt and acceptance of non-hazardous
industrial and municipal waste at its landfills. Revenue for collection services
is recognized as the services are performed. Revenue for container rental is
recognized over the rental period. In certain situations, the Company
will bill for services in advance of the performance of these
services. Such amounts are deferred until the services are
subsequently performed.
The
Company’s receivables are recorded when billed or accrued and represent claims
against third parties that will be settled in cash. The carrying
value of the Company’s receivables, net of the allowance for doubtful accounts,
represents their estimated net realizable value. The Company
estimates losses for uncollectible accounts based on the aging of the accounts
receivable and the evaluation of the likelihood of success in collecting the
receivable. Past-due receivable balances are written off when the
Company’s internal collection efforts have been unsuccessful in collecting the
amount due.
(p)
Derivative Financial Instruments
The
Company accounts for derivatives and hedging activities in accordance with ASC
Topic 815, which requires that all derivative instruments be recorded on the
balance sheet at their respective fair values.
On July
7, 2006, the Company entered into an interest rate swap agreement effective July
11, 2006, where it agreed to pay a fixed-rate of 5.64% in exchange for
three-month floating rate LIBOR which was 5.51% at the time the swap was
entered. The Company did not enter into the interest rate swap
agreements for trading purposes. The swap agreement was intended to
limit the Company’s exposure to a rising interest rate
environment. At the time the swap was entered, there was no
offsetting floating rate LIBOR debt and therefore no floating rate interest
payments were anticipated. As a result, the swap transaction was not
designated as a hedging transaction and any changes in the unrealized fair value
of the swap are recognized in the statement of operations as a non-cash gain or
loss. For the years ended December 31, 2009, 2008 and 2007, the
Company recorded $7.2 million, $3.2 million and $0.5 million, respectively, of
realized loss as well as $(5.2) million, $4.3 million and $3.9 million,
respectively, of unrealized (gain) loss related to the interest rate swap in the
consolidated statement of operations. This interest rate swap expires
on November 1, 2010.
(q)
Fair Value of Financial Instruments
The
following disclosure of the estimated fair value of financial instruments is
made in accordance with ASC Topic 825. The carrying values of cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate fair value.
As of
December 31, 2009, the fair value of the Company’s 9.25% senior notes, based on
quoted market prices (Level 1), was the same as the carrying amount of $150
million.
The
following table sets forth by level within the fair value hierarchy, the
Company’s financial assets and liabilities (in thousands) that were accounted
for at fair value on a recurring basis as of December 31,
2009. For assets and liabilities that are measured using quoted
prices in active markets, the total fair value is the published market price per
unit multiplied by the number of units held without consideration of transaction
costs. Assets and liabilities that are measured using significant
other observable inputs are primarily valued by reference to quoted prices of
similar assets or liabilities in active markets, adjusted for any terms specific
to that asset or liability. For all other assets and liabilities for
which observable inputs are used, fair value is derived through the use of fair
value models, such as a discounted cash flow model or other standard pricing
models.
69
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
Recurring
fair value measurements
|
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
||||||||||||
Liabilities:
|
||||||||||||||||
Interest
rate swap
|
$
|
—
|
$
|
6,489
|
$
|
—
|
$
|
6,489
|
||||||||
Total
liabilities
|
$
|
—
|
$
|
6,489
|
$
|
—
|
$
|
6,489
|
(r)
Earnings per Share
Basic and
diluted earnings per share have been calculated by dividing net income (loss) by
the weighted average number of common shares outstanding during the
year.
(s)
Concentrations of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and accounts receivable. The Company
places its cash with high-quality financial institutions and limits the amount
of credit exposure with any one institution. Concentrations of credit
risk with respect to accounts receivable are limited because a large number of
geographically diverse customers comprise the Company’s customer base, thus
spreading the trade credit risk. At December 31, 2009, 2008 and 2007,
no single group or customer represents greater than 10% of total accounts
receivable.
(t)
Segment Information
The
Company’s revenue is derived from one industry segment, which includes
collection, transfer and disposal of non-hazardous solid waste in the United
States. Operating segments (regions) are determined by the reporting
structure and the vertical integration of the related operations. The
four regional managers report to the Company’s chief operating officer and the
Company’s financial performance is evaluated based on the regional managers’
responsibilities. See note 12 “Segment Reporting” for geographic
information relating to the Company’s operations.
(u)
Recent Accounting Pronouncements
In
June 2009, the FASB issued the FASB Accounting Standards Codification (the
Codification or ASC) as the single source of authoritative U.S. generally
accepted accounting principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. The Codification does not change current
GAAP, but is intended to simplify user access to all authoritative GAAP by
providing all the authoritative literature related to a particular topic in one
place. The Codification is effective for interim and annual periods
ending after September 15, 2009 and supersedes all existing non-SEC
accounting and reporting standards. As a result, this annual report
on Form 10-K and all subsequent public filings will reference the Codification
as the sole source of authoritative literature.
In June
2009, the FASB issued a pronouncement which enhances information reported to
users of financial statements by providing greater transparency about transfers
of financial assets and an entity’s continuing involvement in transferred
financial assets. This pronouncement is effective for fiscal years
beginning after November 15, 2009 and earlier adoption is
prohibited. The adoption of this pronouncement is not expected to
have any impact on the Company’s financial condition, results of operations or
cash flows.
70
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
In
June 2009, the FASB issued a pronouncement regarding certain guidance for
determining whether an entity is a variable interest entity and modifies the
methods allowed for determining the primary beneficiary of a variable interest
entity in order to improve financial reporting by companies involved with
variable interest entities and to provide more relevant and reliable information
to users of financial statements. This pronouncement is effective for
fiscal years beginning after November 15, 2009 and earlier adoption is
prohibited. The adoption of this pronouncement is not expected to
have any impact on the Company’s financial condition, results of operations or
cash flows.
In August
2009, the FASB issued Accounting Standards Update 2009-05 (ASU 2009-05), “Fair
Value Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair
Value.” This update provides clarification for the fair value
measurement of liabilities in circumstances in which a quoted price in an active
market for an identical liability is not available. ASU 2009-05 is
effective for the Company on October 1, 2009. The adoption of this
standard is not expected to have a material impact on the Company’s financial
condition, results of operations or cash flows.
In
October 2009, the FASB issued ASU 2009-13 (ASU 2009-13), “Revenue Recognition
(Topic 605): Multiple-Deliverable Revenue Arrangements—a consensus of the FASB
Emerging Issues Task Force.” This update amends the criteria for
revenue recognition of multi-deliverable arrangements and expands the required
disclosures of those arrangements. ASU 2009-13 is effective for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. The Company is currently
evaluating the impact of ASU 2009-13 on the Company’s financial position,
results of operations or cash flows.
(2) Use
of Estimates
In
preparing the Company’s financial statements, several estimates and assumptions
are made that affect the accounting for and recognition of assets, liabilities,
revenues and expenses. These estimates and assumptions must be made
because certain of the information that is used in the preparation of the
Company’s financial statements is dependent on future events, cannot be
calculated with a high degree of precision from data available or is simply not
capable of being readily calculated based on generally accepted
methodologies. In some cases, these estimates are particularly
difficult to determine and the Company must exercise significant
judgment. The most difficult, subjective and complex estimates and
the assumptions that deal with the greatest amount of uncertainty are related to
the Company’s accounting for landfills, asset impairments, and insurance claims
as described below.
Accounting for
landfills. The Company utilizes the units of production method
to amortize landfill construction costs over the estimated remaining capacity of
a landfill. Under this method the Company includes future estimated
landfill development costs, as well as costs incurred to date, in the
amortization base. Additionally, the Company includes deemed permitted expansion
airspace, which has not been permitted, in the calculation of the total
remaining capacity of the landfill.
This
accounting method requires the Company to make estimates and assumptions, as
described below. Any changes in the Company’s estimates will impact
the Company’s income from operations prospectively from the date changes are
made.
Landfill
costs. The Company estimates the total cost to develop each
landfill site to its final capacity. This includes certain projected
landfill site costs that are uncertain because they are dependent on future
events. The total cost to develop a site to its final capacity
includes amounts previously expended and capitalized, net of accumulated
airspace amortization, and projections of future purchase and development costs,
operating construction costs, permitting cost of expansions and capitalized
interest costs.
71
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
Closure and post-closure
costs. The costs for closure and post-closure obligations at
landfills the Company owns or operates are generally estimated based on
interpretations of current requirements and proposed or anticipated regulatory
changes. The estimates for landfill closure and post-closure costs
also consider when the costs would actually be paid and factor in inflation and
discount rates. The possibility of changing legal and regulatory
requirements and the forward-looking nature of these types of costs make any
estimation or assumption less certain.
Available
airspace. The Company’s engineers determine the remaining
capacity at landfills by estimating the available airspace. This is
done by using surveys and other methods to calculate, based on height
restrictions and other factors, how much airspace is left to fill and how much
waste can be disposed of at a landfill before it has reached its final
capacity.
Expansion
airspace. The Company will also consider currently unpermitted
airspace in the estimate of remaining capacity in certain
circumstances. See note 1(f) “Landfill Accounting — Capitalized
Landfill Costs” for further explanation.
It is
possible that the Company’s estimates or assumptions will ultimately turn out to
be significantly different from actual results. In some cases the
Company may be unsuccessful in obtaining an expansion permit or the Company may
determine that an expansion permit that the Company previously thought was
probable has become unlikely. To the extent that such estimates, or
the assumptions used to make those estimates, prove to be significantly
different than actual results, or the belief that the Company will receive an
expansion permit changes adversely in a significant manner, the costs of the
landfill, including the costs incurred in the pursuit of the expansion, may be
subject to impairment testing, as described below, and lower profitability may
be experienced due to higher amortization rates, and higher expenses or asset
impairments related to the removal of previously included expansion
airspace.
Asset
Impairments. Accounting standards require that assets be
written down if they become impaired. If significant events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable, a test of recoverability is performed by comparing the carrying
value of the asset or asset group to its undiscounted expected future cash
flows. If the carrying values are in excess of undiscounted expected
future cash flows, impairment is measured by comparing the fair value of the
asset to its carrying value. Fair value is determined by either
internally developed discounted projected cash flow analysis of the asset or an
analysis of market value for similar assets. Cash flow projections
are sometimes based on a group of assets, rather than a single
asset. If cash flows cannot be separately and independently
identified for a single asset, the Company will determine whether an impairment
has occurred for the group of assets for which the projected cash flows can be
identified. If the fair value of an asset is determined to be less
than the carrying amount of the asset or asset group, an impairment in the
amount of the difference is recorded in the period that the impairment indicator
occurs. Several impairment indicators are beyond the Company’s
control, and cannot be predicted with any certainty whether or not they will
occur. Estimating future cash flows requires significant judgment and
projections may vary from cash flows eventually realized. Also, there
are other considerations for impairments of landfills and goodwill as discussed
in note 1(f).
Allowance for
Doubtful Accounts. The Company estimates losses for
uncollectible accounts based on the aging of the accounts receivable and the
evaluation of the likelihood of success in collecting the
receivable.
Acquisition
Accounting. The Company estimates the fair value of assets and
liabilities when allocating the purchase price of an acquisition.
Income
Taxes. The Company assumes the deductibility of certain costs
in its income tax filings and estimates the future recovery of deferred tax
assets.
72
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
Insurance claims
reserves. The Company accrues claims related to our
self-insurance programs based on claims filed, estimated open claims and claims
incurred but not reported based on actuarial-based loss development
factors.
Contingent
Liabilities. The Company estimates the amount of potential
exposure it may have with respect to litigation, claims and assessments in
accordance with ASC Topic 450.
Actual
results could differ materially from the estimates and assumptions that the
Company uses in the preparation of its financial statements.
(3) Acquisitions
On
December 31, 2009, the Company consummated the acquisition of the operating
subsidiaries of Live Earth, LLC (collectively, the “Live Earth Companies”),
which included certain assets and related liabilities held by Live Earth, LLC
that relate to the Live Earth Companies, including the Sunny Farms Landfill, the
Champion City Recovery Transfer Station and the related rail haul assets
providing transfer of waste from the east coast to the Sunny Farms Landfill by
rail. Total consideration for this acquisition included $19.7 million
of cash, 3,555,556 shares of the Company’s common stock valued at $15.3 million,
and 2,000,000 contingent earn-out shares valued at $3.2 million on the
acquisition date.
During
2009, the Company completed three acquisitions including the Live Earth
acquisition. Total consideration for these transactions included
$22.9 million of cash, 3,555,556 shares of the Company’s common stock valued at
$15.3 million, 2,000,000 contingent earn-out shares valued at $3.2 million on
the acquisition date, and a seller note valued at $0.9 million with two future
payments of $0.5 million due on January 15, 2010 and 2011,
respectively. These acquisitions resulted in the addition of one
landfill, one transfer station and some tuck-in operations.
During
2008, the Company completed three acquisitions. Total consideration
for these transactions included $8.1 million of cash and $0.2 million of accrued
future payments. The accrued future payments were made in February
2009. These acquisitions resulted in the addition of one transfer
station and some tuck-in operations.
During
2007, the Company completed 10 acquisitions. Total consideration for
these transactions included $92.8 million of cash, $1.3 million of prepaid
airspace, $1.6 million of convertible debt, a transfer station and collection
operations in Fort Myers, Florida, less a note receivable valued at $7.2
million. These acquisitions resulted in the addition of four
landfills and four collection operations as well as several tuck-in
operations.
Allocation
of purchase price, including the costs incurred to complete the acquisition and
any additional costs incurred relating to prior year acquisitions, net of
divestitures, has been allocated as follows (in thousands):
2009
|
2008
|
2007
|
||||||||||
Accounts
receivable
|
$
|
3,514
|
$
|
(186
|
)
|
$
|
2,479
|
|||||
Prepaid
expenses and other
|
167
|
—
|
5
|
|||||||||
Property
and equipment, net
|
44,507
|
3,406
|
55,201
|
|||||||||
Goodwill
|
738
|
4,193
|
28,566
|
|||||||||
Intangible
assets
|
408
|
947
|
2,944
|
|||||||||
Accounts
payable and accrued liabilities
|
(6,587
|
)
|
(191
|
)
|
(715
|
)
|
||||||
$
|
42,747
|
$
|
8,169
|
$
|
88,480
|
73
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
The table
above reflected $425 of purchase price adjustments in 2009 relating to the 2008
acquisitions. In 2008, $20 of purchase price adjustments were related
to the 2007 acquisitions. In 2007, $39 of purchase price adjustments
were associated with the 2006 acquisitions.
In
connection with a certain prior acquisition, the Company acquired prepaid
disposal rights at certain of the seller’s landfills. These rights
expire at the earlier of September 2010 or the usage of two million cubic
yards. The Company can utilize these rights to dispose of waste at
the specified landfills. The prepaid disposal rights were fully
utilized in 2007. During the year ended December 31, 2007, the
Company utilized $428 of prepaid disposal rights, which is included as a cost of
service in the related statements of operations.
The
Company also paid $1,000 to acquire prepaid disposal rights at a landfill during
the year ended December 31, 2007. At the time the Company acquired the landfill
in 2007, prepaid disposal rights of $1,270 were utilized as part of the
consideration given.
(4) Earnings
per Share
Basic
earnings (loss) per share is computed by dividing net income (loss) available to
common stockholders by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings (loss) per share is
computed using the treasury stock method for options and restricted shares and
the if-converted method for convertible preferred stock and convertible
debt. The detail of the earnings (loss) per share calculations for
net income (loss) available to common stockholders for the years ended December
31, 2009, 2008 and 2007 is as follows (in thousands, except per share
data):
Year
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Numerator:
|
||||||||||||
Net
income (loss)
|
$
|
1,008
|
$
|
(27,763
|
)
|
$
|
2,922
|
|||||
Accrued
payment-in-kind dividend on preferred stock
|
(4,278
|
)
|
(4,076
|
)
|
(3,876
|
)
|
||||||
Net
loss available to common stockholders
|
$
|
(3,270
|
)
|
$
|
(31,839
|
)
|
$
|
(954
|
)
|
|||
Denominator:
|
||||||||||||
Weighted
average basic shares outstanding
|
15,824
|
16,257
|
16,460
|
|||||||||
Weighted
average diluted shares outstanding
|
15,824
|
16,257
|
16,460
|
|||||||||
Earnings
(loss) per share:
|
||||||||||||
Basic
|
$
|
(0.21
|
)
|
$
|
(1.96
|
)
|
$
|
(0.06
|
)
|
|||
Diluted
|
$
|
(0.21
|
)
|
$
|
(1.96
|
)
|
$
|
(0.06
|
)
|
Due to
their anti-dilutive effect, the following potential common shares have been
excluded from the computation of diluted earnings (loss) per share (in
thousands):
Year
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Stock
options
|
525
|
576
|
621
|
|||||||||
Restricted
shares
|
638
|
687
|
594
|
|||||||||
Convertible
preferred stock
|
9,074
|
8,637
|
8,221
|
|||||||||
Convertible
debt
|
154
|
790
|
674
|
|||||||||
10,391
|
10,690
|
10,110
|
74
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
(5) Certain
Balance Sheet Accounts
Allowance
for Doubtful Accounts
The
following summarizes the activity in the allowance for doubtful accounts for the
years ended December 31, 2009, 2008 and 2007 (in thousands):
2009
|
2008
|
2007
|
||||||||||
Balance,
beginning of year
|
$
|
1,173
|
$
|
1,498
|
$
|
540
|
||||||
Amounts
charged to expense
|
829
|
827
|
1,213
|
|||||||||
Amounts
written off, net of amounts recovered
|
(1,684
|
)
|
(1,152
|
)
|
(255
|
)
|
||||||
Balance,
end of year
|
$
|
318
|
$
|
1,173
|
$
|
1,498
|
Prepaid
Expenses and Other
Prepaid
expenses and other consist of the following at December 31, 2009 and 2008 (in
thousands):
2009
|
2008
|
|||||||
Prepaid
insurance premiums
|
$
|
1,978
|
$
|
177
|
||||
Prefunded
insurance claims
|
285
|
224
|
||||||
Other
|
2,312
|
1,707
|
||||||
$
|
4,575
|
$
|
2,108
|
Property
and Equipment
Property
and equipment consist of the following at December 31, 2009 and 2008 (in
thousands):
2009
|
2008
|
|||||||
Land
and landfills
|
$
|
306,329
|
$
|
252,693
|
||||
Vehicles
and equipment
|
94,263
|
86,383
|
||||||
Containers
|
35,772
|
34,181
|
||||||
Buildings
and improvements
|
16,985
|
11,339
|
||||||
Computers
and software
|
1,606
|
1,602
|
||||||
Furniture
and fixtures
|
1,055
|
989
|
||||||
456,010
|
387,187
|
|||||||
Less
accumulated depreciation and amortization
|
135,286
|
110,704
|
||||||
$
|
320,724
|
$
|
276,483
|
Accrued
Liabilities and Other
Accrued
liabilities and other consist of the following at December 31, 2009 and 2008 (in
thousands):
2009
|
2008
|
|||||||
Accrued
insurance claims
|
$
|
2,841
|
$
|
3,407
|
||||
Accrued
payroll costs
|
3,493
|
3,184
|
||||||
Deferred
revenue
|
4,994
|
5,416
|
||||||
Accrued
taxes
|
1,258
|
2,142
|
||||||
Accrued
interest
|
2,819
|
1,563
|
||||||
Other
|
1,885
|
1,563
|
||||||
$
|
17,290
|
$
|
17,275
|
75
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
(6) Goodwill
and Other Intangible Assets
The
changes in the carrying amount of goodwill for the periods indicated are as
follows (in thousands):
Balance,
December 31, 2007
|
$
|
102,112
|
||
Acquisitions
|
4,193
|
|||
Impairment
|
(41,725
|
)
|
||
Balance,
December 31, 2008
|
$
|
64,580
|
||
Acquisitions
|
738
|
|||
Balance,
December 31, 2009
|
$
|
65,318
|
The
Company assesses potential impairment of its goodwill, intangible assets and
other long-lived assets annually on October 31 and more frequently if there is
evidence that recent events or changes in circumstances have made recovery of an
asset’s carrying less likely. If indicators of impairment were
present for intangible assets used in operations and future undiscounted cash
flows were not expected to be sufficient to recover the asset’s carrying amount,
an impairment loss would be charged to expense in the period
identified. The amount of an impairment loss would be recognized as
the excess of the asset’s carrying value over its fair value. Factors
the Company’s management considers important, which may cause impairment
include: significant changes in the manner of use of the acquired asset,
negative industry or economic trends, and significant underperformance relative
to historical or projected operating results.
Under the
guidance of ASC Topic 350, the first step for the goodwill impairment test
requires the Company to estimate the fair value of each reporting unit and to
compare the fair value to the reporting unit’s carrying value. The
Company estimated the fair value of its reporting units using a discounted cash
flow approach. The key assumptions the Company used in preparing its
discounted cash flow analysis were (1) projected cash flows, (2) expected
long-term growth rate, and (3) discount rate. The Company based its
projected cash flows on budgeted operating results for 2010. For 2011
and future periods, the Company assumed a growth rate of 2.5% based on the
20-year inflation rate as published by the Federal Reserve. The
Company used an average discount rate of 9.9%, which represented its weighted
average cost of capital and was evaluated by independent third parties for
reasonableness. The Company’s reporting units carry the majority of
assets and liabilities related to their operations on their respective balance
sheets, except for obligations associated with debt, self-insurance and deferred
tax liabilities, as well as assets such as cash and deferred tax assets, which
are primarily recorded on Corporate’s balance sheet. To determine the
carrying value of each reporting unit at the measurement date, the Company
allocated assets and liabilities accounted for within its Corporate’s balance
sheet to each of the reporting units based on the size of their respective
operations. The Corporate assets and liabilities relate to the
operations of each of the reporting units, therefore, management believe they
should be allocated to each of the reporting units to determine the appropriate
fair values for each of the reporting units. If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that
unit, then goodwill is not impaired and no further testing is
required. If the carrying value of the net assets assigned to the
reporting unit were to exceed its fair value, then the second step is performed
in order to determine the implied fair value of the reporting unit’s goodwill
and an impairment loss is recorded for an amount equal to the difference between
the implied fair value and the carrying value of the goodwill.
76
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
In the
Company’s discounted cash flow analysis in 2007 and 2009, the estimated fair
value for each of its reporting units exceeded their respective carrying
value. Accordingly, there was no indication of
impairment. During the fourth quarter of 2008, as the Company
performed the annual impairment assessment of goodwill, there was a significant
adverse change in the economic and business climate as financial markets reacted
to the credit crisis facing major lending institutions, as well as, worsening
conditions in the overall economy. Based on the first step analysis,
the Company concluded that the fair market value was less than the book value in
the following reporting units: Florida, North Carolina, Oklahoma and
Tennessee. After performing the second step, the Company determined
that an impairment adjustment of $41.7 million was appropriate based on the
differences between the implied fair value and the carrying value of the
goodwill.
As a test
of the reasonableness of the estimated fair values for its reporting units, the
Company compared the fair value of its reporting units under the discounted cash
flow approach less outstanding debt (implied fair value of equity) to its market
capitalization as of the measurement date. The Company compared the
implied fair value of its equity to its market capitalization noting that the
implied fair value of equity exceeded the market capitalization. The
Company considered the excess amount of implied fair value over market
capitalization to be a control premium. A control premium represents
the ability of an acquirer to control the operations of the
business. The control premium determined as of the measurement date
appeared reasonable as it is consistent with historical control premium levels
observed in acquisitions of controlling interests in publicly-traded
companies. The Company will continue to monitor its market
capitalization and expectations of future cash flows and will perform additional
interim impairment testing if deemed necessary.
Intangible
assets, all of which are subject to amortization, consist of the following at
December 31, 2009 and 2008 (in thousands):
Customer
Contracts and Customer Lists
|
Covenants
Not-to-Compete
|
Total
|
||||||||||
December
31, 2009
|
||||||||||||
Intangible
assets
|
$
|
8,461
|
$
|
1,296
|
$
|
9,757
|
||||||
Less
accumulated amortization
|
2,059
|
647
|
2,706
|
|||||||||
$
|
6,402
|
$
|
649
|
$
|
7,051
|
|||||||
December
31, 2008
|
||||||||||||
Intangible
assets
|
$
|
8,131
|
$
|
1,218
|
$
|
9,349
|
||||||
Less
accumulated amortization
|
1,454
|
409
|
1,863
|
|||||||||
$
|
6,677
|
$
|
809
|
$
|
7,486
|
Amortization
expense for these intangible assets was approximately $843, $733 and $558 for
2009, 2008 and 2007, respectively. The intangible asset amortization
expense estimated as of December 31, 2009, for the five years following 2009 is
as follows (in thousands):
2010
|
2011
|
2012
|
2013
|
2014
|
||||||||||||||
$
|
853
|
$
|
835
|
$
|
753
|
$
|
677
|
$
|
567
|
77
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
(7) Long-Term
Debt
Long-term
debt consists of the following at December 31, 2009 and 2008 (in
thousands):
2009
|
2008
|
|||||||
Senior
notes, with interest rate of 9.25%, due in June 2014
|
$
|
150,000
|
$
|
150,000
|
||||
Revolving
credit facility with financial institutions, variable interest rate based
on LIBOR plus a margin (3.24% and 6.25% at December 31, 2009 and 2008,
respectively)
|
67,500
|
48,617
|
||||||
Notes
payable to banks and financial institutions, payable monthly through
August 2009, weighted average interest rate of 6.77% at December 31,
2008
|
—
|
39
|
||||||
Note
payable, with interest rate of 5%, due in January 2010, paid in
2009
|
—
|
128
|
||||||
Seller
note, with two installments of $500 due on January 15, 2010 and
2011
|
941
|
—
|
||||||
Seller
convertible notes, with interest rate of 5.5%, due in October
2012
|
1,575
|
1,575
|
||||||
220,016
|
200,359
|
|||||||
Less
current maturities
|
500
|
64
|
||||||
$
|
219,516
|
$
|
200,295
|
The
Company has a $175 million revolving credit facility. As of December
31, 2009, there were $67.5 million outstanding under the credit facility and
$12.5 million in letters of credit that serve as collateral for insurance claims
and bonding, leaving $95.0 million in available capacity under the revolving
credit facility. See further discussions under Bank Credit Facility
below.
9.25%
Senior Notes Due 2014
On July
5, 2006, the Company issued $150 million aggregate principal amount of 9.25%
senior notes due June 15, 2014. The senior notes pay interest
semi-annually on June 15 and December 15, commencing December 15, 2006, with the
following redemption provisions:
·
|
Prior
to June 15, 2010, the Company may redeem all or part of the notes by
paying a make-whole premium, plus accrued and unpaid interest;
and
|
·
|
The
notes may be callable beginning on June 15 of 2010, 2011, and 2012 and
thereafter at redemption prices of 104.625%, 102.313% and 100% of the
principal amount plus accrued
interest.
|
The
senior notes were issued under an indenture between the Company and The Bank of
New York Trust Company, N.A., as Trustee. The indenture contains
covenants that, among other provisions, limits the Company’s ability to incur
additional indebtedness, make capital expenditures, create liens, sell assets
and make dividend and other payments. In addition, the indenture
includes financial covenants including a covenant allowing the Company to incur
indebtedness or issue disqualified stock or preferred stock only if the Fixed
Charge Coverage Ratio (as defined in the indenture) for the four full fiscal
quarters most recently ended prior to issuance would have been at least 2.0 to
1, determined on a pro forma basis, as if the additional indebtedness had been
incurred or the disqualified stock or preferred stock had been issued at the
beginning of such four-quarter period. The defined terms are set
forth in the indenture.
The
senior notes due 2014 are guaranteed by all of the Company’s current and future
subsidiaries as of December 31, 2009. These guarantees are full,
unconditional and joint and several. In addition, the Company has no
non-guarantor subsidiaries and no independent assets or operations outside of
its ownership of the subsidiaries. There are no restrictions on the
subsidiaries to transfer funds through dividends or otherwise.
78
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
Bank
Credit Facility
Additionally,
on July 5, 2006, the Company entered into a $100 million revolving secured
credit facility with Comerica Bank maturing July 5, 2011 (as amended, the
“Credit Agreement”). On July 28, 2006, Comerica syndicated the credit
facility to a group of banks and the Company agreed to increase the capacity of
the revolving credit facility to $175 million. The credit commitment
available under the credit facility includes sub-facilities for standby letters
of credit in the aggregate principal amount of up to $50.0 million and a
swing-line feature for up to $10.0 million for same day advances. The
credit facility includes covenants related to interest margins associated with
various leverage ratios. These interest margins were amended in
October 2008 and again on February 19, 2009. Applicable fees and
margins are determined based on the Company’s leverage ratio for the trailing
12-month reporting period on each quarterly reporting date. The
following table highlights the revised margins included in the October 2008
(Commitment Fee) and February 2009 (LIBOR Margin and Prime Margin)
amendments:
LIBOR
|
Prime
|
Commitment
|
|||||
Leverage
Ratio
|
Margin
|
Margin
|
Fee
|
||||
Less
than 3.0x
|
2.500
|
2.250
|
0.500
|
||||
Equal
to or greater than 3.0 and less than 3.5x
|
2.750
|
2.500
|
0.500
|
||||
Equal
to or greater than 3.5 and less than 4.0x
|
3.000
|
2.750
|
0.500
|
||||
Equal
to or greater than 4.0 and less than 4.5x
|
3.250
|
3.000
|
0.750
|
||||
Equal
to or greater than 4.5x
|
3.500
|
3.250
|
1.000
|
The
Company’s obligations under the credit facility are secured by the capital stock
of its subsidiaries and all tangible (including real estate) and intangible
assets belonging to the Company and its subsidiaries. The obligations
are also guaranteed by substantially all of the Company’s operating
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 Agreement), nonpayment, breaches of representations,
warranties and covenants (subject to cure periods 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.
The
credit facility is subject to customary financial and other covenants including,
but not limited to, limitations on debt, consolidations, mergers, and sales of
assets. In the February 2009 amendment to the credit facility, the
requirement that the Company maintain an Adjusted EBIT Debt Service Ratio (as
defined in the Credit Agreement), until maturity, of not less than 1.25 to 1.00,
was eliminated in favor of a requirement that the Company maintain a Pro Forma
Adjusted EBITDA Debt Service Ratio (as defined in the Credit Agreement) of not
less than 2.25 to 1.00 until maturity. The Pro Forma Adjusted EBITDA
Debt Service Ratio is determined on a trailing 12 month basis. In
addition, the February 2009 amendment (i) reduced the maximum Senior Secured
Funded Debt Leverage Ratio (as defined in the Credit Agreement) from 3.00 to
1.00 to 2.50 to 1.00, (ii) imposed a restriction that the Company cannot make
any maintenance capital expenditures exceeding 15% of its consolidated total
revenue as calculated at the end of a fiscal year and (iii) replaced the prior
minimum net worth covenant with a minimum tangible net worth
covenant. The Company is required to maintain minimum tangible net
worth of not less than $30.0 million as of December 31, 2008, plus, as of the end
of each fiscal quarter thereafter, 50% of its after-tax consolidated net income
(but excluding any quarterly losses), plus 100% of any
increase in its net worth resulting from the net cash proceeds of any future
equity offerings.
79
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
In
February 2010, the definitions of “Pro Forma Adjusted EBITDA” and “Pro Forma
Adjusted EBITDA Debt Service Ratio” were amended and “Consolidated Net Interest
Expense” was added as a further defined term to the Credit Agreement (the
“Amendment”). The purpose of such definitional modifications and
addition are as follows:
·
|
to
exclude cash and non-cash income or expense attributable to any interest
rate hedging agreement, now existing or which the Company enters into in
the future, from the determination of the Company’s compliance with the
Leverage Ratio under the terms of the Credit Agreement;
and
|
·
|
to
include cash income or expense (but not non-cash items) attributable to
any interest rate hedging agreement that the Company enters into in the
future from the determination of the Company’s compliance with the Pro
Form Adjusted EBITDA Debt Service Ratio under the terms of the Credit
Agreement.
|
The
Amendment also provides that the applicable margin and fee schedule from the
date of the Amendment until June 30, 2010, shall be at Level IV, unless the
Company’s Leverage Ratio is greater than 4.50:1.00 in which case the applicable
margin will be set at Level V, which applicable margins and fees are as
follows:
Base
Rate
|
LIBOR
|
Letter
of
|
|||||
Applicable
Margin
|
Loan
|
Loan
|
Credit
Fees
|
||||
Level
IV applicable margin
|
3.00
|
3.25
|
3.25
|
||||
Level
V applicable margin
|
3.25
|
3.50
|
3.50
|
Other
covenants in the Credit Agreement limit the Company’s ability and certain of its
subsidiaries to, among other things, create, incur, assume or permit to exist
certain liens; make certain investments, loans and advances; enter into any
sale-leaseback transactions; materially change the nature of their businesses;
create, incur, assume or permit to exist certain leases; merge into or with or
consolidate with any other person; sell, lease or otherwise dispose of all or
substantially all of their properties or assets; discount or sell any of their
notes or accounts receivable; transact business with affiliates unless in the
ordinary course of business and on arm’s length basis; make certain negative
pledges; or amend, supplement or otherwise modify the terms of any debt or
prepay, redeem or repurchase any subordinated debt.
Other
Debt Instruments
In
connection with one acquisition in 2009, the Company issued a seller note valued
at $0.9 million with two future payments of $0.5 million due on January 15, 2010
and 2011.
In
conjunction with one acquisition during 2007, the Company issued convertible
notes in the amount of $1.6 million. The notes and any accrued but
unpaid interest are convertible into shares of common stock at the rate of
$10.24 per share. Provided an event of default has not occurred, at
any time after (i) the first anniversary of the date of issuance and (ii) the
average closing price of the common stock of the Company on ten consecutive
trading days equals or exceeds $13.31 per share, the Company may declare that
all unpaid principal and accrued interest be converted into the common stock of
the Company.
The
Company has entered into interest rate swap agreements from time to
time. On July 7, 2006, the Company entered into a $150 million swap
agreement effective July 11, 2006 where the Company pays 5.64% fixed and
receives three-month LIBOR floating interest. This interest rate swap
expires on November 1, 2010. See note 1(p) “Derivative Financial
Instruments” for further discussion of the accounting for and valuation of this
interest rate swap agreement.
80
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
The
aggregate payments of long-term debt outstanding at December 31, 2009 are as
follows (in thousands):
2010
|
$
|
500
|
||
2011
|
68,000
|
|||
2012
|
1,575
|
|||
2013
|
—
|
|||
2014
|
150,000
|
|||
Thereafter
|
—
|
|||
$
|
220,075
|
(8) Note
Payable
In
December of 2009, the Company issued a note payable for $1,619 to a financial
institution to fund the payments of general insurance premiums. The
note bears interest at 5.5% and principal and interest are payable monthly
through October 1, 2010.
(9) Stockholders’
Equity
Preferred
Stock
On July
13, 2006, the Company’s shareholders approved the issuance of 750,000 shares of
convertible preferred stock at $100.00 per share in the private placement with
Ares Corporate Opportunities Fund II L.P. (Ares). The shares were
issued on July 27, 2006 and a portion of the net proceeds were used to
completely repay the amounts outstanding under the credit
facility. Issuance costs, including a 1% discount to Ares and other
transaction costs, totaled approximately $3.1 million. The preferred
stock is convertible into shares of the Company’s common stock at a price of
$9.60 per share and carries a 5% payment-in-kind (PIK) dividend payable
semi-annually.
The
preferred shares were convertible into 7,812,500 shares of the Company’s common
stock on the issuance date and with the effect of the cumulative PIK dividends
at the end of five years would be convertible into 10,000,661 shares of common
stock. Under the terms of the preferred agreement, under certain
circumstances, all five years’ worth of cumulative PIK dividends would
accelerate and become payable to the preferred holder. The preferred
shareholder holds certain preferential rights, including the right to appoint
two directors. The Company can force a conversion into its common
stock following either (i) the average of the closing price of the common stock
for each of 20 consecutive trading days exceeding $14.40 per share or (ii) a
fundamental transaction that Ares does not treat as a
liquidation. After the fifth anniversary of issuance, the Company
can, at its discretion, redeem for cash equal to the liquidation preference
which is approximately $96.0 million. After the fifth anniversary of
issuance, the Company can pay dividends in cash at its
discretion. The original issuance date for the preferred stock is the
commitment date for both the preferred stock and the initial five years worth of
dividends as the payment of the dividends through in-kind payments is
non-discretionary for that initial five-year period. Based on the
fair value of the Company’s underlying common stock on the issuance date and the
stated conversion date, there is no beneficial conversion feature associated
with the issuance of the preferred stock.
Stock-based
Compensation
The
Company established the 2004 WCA Waste Corporation Incentive Plan which has been
amended and restated from time to time to comply with applicable federal
law. The plan authorizes the issuance of up to 2,250,000
shares. As of December 31, 2009, there were approximately 493,000
remaining shares authorized for issuance.
81
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
Additionally
during 2009, 2008 and 2007, approximately 313,000, 388,000 and 287,000
restricted shares of the common stock of the Company were granted to certain
directors, officers and key employees with an aggregate market value of $939,
$2,477 and $2,289 on the grant dates, respectively. The unearned
compensation is being amortized to expense on a straight-line basis over the
required employment period, or the vesting period, as the restrictions lapse at
the end of each anniversary after the date of grant. During the years
ended December 31, 2009, 2008 and 2007, $1,653, $2,182 and $1,765 of stock
compensation expense related to these restricted shares was
recognized. As of December 31, 2009, the unrecognized compensation
expense associated with restricted shares was $1,839 and will be recognized over
an average period of 1.93 years.
The
following table reflects the restricted share activity for the Company during
2009, 2008 and 2007 (in thousands):
2009
|
2008
|
2007
|
|||||||||||||||||||||||||
Shares
|
Weighted
Average Grant-Date Fair Value
|
Weighted
Average Remaining Contractual Term (years)
|
Shares
|
Weighted
Average Grant-Date Fair Value
|
Weighted
Average Remaining Contractual Term (years)
|
Shares
|
Weighted
Average Grant-Date Fair Value
|
Weighted
Average Remaining Contractual Term (years)
|
|||||||||||||||||||
Unvested
at beginning of year
|
687
|
$
|
6.93
|
594
|
$
|
7.85
|
478
|
$
|
7.84
|
||||||||||||||||||
Granted
|
313
|
3.00
|
388
|
6.38
|
287
|
7.97
|
|||||||||||||||||||||
Vested
|
(289
|
)
|
6.87
|
(258
|
)
|
8.21
|
(145
|
)
|
8.09
|
||||||||||||||||||
Forfeited
|
(73
|
)
|
6.26
|
(37
|
)
|
6.97
|
(26
|
)
|
7.57
|
||||||||||||||||||
Unvested
at end of year
|
638
|
$
|
5.10
|
1.93
|
687
|
$
|
6.93
|
2.62
|
594
|
$
|
7.85
|
3.31
|
The
following table reflects the option activity for the Company during 2009, 2008
and 2007 (in thousands, except per share data):
2009
|
2008
|
2007
|
||||||||||||||||||||||
Shares
|
Weighted
Average Exercise Price
|
Shares
|
Weighted
Average Exercise Price
|
Shares
|
Weighted
Average Exercise Price
|
|||||||||||||||||||
Outstanding
at beginning of year
|
576
|
$
|
9.52
|
621
|
$
|
9.51
|
634
|
$
|
9.52
|
|||||||||||||||
Grants
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
Forfeitures
|
(51
|
)
|
9.50
|
(45
|
)
|
9.50
|
(13
|
)
|
9.80
|
|||||||||||||||
Outstanding
at end of year
|
525
|
$
|
9.52
|
576
|
$
|
9.52
|
621
|
$
|
9.51
|
The
following table summarizes information about the stock options outstanding at
December 31, 2009 (in thousands, except per share data):
Outstanding
and Exercisable
|
||||||||||||||
Range
of Exercise Prices
|
Number
of Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Life
|
|||||||||||
9.50
|
514
|
$
|
9.50
|
4.5
|
||||||||||
10.28
– 10.39
|
11
|
10.34
|
5.0
|
|||||||||||
525
|
$
|
9.52
|
4.5
|
As the
exercise prices of all outstanding options were greater than the Company’s
common stock share price as of December 31, 2009, there was no intrinsic value
as of December 31, 2009. In addition, no compensation expense remains
to be recognized as all stock options outstanding are vested.
82
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
Other
On
December 31, 2009, the Company issued 3,555,556 shares of its common stock
valued at $15.3 million and granted 2,000,000 contingent earn-out shares valued
at $3.2 million in connection with the Live Earth acquisition. The
fair value of the earn-out shares on the acquisition date was recorded as
Contingent Considerations within Stockholders’ Equity on the Company’s balance
sheet as of December 31, 2009.
On April
16, 2008, the Company's Board of Directors authorized the repurchase of up to
$10 million of its common shares from time to time in open market or private
transactions. The timing and actual number of shares purchased
depended on a variety of factors including the stock price, corporate and
regulatory requirements and other market and economic conditions. The
stock repurchase program was terminated on December 18, 2008. During
the year ended December 31, 2008, the Company repurchased 1,056,014 shares of
its common stock for approximately $5.1 million.
(10) Employee
Benefit Plan
Effective
February 1, 2000, the Company began sponsoring a 401(k) Profit Sharing Plan for
its eligible employees. Under the plan, eligible employees are
permitted to make salary deferrals of amounts up to the Internal Revenue Service
limitation. Salary deferrals will be matched 25% by WCA, subject to
IRS limitations, and employees are 100% vested in these matching contributions
after three years of service with the Company. Salary deferrals are
100% vested at all times. Matching contributions to the plan for the
years ended December 31, 2009, 2008 and 2007 totaled $288, $402 and $370,
respectively.
(11) Income
Taxes
The
Company’s (provision) benefit for income taxes is determined by applying the
applicable statutory rate to the Company’s pre-tax financial reporting income
(loss), adjusted for permanent book-tax differences. The Company’s
federal and state income tax (provision) benefit attributable to pre-tax income
(loss) for the periods reported consist of the following (in
thousands):
2009
|
2008
|
2007
|
||||||||||
Current:
|
||||||||||||
Federal
|
$
|
—
|
$
|
(93
|
)
|
$
|
(196
|
)
|
||||
State
|
(542
|
)
|
(509
|
)
|
(398
|
)
|
||||||
Deferred:
|
||||||||||||
Federal
|
(1,616
|
)
|
14,313
|
(1,791
|
)
|
|||||||
State
|
(800
|
)
|
26
|
42
|
||||||||
Income
tax (provision) benefit
|
$
|
(2,958
|
)
|
$
|
13,737
|
$
|
(2,343
|
)
|
83
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
At
December 31, 2009 and 2008, the individually significant components that
comprise the Company’s deferred tax assets and liabilities are as follows (in
thousands):
2009
|
2008
|
|||||||
Deferred
tax assets:
|
||||||||
Federal
net operating loss carryforward
|
$
|
13,506
|
$
|
7,746
|
||||
State
net operating loss carryforward
|
6,717
|
5,142
|
||||||
Other
|
3,444
|
7,312
|
||||||
Alternative
minimum tax
|
335
|
428
|
||||||
Deferred
tax assets before valuation allowance
|
24,002
|
20,628
|
||||||
Valuation
allowance
|
(7,647
|
)
|
(6,221
|
)
|
||||
Deferred
tax assets after valuation allowance
|
16,355
|
14,407
|
||||||
Deferred
tax liabilities:
|
||||||||
Excess
of book basis over tax basis of property
|
(13,379
|
)
|
(8,553
|
)
|
||||
Prepaid
expenses
|
(378
|
)
|
(419
|
)
|
||||
Other
|
1,239
|
911
|
||||||
Deferred
tax liabilities
|
(12,518
|
)
|
(8,061
|
)
|
||||
Net
deferred tax assets
|
$
|
3,837
|
$
|
6,346
|
At
December 31, 2009, the Company had a federal net operating loss carryforward
(NOL) of approximately $38.6 million which, if not utilized, will begin to
expire in 2022. Additionally the Company has state NOLs of
approximately $164.8 million which, if not utilized, will expire beginning in
2009. The amount of the NOLs that can be utilized to offset taxable
income in any individual year may be severely limited. Accordingly,
the Company has established valuation allowances against the deferred tax assets
associated with a portion of these NOLs. The valuation allowance for
deferred tax assets as of December 31, 2009 and 2008 was $7,647 and $6,221,
respectively. The change in the total valuation allowance for the
years ended December 31, 2009, 2008 and 2007 was a net increase of $1,426,
$2,905 and $692, respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will be
realized. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment.
In June
2006, the FASB issued a pronouncement (“Accounting for Uncertainty in Income
Taxes”) which is included in ASC Topic 740. This pronouncement
prescribes a recognition threshold and measurement attribute for financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. In addition, it provides guidance on the
measurement, derecognition, classification and disclosure of tax positions, as
well as the accounting for related interest and penalties. The
pronouncement is effective for fiscal years beginning after December 15,
2006. The Company is required to record the impact of its adoption as
an adjustment to the January 1, 2007, beginning balance of retained earnings
rather than the consolidated statement of operations.
As a
result of the implementation in 2007, the Company recorded approximately $1,812
in other long-term liabilities for unrecognized tax benefits, which was
accounted for as a reduction to the January 1, 2007 balance of retained
earnings.
84
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows (in thousands):
Balance
at January 1, 2009
|
$
|
1,813
|
||
Additions
for tax positions of prior years
|
—
|
|||
Reductions
for tax positions of prior years
|
—
|
|||
Additions
for tax positions related to the current year
|
—
|
|||
Settlements
|
—
|
|||
Lapse
of statute of limitations
|
—
|
|||
Balance
at December 31, 2009
|
$
|
1,813
|
Included
in the balance of unrecognized tax benefits as of December 31, 2009, was $1,813
of tax benefits that, if recognized in future periods, would impact the
Company’s effective tax rate.
The
Company recognizes interest and penalties accrued related to unrecognized tax
benefits in income tax expense. This is an accounting policy election
made by the Company that is a continuation of the Company’s historical policy
and will continue to be consistently applied in the future. During
the year ended December 31, 2009, the Company accrued approximately $3 of gross
interest and penalties.
Within
the next 12 months, the Company anticipates a reduction of approximately $26 in
the balance of unrecognized tax benefits for a tax position related to prior
years.
The
Company is subject to federal income tax in the United States and to state taxes
in the various states in which it operates within the United
States. With few exceptions, the Company remains subject to both U.S
federal income tax and to state and local income tax examinations by taxing
authorities for tax years through 2000. Currently, the Company is not
involved in any income tax examinations for any year.
The table
below reconciles the Company’s statutory income tax (provision) benefit
attributable to pre-tax income (loss) to its effective income tax (provision)
benefit at December 31, 2009, 2008 and 2007 (in thousands):
2009
|
2008
|
2007
|
||||||||||
Statutory
federal tax (provision) benefit
|
$
|
(1,388
|
)
|
$
|
14,525
|
$
|
(1,843
|
)
|
||||
State
income tax (provision) benefit, net of federal tax (provision)
benefit
|
554
|
2,592
|
460
|
|||||||||
Adjustment
to valuation allowance
|
(1,426
|
)
|
(2,905
|
)
|
(692
|
)
|
||||||
Nondeductible
expenses and other
|
(695
|
)
|
(469
|
)
|
(267
|
)
|
||||||
FIN
48 interest and penalties
|
(3
|
)
|
(6
|
)
|
(1
|
)
|
||||||
Effective
tax (provision) benefit
|
$
|
(2,958
|
)
|
$
|
13,737
|
$
|
(2,343
|
)
|
85
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
(12) Segment
Reporting
The
Company’s operations consist of the collection, transfer, processing and
disposal of non-hazardous solid waste. Revenues are generated
primarily from the Company’s collection operations to residential, commercial
and roll-off customers and landfill disposal services. The following
table reflects total revenue by source for the years ended December 31, 2009,
2008 and 2007 (in thousands):
2009
|
2008
|
2007
|
||||||||||
Collection:
|
||||||||||||
Residential
|
$
|
55,086
|
$
|
50,433
|
$
|
41,647
|
||||||
Commercial
|
25,082
|
21,607
|
19,069
|
|||||||||
Roll-off
|
45,763
|
57,756
|
53,501
|
|||||||||
Total
collection
|
125,931
|
129,796
|
114,217
|
|||||||||
Disposal
|
68,831
|
75,456
|
70,797
|
|||||||||
Less
intercompany
|
25,109
|
29,527
|
26,994
|
|||||||||
Disposal,
net
|
43,722
|
45,929
|
43,803
|
|||||||||
Transfer
and other
|
35,924
|
46,413
|
40,986
|
|||||||||
Less
intercompany
|
11,439
|
14,129
|
14,066
|
|||||||||
Transfer
and other, net
|
24,485
|
32,284
|
26,920
|
|||||||||
Total
revenue
|
$
|
194,138
|
$
|
208,009
|
$
|
184,940
|
The table
below reflects major operating segments (Region I: Kansas, Missouri; Region II:
Colorado, Florida, New Mexico, Oklahoma, Texas; Region III: Alabama, Arkansas,
North Carolina, South Carolina, Tennessee; Region IV: Massachusetts, Ohio) for
the years ended December 31, 2009, 2008 and 2007 (in thousands).
Region
I
|
Region
II
|
Region
III
|
Region
IV (1)
|
Corporate
|
Total
|
|||||||||||||||||||
Year
ended December 31, 2009:
|
||||||||||||||||||||||||
Revenue
|
$
|
50,846
|
$
|
101,749
|
$
|
41,543
|
$
|
—
|
$
|
—
|
$
|
194,138
|
||||||||||||
Depreciation
and amortization
|
5,783
|
12,811
|
7,276
|
—
|
487
|
26,357
|
||||||||||||||||||
Operating
income (loss)
|
5,766
|
16,774
|
|
3,599
|
|
—
|
(2,141
|
)
|
23,998
|
|
||||||||||||||
Total
assets
|
81,983
|
176,913
|
101,304
|
45,122
|
26,052
|
431,374
|
||||||||||||||||||
Goodwill
|
25,367
|
18,648
|
21,303
|
—
|
—
|
65,318
|
||||||||||||||||||
Capital
expenditures
|
5,780
|
15,391
|
2,625
|
—
|
31
|
23,827
|
||||||||||||||||||
Year
ended December 31, 2008:
|
||||||||||||||||||||||||
Revenue
|
$
|
53,773
|
$
|
104,550
|
$
|
49,686
|
$
|
—
|
$
|
—
|
$
|
208,009
|
||||||||||||
Depreciation
and amortization
|
5,415
|
13,195
|
8,041
|
—
|
500
|
27,151
|
||||||||||||||||||
Impairment
of goodwill
|
—
|
25,944
|
15,781
|
—
|
—
|
41,725
|
||||||||||||||||||
Operating
income (loss)
|
6,307
|
(10,107
|
)
|
(13,149
|
)
|
—
|
1,618
|
(15,331
|
)
|
|||||||||||||||
Total
assets
|
83,420
|
173,609
|
106,303
|
—
|
24,626
|
387,958
|
||||||||||||||||||
Goodwill
|
25,277
|
18,000
|
21,303
|
—
|
—
|
64,580
|
||||||||||||||||||
Capital
expenditures
|
6,552
|
16,020
|
6,370
|
—
|
359
|
29,301
|
||||||||||||||||||
Year
ended December 31, 2007:
|
||||||||||||||||||||||||
Revenue
|
$
|
52,543
|
$
|
84,917
|
$
|
47,480
|
$
|
—
|
$
|
—
|
$
|
184,940
|
||||||||||||
Depreciation
and amortization
|
5,261
|
11,079
|
7,460
|
—
|
434
|
24,234
|
||||||||||||||||||
Operating
income (loss)
|
8,297
|
14,325
|
4,585
|
—
|
(1,122
|
)
|
26,085
|
|||||||||||||||||
Capital
expenditures
|
6,891
|
13,800
|
7,757
|
—
|
710
|
29,158
|
Total
assets for Corporate include cash, certain permitted but unopened landfills and
corporate airplane.
(1)
Assets in Region IV were acquired on December 31, 2009.
86
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
(13) Commitments
and Contingencies
(a)
Operating Leases
The
Company leases certain of its operating and office facilities for various
terms. Lease expense aggregated $2,132, $2,028 and $1,265 during
2009, 2008 and 2007, respectively. The long-term, non-cancelable
rental obligations as of December 31, 2007 are due in the following years (in
thousands):
2010
|
$
|
1,077
|
||
2011
|
906
|
|||
2012
|
698
|
|||
2013
|
388
|
|||
2014
|
297
|
|||
2015
and thereafter
|
1,437
|
|||
$
|
4,803
|
(b)
Financial Instruments
Letters
of credit, performance bonds, and other guarantees have been provided by WCA to
support performance of landfill final closure and post-closure requirements,
insurance contracts, and other contracts. Total letters of credit,
performance bonds, insurance policies, and other guarantees outstanding at
December 31, 2009 aggregated approximately $76.5 million.
(c)
Environmental Matters
In the
normal course of business and as a result of the extensive governmental
regulation of the solid waste industry, the Company may periodically become
subject to various judicial and administrative proceedings involving federal,
state or local agencies. In these proceedings, an agency may seek to impose
fines on the Company or to revoke or deny renewal of an operating permit it
holds.
From time
to time, the Company may also be subject to actions brought by citizens’ groups
or adjacent landowners or residents in connection with the permitting and
licensing of landfills and transfer stations the Company owns or operates or
alleging environmental damage or violations of the permits and licenses pursuant
to which the Company operates.
The
Company may also be subject to liability for any environmental damage that its
solid waste facilities cause to neighboring landowners or residents,
particularly as a result of the contamination of soil, groundwater, surface
water, and drinking water, including damage resulting from conditions existing
prior to the acquisition of such facilities by the Company.
The
Company may also be subject to liability for any off-site environmental
contamination caused by pollutants or hazardous substances whose transportation,
treatment, or disposal was arranged by the Company or its
predecessors. Any substantial liability for environmental damage
incurred by the Company could have a material adverse effect on the Company’s
financial condition, results of operations, or cash flows. As of
December 31, 2009, the Company was not aware of any significant environmental
liabilities.
87
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
(d)
Legal Proceedings
The
Company is a party to various legal proceedings that have arisen in the ordinary
course of business. While the results of these matters cannot be
predicted with certainty, the Company believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company’s consolidated financial position, results of operations
or cash flows. However, unfavorable resolution could affect the
consolidated financial position, results of operations or cash flows for the
quarterly period in which they are resolved.
Other
than routine litigation incidental to the Company’s business, which is not
currently expected to have a material adverse effect upon its financial
condition, results of operations or prospects, there are no pending material
legal proceedings to which the Company is a party or to which any of its
property is subject.
(e)
Other Potential Proceedings
In the
normal course of business and as a result of the extensive governmental
regulation of the solid waste industry, the Company may periodically become
subject to various judicial and administrative proceedings involving federal,
state or local agencies. In these proceedings, an agency may seek to
impose fines on the Company or to revoke or deny renewal of an operating permit
it holds. From time to time, the Company may also be subject to
actions brought by citizens’ groups or adjacent landowners or residents in
connection with the permitting and licensing of landfills and transfer stations
the Company owns or operates or alleging environmental damage or violations of
the permits and licenses pursuant to which the Company
operates. Moreover, the Company may become party to various claims
and suits pending for alleged damages to persons and property, alleged
violations of certain laws and alleged liabilities arising out of matters
occurring during the normal operation of a waste management
business.
No
assurance can be given with respect to the outcome of any such proceedings or
the effect such outcomes may have on the Company, or that the Company’s
insurance coverage would be adequate. The Company is self-insured for
a portion of its general liability, workers’ compensation and automobile
liability. The Company’s excess loss limits related to its
self-insured portion of general liability, workers’ compensation and automobile
liability are $100, $250 and $250, respectively. 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 its costs of
services.
(14) Related-Party
Transactions
The
Company reimburses its outside board members for expenses incurred in connection
with their service as directors. Total payments of $1, $10 and $2
were made during 2009, 2008 and 2007, respectively, for such
reimbursements.
88
WCA
WASTE CORPORATION
Notes to
Consolidated Financial Statements — Continued
(dollars
in thousands unless otherwise indicated)
(15) Unaudited
Quarterly Financial Data
The
following table summarizes quarterly financial information for 2009 and 2008 (in
thousands, except per share data):
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Year
Ended December 31,
|
||||||||||||||||
2009:
|
||||||||||||||||||||
Revenue
|
$
|
48,190
|
$
|
50,174
|
$
|
49,546
|
$
|
46,228
|
$
|
194,138
|
||||||||||
Operating
income
|
6,471
|
6,745
|
6,986
|
3,796
|
23,998
|
|||||||||||||||
Net
loss available to common stockholders
|
(490
|
)
|
(229
|
)
|
(250
|
)
|
(2,301
|
)
|
(3,270
|
)
|
||||||||||
Basic
earnings (loss) per share
|
$
|
(0.03
|
)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.14
|
)
|
$
|
(0.21
|
)
|
|||||
Diluted
earnings (loss) per share
|
$
|
(0.03
|
)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.14
|
)
|
$
|
(0.21
|
)
|
|||||
2008:
|
||||||||||||||||||||
Revenue
|
$
|
48,837
|
$
|
52,746
|
$
|
52,782
|
$
|
53,644
|
$
|
208,009
|
||||||||||
Operating
income (loss)
|
5,055
|
6,551
|
6,965
|
(33,902
|
)
|
(15,331
|
)
|
|||||||||||||
Net
income (loss) available to common stockholders
|
(3,357
|
)
|
1,865
|
(305
|
)
|
(30,042
|
)
|
(31,839
|
)
|
|||||||||||
Basic
earnings (loss) per share
|
$
|
(0.20
|
)
|
$
|
0.11
|
$
|
(0.02
|
)
|
$
|
(1.91
|
)
|
$
|
(1.96
|
)
|
||||||
Diluted
earnings (loss) per share
|
$
|
(0.20
|
)
|
$
|
0.11
|
$
|
(0.02
|
)
|
$
|
(1.91
|
)
|
$
|
(1.96
|
)
|
Computation
of per share amounts for quarters are made independently and reflect the
weighted average shares outstanding for each of these quarters. The
Company’s issuances of common stock in connection with restricted stock grants
and repurchases of common stock according to the stock repurchase program
significantly impacted the number of shares outstanding and the computation of
earnings (loss) per share. Therefore, the sum of per share amounts
above do not agree with per share amounts for the year as a whole.
(16) Subsequent
Events
On
February 17, 2010, the Company, Comerica Bank, in its capacity as administrative
agent, and certain other lenders, entered into the February 2010 Amendment to
the Credit Agreement. The terms of the Credit Agreement that were
modified by the February 2010 Amendment are discussed above in note 7 to the
consolidated financial statements.
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
There
were no changes in or disagreements on any matters of accounting principles or
financial statement disclosure between us and our independent registered public
accounting firm during our two most recent fiscal years or any subsequent
interim period.
Item 9A. Controls and Procedures.
We
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2009. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of December 31,
2009 in ensuring that the information required to be disclosed by us (including
our consolidated subsidiaries) in the reports that we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms; and is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required
disclosure.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, a report of management’s
assessment of the design and effectiveness of internal controls is included as
part of this annual report on Form 10-K for the fiscal year ended December 31,
2009. KPMG LLP, our independent registered public accountants, also
attested to, and reported on, management’s assessment of the effectiveness of
internal controls over financial reporting. Management’s report and
the independent registered public accounting firm’s attestation report are
included in Part II, Item 8 “Financial Statements and Supplementary Data” of
this annual report on Form 10-K.
Based on
an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
there has been no change in our internal control over financial reporting that
occurred during our last fiscal quarter, that has materially affected, or that
is reasonably likely to materially affect, our internal control over financial
reporting.
Item 10. Directors and Executive Officers of the
Registrant.
The
information with respect to our directors, executive officers, audit committee
and audit committee financial expert, is incorporated by reference to the
sections entitled “Election of Directors,” “Executive Officers,” “Information
relating to our Board of Directors and Certain Committees of our Board of
Directors,” respectively, in our definitive proxy statement for our 2010 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days of the close of our fiscal year.
Information
concerning compliance with Section 16(a) of the Securities Exchange Act of 1934,
as amended, is incorporated by reference to the section entitled “Section 16(a)
Beneficial Ownership Reporting Compliance” in our definitive proxy statement for
our 2010 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission within 120 days of the close of our fiscal
year.
We have
adopted a code of business conduct and ethics applicable to all of our officers,
directors and employees, including our principal executive officer, principal
financial officer and principal accounting officer. The code of
business conduct and ethics is available on the “Investor Relations-Corporate
Governance” section of our internet website at www.wcawaste.com. If
we amend the code of business conduct and ethics or grant a waiver, including an
implicit waiver, from the code of business conduct and ethics, we intend to
disclose the information on the “Investor Relations-Corporate Governance”
section of our Internet website at www.wcawaste.com
within four business days of such amendment or waiver, as
applicable.
The
information required by Rule 10A-3(d) of the Exchange Act is incorporated by
reference to the section entitled “Information relating to our Board of
Directors and Certain Committees of our Board of Directors” in our definitive
proxy statement for our 2010 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days of the close of our fiscal
year.
Item 11. Executive Compensation.
The
information required by Item 11 of this annual report on Form 10-K is
incorporated by reference to the sections entitled “Executive Compensation,”
“Compensation Committee Interlocks and Insider Participation,” “Employment
Agreements,” and “Compensation of Directors” in our definitive proxy statement
for our 2010 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission within 120 days of the close of our fiscal
year.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
The
information required by Item 12 of this annual report on Form 10-K is
incorporated by reference to the section entitled “Equity Compensation Plan
Information” and “Security Ownership of Certain Beneficial Owners and
Management” in our definitive proxy statement for our 2010 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days of the close of our fiscal year.
Item 13. Certain Relationships and Related
Transactions, and Director Independence.
The
information required by Item 13 of this annual report on Form 10-K is
incorporated by reference to the section entitled “Certain Relationships and
Related Transactions, and Director Independence” in our definitive proxy
statement for our 2010 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days of the close of our fiscal
year.
Item 14. Principal Accounting Fees and
Services.
The
information required by Item 14 of this annual report on Form 10-K is
incorporated by reference to the section entitled “Independent Registered Public
Accounting Firm” in our definitive proxy statement for our 2010 Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days of the close of our fiscal year.
Item 15. Exhibits and Financial Statement
Schedules.
(a) The
following documents are filed as a part of this report:
(1) and (2) Financial Statements and
Financial Statement Schedules.
Consolidated
financial statements of the Company are included in Item 8 (Financial Statements
and Supplementary Data). All other schedules for the Company have
been omitted since the required information is not present or not present in an
amount sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial statements or the
notes thereto.
(3) Exhibits.
Exhibit
No.
|
Description
|
|
2.1
|
Equity
Interest and Asset Purchase Agreement dated December 9, 2009 among WCA
Waste Corporation, WCA of Massachusetts, LLC, WCA of Ohio, LLC, Live Earth
LLC, Champion City Recovery, LLC, Boxer Realty Redevelopment, LLC, Sunny
Farms Landfill, LLC and New Amsterdam & Seneca Railroad Company, LLC
(incorporated by reference to Exhibit 10.1 to the registrants Form 8-K
(File No. 000-50808) filed with the SEC on December 15,
2009.
|
|
3.1
|
Second
Amended and Restated Certificate of Incorporation of WCA Waste Corporation
(incorporated by reference to Exhibit 3.1 to the registrant’s Form 10-K
(File No. 000-50808) filed with the SEC on December 22,
2005).
|
|
3.2
|
Second
Amended and Restated Bylaws of WCA Waste Corporation (incorporated by
reference to Exhibit 3.1 to the registrant’s Form 8-K (File No. 000-50808)
filed with the SEC on June 20, 2007).
|
|
4.1
|
Specimen
of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
Amendment No. 2 to the registrant’s Registration Statement on Form S-1
(File No. 333-113416) filed with the SEC on May 14,
2004).
|
|
4.2
|
Indenture,
dated as of July 5, 2006, by and among WCA Waste Corporation, the
Guarantors named therein and The Bank of New York Trust Company, N.A.
(incorporated by reference to Exhibit 4.1 to the registrant’s Form 8-K
(File No. 000-50808) filed with the SEC on July 5,
2006).
|
|
4.3
|
Form
of 9.25% Senior Note due 2014 (included as Exhibit A to Exhibit 4.4
above).
|
|
4.4
|
Certificate
of Designation of Series A Convertible Pay-in-Kind Preferred Stock
(incorporated by reference to Exhibit 4.7 to the registrant’s Form 10-Q
(File No. 000-50808) filed with the SEC on August 8,
2006).
|
|
4.5
|
Specimen
of Series A Convertible Pay-in-Kind Preferred Stock Certificate
(incorporated by reference to Exhibit 4.8 to the registrant’s Form 10-Q
(File No. 000-50808) filed with the SEC on August 8,
2006).
|
|
10.1+
|
Amended
and Restated Employment Agreement, effective as of January 1, 2007,
between WCA Management Company, L.P., WCA Waste Corporation and Tom J.
Fatjo, Jr. (incorporated by reference to Exhibit 10.1 to the registrant’s
Form 8-K (File No. 000-50808) filed with the SEC on December 12,
2008).
|
|
10.2+
|
Amended
and Restated Employment Agreement, effective as of January 1, 2007,
between WCA Management Company, L.P., WCA Waste Corporation and Jerome
Kruzka (incorporated by reference to Exhibit 10.2 to the registrant’s Form
8-K (File No. 000-50808) filed with the SEC on December 12,
2008).
|
Exhibit
No.
|
Description
|
|
10.3+
|
Amended
and Restated Employment Agreement, effective as of January 1, 2007,
between WCA Management Company, L.P., WCA Waste Corporation and Charles
Casalinova (incorporated by reference to Exhibit 10.3 to the registrant’s
Form 8- K (File No. 000-50808) filed with the SEC on December 12,
2008).
|
|
10.4+
|
Amended
and Restated Employment Agreement, effective as of January 1, 2007,
between WCA Management Company, L.P., WCA Waste Corporation and Tom J.
Fatjo, III (incorporated by reference to Exhibit 10.4 to the registrant’s
Form 8-K (File No. 000-50808) filed with the SEC on December 12,
2008).
|
|
10.5+
|
Form
of WCA Waste Corporation Stock Option Agreement under the 2004 WCA Waste
Corporation Incentive Plan (incorporated by reference to Exhibit 10.4 to
the registrant’s Form 10-Q (File No. 000-50808) filed with the SEC on
November 10, 2004).
|
|
10.6+
|
Form
of Executive Officer Restricted Stock Grant under the 2004 WCA Waste
Corporation Incentive Plan (incorporated by reference to Exhibit 10.15 to
the registrant’s Form 10-K (File No. 000-50808) filed with the SEC on
March 24, 2005).
|
|
10.7+
|
WCA
Waste Corporation Management Incentive Plan, as amended and restated
effective January 1, 2007 (incorporated by reference to Exhibit 10.1 to
the registrant’s Form 8-K (File No. 000-50808) filed with the SEC on
January 9, 2007).
|
|
10.8+
|
Form
of Non-Employee Director Restricted Stock Grant under the 2004 WCA Waste
Corporation Incentive Plan (incorporated by reference to Exhibit 10.21 to
the registrant’s Form 10-K (File No. 000-50808) filed with the SEC on
March 24, 2005).
|
|
10.9
|
Form
of Resale Restriction Agreement, dated as of December 21, 2005, between
WCA Waste Corporation and each of Tom J. Fatjo, Jr., Jerome M. Kruzka,
Charles A. Casalinova, Tom J. Fatjo, III, Richard E. Bean, Ballard O.
Castleman and Roger A. Ramsey individually (incorporated by reference to
Exhibit 10.1 to the registrant’s Form 8-K (File No. 000-50808) filed with
the SEC on December 22, 2005).
|
|
10.10
|
Third
Amended and Restated 2004 WCA Waste Corporation Incentive Plan, effective
as of June 1, 2005 (incorporated by reference to Exhibit 10.1 to the
registrant’s Form 8-K (File No. 000-50808) filed with the SEC on December
19, 2008).
|
|
10.11
|
Revolving
Credit Agreement, dated as of July 5, 2006, by and among WCA Waste
Corporation, Comerica Bank and the Lenders named therein (incorporated by
reference to Exhibit 10.1 to the registrant’s Form 8-K (File No.
000-50808) filed with the SEC on July 5, 2006).
|
|
10.12
|
Interest
Rate Swap Agreement, dated July 11, 2006, between WCA Waste Corporation
and Comerica Bank (incorporated by reference to Exhibit 10.3 to the
registrant’s Form 10-Q (File No. 000-50808) filed with the SEC on August
8, 2006).
|
|
10.13
|
Preferred
Stock Purchase Agreement, dated as of June 12, 2006, by and between WCA
Waste Corporation and Ares Corporate Opportunities Fund II, L.P.
(incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K
(File No. 000-50808) filed with the SEC on June 16,
2006).
|
|
10.14
|
Purchase
Agreement, dated as of June 28, 2006, by and among WCA Waste Corporation,
the Guarantors named therein and Credit Suisse Securities (USA) LLC
(incorporated by reference to Exhibit 10.2 to the registrant’s Form 8-K
(File No. 000-50808) filed with the SEC on July 5,
2006).
|
|
10.15
|
Registration
Rights Agreement, dated as of July 5, 2006, by and among WCA Waste
Corporation, the Guarantors named therein and Credit Suisse Securities
(USA) LLC (incorporated by reference to Exhibit 10.3 to the registrant’s
Form 8-K (File No. 000-50808) filed with the SEC on July 5,
2006).
|
Exhibit
No.
|
Description
|
|
10.16
|
Stockholder’s
Agreement. dated July 27. 2006, among WCA Waste Corporation and Ares
Corporate Opportunity Fund II. L.P. (incorporated by reference to Exhibit
10.5 to the registrant’s Form 10-Q (File No. 000-50808) filed with the SEC
on August 8, 2006).
|
|
10.17
|
Registration
Rights Agreement, dated July 27, 2006, among WCA Waste Corporation and
Ares Corporate Opportunities Fund II, L.P. (incorporated by reference to
Exhibit 10.6 to the registrant’s Form 10-Q (File No. 000-50808) filed with
the SEC on August 8, 2006).
|
|
10.18
|
Management
Rights Letter, dated July 27, 2006, between WCA Waste Corporation and Ares
Corporate Opportunities Fund II, L.P. (incorporated by reference to
Exhibit 10.7 to the registrant’s Form 10-Q (File No. 000-50808) filed with
the SEC on August 8, 2006).
|
|
10.19+
|
Form
of Stock Option Agreement under the Second Amended and Restated 2004 WCA
Waste Corporation Incentive Plan (incorporated by reference to Exhibit
10.37 to the registrant’s Form 10-K (File No. 000-50808) filed with the
SEC on March 14, 2007).
|
|
10.20+
|
Form
of Executive Officer Restricted Stock Grant under the Second Amended and
Restated 2004 WCA Waste Corporation Incentive Plan (incorporated by
reference to Exhibit 10.38 to the registrant’s Form 10-K (File No.
000-50808) filed with the SEC on March 14, 2007).
|
|
10.21
|
Form
of Non Employee Director Restricted Stock Grant under the Second Amended
and Restated 2004 WCA Waste Corporation Incentive Plan (incorporated by
reference to Exhibit 10.39 to the registrant’s Form 10-K (File No.
000-50808) filed with the SEC on March 14, 2007).
|
|
10.22
|
Form
of Restricted Stock Grant under the Second Amended and Restated 2004 WCA
Waste Corporation Incentive Plan (incorporated by reference to Exhibit
10.40 to the registrant’s Form 10-K (File No. 000-50808) filed with the
SEC on March 14, 2007).
|
|
10.23
|
Eighth
Amendment to Revolving Credit Agreement, dated October 22, 2008, among WCA
Waste Corporation and Comerica Bank (incorporated by reference to Exhibit
10.1 to the registrant’s Form 8-K (File No. 000-50808) filed with the SEC
on October 27, 2008).
|
|
10.24
|
Ninth
Amendment to Revolving Credit Agreement, dated February 19, 2009, among
WCA Waste Corporation and Comerica Bank (incorporated by reference to
Exhibit 10.1 to the registrant’s Form 8-K and Form 8-K/A (File No.
000-50808) filed with the SEC on February 25, 2009).
|
|
10.25
|
Tenth
Amendment to Revolving Credit Agreement, dated December 31, 2009, among
WCA Waste Corporation and Comerica Bank (incorporated by reference to
Exhibit 10.1 to the registrant’s Form 8-K (File No. 000-50808) filed with
the SEC on January 5, 2010.
|
|
10.26
|
Registration
Rights Agreement dated December 31, 2009 among WCA Waste Corporation and
the individuals and entities named therein (incorporated by reference to
Exhibit 10.2 to the registrant’s Form 8-K (File No. 000-50808) filed with
the SEC on January 5, 2010).
|
|
10.27
|
Stockholders’
Agreement dated January 15, 2010 among WCA Waste Corporation, Joseph E.
LoConti, Daniel J. Clark, Gregory J. Skoda Revocable Trust, and Patricia
A. Skoda Revocable Trust (incorporated by reference to Exhibit 10.1 to the
registrant’s Form 8-K (File No. 50808) filed with the SEC on January 15,
2010).
|
|
10.28
|
Eleventh
Amendment to Revolving Credit Agreement, dated February 17, 2009, among
WCA Waste Corporation and Comerica Bank (incorporated by reference to
Exhibit 10.1 to the registrant’s Form 8-K (File No. 000-50808) filed with
the SEC on February 26, 2010.
|
|
12.1*
|
Statement
regarding computation of ratio of earnings to fixed charges for the year
ended December 31, 2009.
|
Exhibit
No.
|
Description
|
|
14.1
|
WCA
Waste Corporation Code of Business Conduct and Ethics (incorporated by
reference to Exhibit 14.1 to the registrant’s Form 10-K (File No.
000-50808) filed with the SEC on March 24, 2005).
|
|
21.1*
|
List
of Subsidiaries of WCA Waste Corporation.
|
|
23.1*
|
Consent
of Independent Registered Public Accounting Firm KPMG
LLP.
|
|
24.1*
|
Power
of Attorney (included on signature page to this Form
10-K).
|
|
31.1*
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
|
|
31.2*
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
|
|
32.1*
|
Section
1350 Certification of Chief Executive Officer.
|
|
32.2*
|
Section
1350 Certification of Chief Financial
Officer.
|
+
|
Management
contract or compensatory plan, contract or
arrangement.
|
*
|
Filed
herewith.
|
The
registrant hereby undertakes, pursuant to Regulation S-K, Item 601(b), paragraph
(4)(iii)(A), to furnish to the Securities and Exchange Commission upon request
all constituent instruments defining the rights of holders of long-term debt of
the registrant and its consolidated subsidiaries not filed herewith for the
reason that the total amount of securities authorized under any of such
instruments does not exceed 10% of the registrant’s total consolidated
assets.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
WCA
WASTE CORPORATION
|
|||
By:
|
/s/ TOM J. FATJO, JR.
|
||
Tom
J. Fatjo, Jr.
|
|||
Chief
Executive Officer
|
Date: March
8, 2010
POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Tom J. Fatjo, Jr. and Charles A. Casalinova, and each
of them, acting individually, as his attorney-in-fact, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this annual report on
Form 10-K and other documents in connection herewith and therewith, and to file
the same, with all exhibits thereto, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection herewith and therewith and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Name
|
Title
|
Date
|
||
/s/ Tom J. Fatjo,
Jr.
|
Chairman
of the Board of Directors
|
March
8, 2010
|
||
Tom
J. Fatjo, Jr.
|
and
Chief Executive Officer
(Principal
Executive Officer)
|
|||
/s/ Jerome M.
Kruszka
|
President,
Chief Operating Officer
|
March
8, 2010
|
||
Jerome
M. Kruszka
|
and
Director
|
|||
/s/ Charles A.
Casalinova
|
Senior
Vice President and Chief
|
March
8, 2010
|
||
Charles
A. Casalinova
|
Financial
Officer (Principal
Financial
Officer)
|
|||
/s/ joseph J. Scarano,
Jr.
|
Vice
President and Controller
|
March
8, 2010
|
||
Joseph
J. Scarano, Jr.
|
(Principal
Accounting Officer)
|
|||
/s/ Richard E.
Bean
|
Director
|
March
8, 2010
|
||
Richard
E. Bean
|
||||
/s/ Daniel J.
Clark
|
Director
|
March
8, 2010
|
||
Daniel
J. Clark
|
||||
/s/ Preston Moore,
Jr.
|
Director
|
March
8, 2010
|
||
Preston
Moore Jr.
|
||||
/s/ Roger A.
Ramsey
|
Director
|
March
8, 2010
|
||
Roger
A. Ramsey
|
||||
/s/ Jeffrey b.
schwartz
|
Director
|
March
8, 2010
|
||
Jeffrey
B. Schwartz
|
||||
/s/ Jeffrey S.
Serota
|
Director
|
March
8, 2010
|
||
Jeffrey
S. Serota
|
||||
/s/ John V.
Singleton
|
Director
|
March
8, 2010
|
||
Honorable
John V. Singleton
|
EXHIBIT
INDEX
Exhibit
No.
|
Description
|
|
2.1
|
Equity
Interest and Asset Purchase Agreement dated December 9, 2009 among WCA
Waste Corporation, WCA of Massachusetts, LLC, WCA of Ohio, LLC, Live Earth
LLC, Champion City Recovery, LLC, Boxer Realty Redevelopment, LLC, Sunny
Farms Landfill, LLC and New Amsterdam & Seneca Railroad Company, LLC
(incorporated by reference to Exhibit 10.1 to the registrants Form 8-K
(File No. 000-50808) filed with the SEC on December 15,
2009.
|
|
3.1
|
Second
Amended and Restated Certificate of Incorporation of WCA Waste Corporation
(incorporated by reference to Exhibit 3.1 to the registrant’s Form 10-K
(File No. 000-50808) filed with the SEC on December 22,
2005).
|
|
3.2
|
Second
Amended and Restated Bylaws of WCA Waste Corporation (incorporated by
reference to Exhibit 3.1 to the registrant’s Form 8-K (File No. 000-50808)
filed with the SEC on June 20, 2007).
|
|
4.1
|
Specimen
of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
Amendment No. 2 to the registrant’s Registration Statement on Form S-1
(File No. 333-113416) filed with the SEC on May 14,
2004).
|
|
4.2
|
Indenture,
dated as of July 5, 2006, by and among WCA Waste Corporation, the
Guarantors named therein and The Bank of New York Trust Company, N.A.
(incorporated by reference to Exhibit 4.1 to the registrant’s Form 8-K
(File No. 000-50808) filed with the SEC on July 5,
2006).
|
|
4.3
|
Form
of 9.25% Senior Note due 2014 (included as Exhibit A to Exhibit 4.4
above).
|
|
4.4
|
Certificate
of Designation of Series A Convertible Pay-in-Kind Preferred Stock
(incorporated by reference to Exhibit 4.7 to the registrant’s Form 10-Q
(File No. 000-50808) filed with the SEC on August 8,
2006).
|
|
4.5
|
Specimen
of Series A Convertible Pay-in-Kind Preferred Stock Certificate
(incorporated by reference to Exhibit 4.8 to the registrant’s Form 10-Q
(File No. 000-50808) filed with the SEC on August 8,
2006).
|
|
10.1+
|
Amended
and Restated Employment Agreement, effective as of January 1, 2007,
between WCA Management Company, L.P., WCA Waste Corporation and Tom J.
Fatjo, Jr. (incorporated by reference to Exhibit 10.1 to the registrant’s
Form 8-K (File No. 000-50808) filed with the SEC on December 12,
2008).
|
|
10.2+
|
Amended
and Restated Employment Agreement, effective as of January 1, 2007,
between WCA Management Company, L.P., WCA Waste Corporation and Jerome
Kruzka (incorporated by reference to Exhibit 10.2 to the registrant’s Form
8-K (File No. 000-50808) filed with the SEC on December 12,
2008).
|
|
10.3+
|
Amended
and Restated Employment Agreement, effective as of January 1, 2007,
between WCA Management Company, L.P., WCA Waste Corporation and Charles
Casalinova (incorporated by reference to Exhibit 10.3 to the registrant’s
Form 8- K (File No. 000-50808) filed with the SEC on December 12,
2008).
|
|
10.4+
|
Amended
and Restated Employment Agreement, effective as of January 1, 2007,
between WCA Management Company, L.P., WCA Waste Corporation and Tom J.
Fatjo, III (incorporated by reference to Exhibit 10.4 to the registrant’s
Form 8-K (File No. 000-50808) filed with the SEC on December 12,
2008).
|
|
10.5+
|
Form
of WCA Waste Corporation Stock Option Agreement under the 2004 WCA Waste
Corporation Incentive Plan (incorporated by reference to Exhibit 10.4 to
the registrant’s Form 10-Q (File No. 000-50808) filed with the SEC on
November 10, 2004).
|
|
10.6+
|
Form
of Executive Officer Restricted Stock Grant under the 2004 WCA Waste
Corporation Incentive Plan (incorporated by reference to Exhibit 10.15 to
the registrant’s Form 10-K (File No. 000-50808) filed with the SEC on
March 24, 2005).
|
|
10.7+
|
WCA
Waste Corporation Management Incentive Plan, as amended and restated
effective January 1, 2007 (incorporated by reference to Exhibit 10.1 to
the registrant’s Form 8-K (File No. 000-50808) filed with the SEC on
January 9, 2007).
|
|
10.8+
|
Form
of Non-Employee Director Restricted Stock Grant under the 2004 WCA Waste
Corporation Incentive Plan (incorporated by reference to Exhibit 10.21 to
the registrant’s Form 10-K (File No. 000-50808) filed with the SEC on
March 24, 2005).
|
|
10.9
|
Form
of Resale Restriction Agreement, dated as of December 21, 2005, between
WCA Waste Corporation and each of Tom J. Fatjo, Jr., Jerome M. Kruzka,
Charles A. Casalinova, Tom J. Fatjo, III, Richard E. Bean, Ballard O.
Castleman and Roger A. Ramsey individually (incorporated by reference to
Exhibit 10.1 to the registrant’s Form 8-K (File No. 000-50808) filed with
the SEC on December 22, 2005).
|
|
10.10
|
Third
Amended and Restated 2004 WCA Waste Corporation Incentive Plan, effective
as of June 1, 2005 (incorporated by reference to Exhibit 10.1 to the
registrant’s Form 8-K (File No. 000-50808) filed with the SEC on December
19, 2008).
|
|
10.11
|
Revolving
Credit Agreement, dated as of July 5, 2006, by and among WCA Waste
Corporation, Comerica Bank and the Lenders named therein (incorporated by
reference to Exhibit 10.1 to the registrant’s Form 8-K (File No.
000-50808) filed with the SEC on July 5, 2006).
|
|
10.12
|
Interest
Rate Swap Agreement, dated July 11, 2006, between WCA Waste Corporation
and Comerica Bank (incorporated by reference to Exhibit 10.3 to the
registrant’s Form 10-Q (File No. 000-50808) filed with the SEC on August
8, 2006).
|
|
10.13
|
Preferred
Stock Purchase Agreement, dated as of June 12, 2006, by and between WCA
Waste Corporation and Ares Corporate Opportunities Fund II, L.P.
(incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K
(File No. 000-50808) filed with the SEC on June 16,
2006).
|
|
10.14
|
Purchase
Agreement, dated as of June 28, 2006, by and among WCA Waste Corporation,
the Guarantors named therein and Credit Suisse Securities (USA) LLC
(incorporated by reference to Exhibit 10.2 to the registrant’s Form 8-K
(File No. 000-50808) filed with the SEC on July 5,
2006).
|
|
10.15
|
Registration
Rights Agreement, dated as of July 5, 2006, by and among WCA Waste
Corporation, the Guarantors named therein and Credit Suisse Securities
(USA) LLC (incorporated by reference to Exhibit 10.3 to the registrant’s
Form 8-K (File No. 000-50808) filed with the SEC on July 5,
2006).
|
|
10.16
|
Stockholder’s
Agreement. dated July 27. 2006, among WCA Waste Corporation and Ares
Corporate Opportunity Fund II. L.P. (incorporated by reference to Exhibit
10.5 to the registrant’s Form 10-Q (File No. 000-50808) filed with the SEC
on August 8, 2006).
|
|
10.17
|
Registration
Rights Agreement, dated July 27, 2006, among WCA Waste Corporation and
Ares Corporate Opportunities Fund II, L.P. (incorporated by reference to
Exhibit 10.6 to the registrant’s Form 10-Q (File No. 000-50808) filed with
the SEC on August 8, 2006).
|
|
10.18
|
Management
Rights Letter, dated July 27, 2006, between WCA Waste Corporation and Ares
Corporate Opportunities Fund II, L.P. (incorporated by reference to
Exhibit 10.7 to the registrant’s Form 10-Q (File No. 000-50808) filed with
the SEC on August 8, 2006).
|
|
10.19+
|
Form
of Stock Option Agreement under the Second Amended and Restated 2004 WCA
Waste Corporation Incentive Plan (incorporated by reference to Exhibit
10.37 to the registrant’s Form 10-K (File No. 000-50808) filed with the
SEC on March 14, 2007).
|
|
10.20+
|
Form
of Executive Officer Restricted Stock Grant under the Second Amended and
Restated 2004 WCA Waste Corporation Incentive Plan (incorporated by
reference to Exhibit 10.38 to the registrant’s Form 10-K (File No.
000-50808) filed with the SEC on March 14, 2007).
|
|
10.21
|
Form
of Non Employee Director Restricted Stock Grant under the Second Amended
and Restated 2004 WCA Waste Corporation Incentive Plan (incorporated by
reference to Exhibit 10.39 to the registrant’s Form 10-K (File No.
000-50808) filed with the SEC on March 14, 2007).
|
|
10.22
|
Form
of Restricted Stock Grant under the Second Amended and Restated 2004 WCA
Waste Corporation Incentive Plan (incorporated by reference to Exhibit
10.40 to the registrant’s Form 10-K (File No. 000-50808) filed with the
SEC on March 14, 2007).
|
|
10.23
|
Eighth
Amendment to Revolving Credit Agreement, dated October 22, 2008, among WCA
Waste Corporation and Comerica Bank (incorporated by reference to Exhibit
10.1 to the registrant’s Form 8-K (File No. 000-50808) filed with the SEC
on October 27, 2008).
|
|
10.24
|
Ninth
Amendment to Revolving Credit Agreement, dated February 19, 2009, among
WCA Waste Corporation and Comerica Bank (incorporated by reference to
Exhibit 10.1 to the registrant’s Form 8-K and Form 8-K/A (File No.
000-50808) filed with the SEC on February 25, 2009).
|
|
10.25
|
Tenth
Amendment to Revolving Credit Agreement, dated December 31, 2009, among
WCA Waste Corporation and Comerica Bank (incorporated by reference to
Exhibit 10.1 to the registrant’s Form 8-K (File No. 000-50808) filed with
the SEC on January 5, 2010.
|
|
10.26
|
Registration
Rights Agreement dated December 31, 2009 among WCA Waste Corporation and
the individuals and entities named therein (incorporated by reference to
Exhibit 10.2 to the registrant’s Form 8-K (File No. 000-50808) filed with
the SEC on January 5, 2010).
|
|
10.27
|
Stockholders’
Agreement dated January 15, 2010 among WCA Waste Corporation, Joseph E.
LoConti, Daniel J. Clark, Gregory J. Skoda Revocable Trust, and Patricia
A. Skoda Revocable Trust (incorporated by reference to Exhibit 10.1 to the
registrant’s Form 8-K (File No. 50808) filed with the SEC on January 15,
2010).
|
|
10.28
|
Eleventh
Amendment to Revolving Credit Agreement, dated February 17, 2009, among
WCA Waste Corporation and Comerica Bank (incorporated by reference to
Exhibit 10.1 to the registrant’s Form 8-K (File No. 000-50808) filed with
the SEC on February 26, 2010.
|
|
12.1*
|
Statement
regarding computation of ratio of earnings to fixed charges for the year
ended December 31, 2009.
|
|
14.1
|
WCA
Waste Corporation Code of Business Conduct and Ethics (incorporated by
reference to Exhibit 14.1 to the registrant’s Form 10-K (File No.
000-50808) filed with the SEC on March 24, 2005).
|
|
21.1*
|
List
of Subsidiaries of WCA Waste Corporation.
|
|
23.1*
|
Consent
of Independent Registered Public Accounting Firm KPMG
LLP.
|
|
24.1*
|
Power
of Attorney (included on signature page to this Form
10-K).
|
|
31.1*
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
|
|
31.2*
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
|
|
32.1*
|
Section
1350 Certification of Chief Executive Officer.
|
|
32.2*
|
Section
1350 Certification of Chief Financial
Officer.
|
+
|
Management
contract or compensatory plan, contract or
arrangement.
|
*
|
Filed
herewith.
|
The
registrant hereby undertakes, pursuant to Regulation S-K, Item 601(b), paragraph
(4)(iii)(A), to furnish to the Securities and Exchange Commission upon request
all constituent instruments defining the rights of holders of long-term debt of
the registrant and its consolidated subsidiaries not filed herewith for the
reason that the total amount of securities authorized under any of such
instruments does not exceed 10% of the registrant’s total consolidated
assets.