WCA Waste Corporation (WCAA) - Description of business

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Company Description
Introduction     We are a vertically integrated company providing non-hazardous solid waste collection, transfer, processing, and disposal services in the south and central regions of the United States. As of December 31, 2006, we served approximately 250,000 commercial, industrial and residential customers in Alabama, Arkansas, Colorado, Florida, Kansas, Missouri, New Mexico, North Carolina, South Carolina, Tennessee and Texas. As of December 31, 2006, we owned and/or operated 20 landfills, 24 collection operations and 24 transfer stations/materials recovery facilities (MRFs). Of these facilities, three transfer stations and two landfills are fully permitted but not yet opened, and two transfer stations are idle. Additionally, we currently operate but do not own two of the transfer stations, and we hold certain prepaid disposal rights at landfills in Texas, Oklahoma and Arkansas owned and operated by other parties.     WCA Waste was incorporated as a Delaware corporation in February 2004, and our principal operating subsidiary, WCA Waste Systems, Inc., was incorporated in Delaware in September 2000, which then acquired 32 separate solid waste management operations from Waste Management, Inc. From our formation through December 31, 2006, we have successfully integrated over 75 separate operating locations acquired in a total of 29 transactions. For information regarding acquisitions made in 2004, 2005 and 2006, please read “—Acquisition History After Our Initial Public Offering” below. Unless the context requires otherwise, references in this Annual Report on Form 10-K to “WCA Waste,” “we,” “us,” or “our” refer to WCA Waste Corporation and its direct and indirect subsidiaries on a consolidated basis.Industry Overview     Based on third party sources, we believe the non-hazardous solid waste industry in the United States generates approximately $47 billion in annual revenue. We believe that approximately $22.5 billion or 48% of the estimated annual industry revenue is generated by the three largest public companies in the industry with other public and privately-held companies representing approximately 25% of the estimated annual industry revenue.     The solid waste industry can be divided among collection, transfer and disposal services. The collection and transfer operations of solid waste companies typically have lower margins than disposal service operations. By vertically integrating collection, transfer and disposal operations, operators seek to capture significant waste volumes and improve operating margins.     During the past three decades, our industry has experienced periods of substantial consolidation activity, though we believe it remains extremely fragmented. We believe that there are two factors that 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 acquisitions are small relative to the size of such companies. Our Acquisition Growth Strategy      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, 2006, we owned 20 landfills throughout the regions we serve, two of which, though fully permitted, have not yet commenced operations. We believe that our relatively high number of landfills coupled with the geographic locations of those landfills in the regions we serve positions us to maintain relatively high levels of internalization within our existing markets. As a result of our vertical integration, for the years ended December 31, 2006 and 2005, we internalized approximately 76% and 78% of the total waste we collected, respectively.      Acquisition Strategy     Our acquisition strategy targets operations that we believe will benefit from our core operating strategy of maximizing the internalization of waste. We intend to make acquisitions for two primary purposes: (i) to expand our operations in market areas we already service (“tuck-in” acquisitions); and (ii) to gain entry into new markets (“strategic” acquisitions). Please read "—Acquisition History After Our Initial Public Offering” below for more information. We intend to focus our strategic acquisitions in markets that are generally characterized by one or more of the following characteristics: (i) the availability of adequate disposal capacity, either through acquisitions or through agreements with third parties; (ii) the opportunity for us to acquire a significant market share; and (iii) steady projected economic or population growth rates.     Since ownership of landfills is essential for internalization of waste, we look for opportunities to enter a new market by acquiring or managing a permitted landfill operation in that market. However, while we generally prefer to use a landfill acquisition as our entry into a new market, we, nevertheless, may acquire a collection operation in a new market first if we believe we will be able to acquire a permitted landfill operation in that market within a relatively short time after acquiring the collection operation.     Once we establish a presence in a new market, we intend to expand our presence by tuck-in acquisitions; that is, by acquiring companies that also operate in that market or in adjacent markets, especially collection companies and transfer stations that allow us to increase internalization of waste into landfills that we own or operate. Effective tuck-in acquisitions allow growth in revenue and an increase in market share and enable disposal internalization and consolidation of duplicative facilities and functions to maximize cost efficiencies and economies of scale.     We have generally targeted markets in the south and central regions of the United States because we believe that they: (i) are served by a large number of independent non-hazardous solid waste operations, many of which we believe may be suitable for acquisition by us; (ii) generally experience less seasonal fluctuation in the demand for solid waste services than other regions; and (iii) are projected to have steady economic and population growth rates.      Acquisition Opportunities     Despite ongoing consolidation, the solid waste services industry remains fragmented and regional in nature. As indicated above, we believe private companies and public companies, other than the three largest public waste companies, represent approximately 25% of the estimated $47 billion in annual revenue generated by the solid waste industry. This condition contributes to the fragmented nature of the industry, with many small operations co-existing with a relatively small number of large organizations. While many of these operations may represent attractive acquisition candidates to a company of our size, many are too small to make any material impact on the revenues of the large companies in our industry and are thus less attractive to them. 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.      Management Experience     We believe that one of the important factors that will enable us to continue our acquisition-based growth strategy is the experience of our management.     Our management is extremely experienced in the waste industry and in consummating waste company acquisitions. Our co-founder and chairman of the board and chief executive officer, Tom J. Fatjo, Jr., has over 40 years of experience in the solid waste industry, beginning with Browning-Ferris Industries, Inc., or BFI, which he founded in 1966. Our other co-founder, president and chief operating officer, Jerome M. Kruszka, has over 35 years of experience in the solid waste management industry, beginning with Waste Management, Inc. and its affiliates, where he held a number of managerial positions during his tenure there. Both Mr. Fatjo, Jr. and Mr. Kruszka have overseen the acquisition and integration of several hundred solid waste operations during their careers in the industry. Additionally, our other senior executive officers, Charles A. Casalinova and Tom J. Fatjo, III, and our five regional managers have an average of approximately 20 years of experience in the industry, in each case involving substantial experience acquiring and integrating waste management assets and operations.Acquisition History After Our Initial Public Offering     In June 2004, we completed an initial public offering of our common stock. We also maintain a revolving credit facility with a banking group and publicly-traded senior notes. These financing activities enabled us to acquire the following operations from June 2004 through March 1, 2007:   •   In July 2004, we purchased Texas Environmental Waste, a residential and roll-off collection company in Houston, Texas.     •   In August 2004, we purchased Ashley Trash Service, a residential collection operation in Seymour, Missouri, and Power Waste, a roll-off collection operation in Birmingham, Alabama.     •   In September 2004, we acquired Blount Recycling and other related companies, which included a landfill and roll-off collection operation in Trafford, Alabama, a transfer station and roll-off collection operation in Huntsville, Alabama, a transfer station in Midfield, Alabama, and a hauling operation in Tuscaloosa, Alabama.     •   In September 2004, we acquired Translift, Inc., a commercial and roll-off collection company in Little Rock, Arkansas.     •   In November 2004, we acquired Rural Disposal, Inc., a residential, commercial and roll-off collection company in Willow Springs, Missouri.   •   In November 2004, we purchased Trash Away, Inc., which consisted of a transfer station and MRF, commercial, residential and roll-off collection company, and a portable toilet operation in Piedmont, South Carolina.     •   In January 2005, we acquired Eagle Ridge landfill located approximately 45 miles northwest of St. Louis near Bowling Green, Missouri.     •   In April 2005, we acquired certain assets from MRR Southern consisting of two landfills, two transfer stations and two MRFs in High Point and Raleigh, North Carolina .     •   In May 2005, we completed two tuck-in acquisitions by acquiring Triad Waste and Triangle Environmental, roll-off collection companies in High Point and Raleigh, North Carolina. We also purchased Foster Ferguson, a residential and commercial collection operation in El Dorado Springs, Missouri, and Proper Disposal, a commercial and roll-off collection operation in Chanute, Kansas.     •   In October 2005, we acquired Fort Meade landfill located in Fort Meade, Florida, from Waste Corporation of Central Florida, Inc., a subsidiary of Waste Corporation of America, LLC, a company owned by management and shareholders that were shareholders of our predecessor and former parent.     •   In October 2005, we acquired certain assets from Meyer & Gabbert, which consisted of one landfill, three transfer stations and a roll-off collection operation in the Sarasota/Arcadia, Florida market area.     •   In October 2005, we purchased Andy’s Hauling, a roll-off collection operation in Sarasota, Florida, and Pendergrass, a commercial and residential collection operation in Springfield, Missouri.     •   In February 2006, we acquired the membership interests of Transit Waste, LLC, which consisted of one landfill located near Durango, Colorado and a commercial, residential and roll-off collection operation in Bloomfield, New Mexico area from Waste Corporation of America, LLC.     •   In August 2006, we completed the acquisition of Fort Myers transfer station located in Fort Myers, Florida, from Waste Corporation of Florida, Inc., a subsidiary of Waste Corporation of America, LLC.     •   In October 2006, we acquired the membership interests of WCA of St. Lucie, LLC, which consisted of one transfer station located in St. Lucie, Florida, from Waste Corporation of Florida, Inc., a subsidiary of Waste Corporation of America, LLC.     •   In December 2006, we purchased certain assets from Sunrise Disposal, LLC consisting of one commercial and residential collection operation located in Springfield, Missouri.     •   In January 2007, we acquired the stock of Southwest Dumpster, Inc., a roll-off collection operation in Fort Myers, Florida.     •   In February 2007, we purchased American Waste, Inc. and affiliated companies, which consists of three landfills and four collection operations located near Oklahoma City, Oklahoma.      Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview—Acquisition Strategy Overview” for more information regarding each of the completed acquisitions.     We have integrated all of our completed acquisitions to date into our existing operations. However, it may take up to a year to fully realize operating synergies.Our Operations     Our operations consist of the collection, transfer, processing and disposal of solid waste. Our revenue mix for the years ended December 31, 2006, 2005 and 2004 is shown in the table below (dollars in thousands):                                                       2006     {2005     2004       $     %     $     %     $     %   Collection   $ 85,800       57.4 %   $ 69,786       61.1 %   $ 48,081       65.5 % Disposal     39,066       26.1 %     30,602       26.8 %     20,747       28.2 % Transfer and other, net     24,631       16.5 %     13,755       12.1 %     4,633       6.3 %                                       Total revenue   $ 149,497       100.0 %   $ 114,143       100.0 %   $ 73,461       100.0 %                                            We have a broad and diverse customer base; no single customer accounted for more than 2% of our revenues for any of the years ended December 31, 2006, 2005 or 2004. 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, 2006, we provided solid waste collection services to approximately 250,000 industrial, commercial and residential customers in 11 states through 24 collection operations. In 2006, our collection revenue consisted of approximately 52% from services provided to industrial customers, 18% from services provided to commercial customers and 30% 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 and operated under stringent regulations. Currently, solid waste landfills in the United States must be designed, permitted, operated, closed and maintained after closure in compliance with federal, state and local regulations pursuant to Subtitle D of the Resource Conservation and Recovery Act of 1976, as amended. Operating a solid waste landfill includes excavating, constructing liners, continually spreading and compacting waste and covering waste with earth or other inert material as required, final capping, closure and post-closure. The objectives of these operations are to maintain sanitary conditions, to ensure the best possible use of the airspace and to prepare the site so that it can ultimately be used for other purposes.     Access to a disposal facility is a necessity for all solid waste management companies. While access to disposal facilities owned or operated by third parties can be obtained, we believe it is preferable to internalize the waste streams. When we internalize waste we collect, we pay ourselves instead of a third party landfill operator and generally are able to realize higher operating margins and stronger operating cash flows.     In markets where we have collection operations that may be too far from our nearest landfill to economically haul the waste we collect directly to our nearest landfill, we pursue the use of transfer stations to effectively extend the distance from our own landfills that such collection operations can economically operate without having to utilize the disposal facilities of a third party. A transfer station is a facility located near residential and commercial collection routes where collection trucks take the solid waste that has been collected. The waste is unloaded from the collection trucks and reloaded onto larger transfer trucks for transportation to a landfill for final disposal. In addition to increasing our ability to internalize the waste our collection operations collect, using transfer stations reduces the costs associated with transporting waste to final disposal sites because the trucks we use for transfer have a larger capacity than collection trucks, thus allowing more waste to be transported to the disposal facility in each trip. It also increases the efficiency of our collection personnel and equipment because it allows them to focus more on collection. The following table reflects the number of transfer stations/MRFs we owned and operated by state as of December 31, 2006, 2005 and 2004.                               2006   2005   2004 Alabama     3       2       2   Arkansas     2 (1)     2 (1)     2 (1) Florida     5       3       —   Missouri     8 (1)     8 (1)     8 (1) North Carolina     3       3       —   South Carolina     1       1       1   Texas     2       2       —                             Total     24       21       13                             (1)   Includes two transfer stations we operated but did not own, one in Arkansas and one in Missouri.      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, 2006, we owned 20 non-hazardous solid waste landfills in 10 states, two of which, though fully permitted, have not yet commenced operations. Additionally, we hold certain prepaid disposal rights at landfills in Texas, Oklahoma and Arkansas owned and operated by other parties. The following table sets forth certain information as of December 31, 2006 for each of our landfills. The table does not include information for the landfills acquired after December 31, 2006 as discussed in “—Acquisition History After Our Initial Public Offering” above.                                                                       Probable           Remaining   Total             Permitted   Expansion   Total   Permitted   Remaining             Capacity (1)   Capacity (2)   Capacity (3)   Life (4)   Life (3)(4) Landfill   Location   Permitted Waste   (Cu. Yds)   (Cu. Yds)   (Cu. Yds)   (Years)   (Years) Oak Grove   Arcadia, KS   MSW     6,725,415       24,524,000       31,249,415       35.7       165.8   Black Oak   Hartville, MO   MSW     7,417,482       —       7,417,482       15.3       15.3   Central Missouri   Sedalia, MO   MSW     6,261,425       3,452,341       9,713,766       26.0       40.4   Eagle Ridge   Bowling Green, MO   MSW     3,261,896       16,335,000       19,596,896       16.4       98.3   Rolling Meadows   Hazen, AR   MSW     4,709,096       9,800,000       14,509,096       31.3       96.5   Union County   El Dorado, AR   MSW     4,048,017       496,100       4,544,117       23.9       26.8   Darrell Dickey(5)   Houston, TX   MSW     5,239,003       —       5,239,003       N/A (5)     N/A (5) Bondad   Durango, CO   MSW     3,117,647       —       3,117,647       33.4       33.4   Hardy Road   Houston, TX   C&D     6,923,312       —       6,923,312       13.7       13.7   Greenbelt   Houston, TX   C&D     6,202,441       1,400,000       7,602,441       18.1       22.2   Ralston Road   Houston, TX   C&D     1,165,462       1,325,087       2,490,549       3.6       7.7   Applerock(5)   Houston, TX   C&D     8,750,000       —       8,750,000       N/A (5)     N/A (5) Shiloh   Travelers Rest, SC   C&D     1,856,088       —       1,856,088       14.1       14.1   Yarnell   Knoxville, TN   C&D     1,206,366       —       1,206,366       13.5       13.5   Blount   Trafford, AL   C&D     4,889,681       38,839,568       43,729,249       21.6       193.5   Fines   Alpine, AL   C&D/Industrial     1,087,233       6,083,484       7,170,717       13.4       88.5   High Point   High Point, NC   C&D     4,213,253       —       4,213,253       27.8       27.8   Raleigh   Raleigh, NC   C&D     7,607,439       6,612,722       14,220,161       30.8       57.5   DeSoto   Arcadia, FL   C&D     6,200,606       14,904,750       21,105,356       7.3       24.8   Fort Meade   Ft Meade, FL   C&D     4,794,406       3,635,910       8,430,316       19.7       34.6                                                     Total             95,676,268       127,408,962       223,085,230       20.3       54.1   (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. 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, 2006, eight of our landfills were permitted to accept municipal solid waste. The remaining 12 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, 2006 and projected annual disposal volumes, the average remaining landfill life of our 18 operating landfills at December 31, 2006 was approximately 54.1 years. Some of our landfills have the potential for expanded disposal capacity beyond their currently permitted limits. We monitor the availability of permitted disposal capacity at each of our landfills on an ongoing basis and evaluate whether to pursue an expansion at a given landfill. In making this determination with respect to a particular landfill, we consider a number of factors, including the estimated future volume of waste to be disposed of at the landfill, the estimated future prices for disposal of waste at the landfill, the amount of unpermitted acreage included in the landfill, the likelihood that we will be able to obtain the required approvals and permits for expansion and the costs of developing the additional capacity. Please read notes 1 and 2 to our consolidated financial statements for information regarding our landfill accounting and use of estimates. We also regularly consider whether it is advisable, in light of changing market conditions and/or regulatory requirements, to seek to expand or change the permitted waste streams or to seek other permit modifications.     We are currently seeking to expand permitted capacity at several of our landfills for which we consider expansions to be probable. These or other future expansions may not be permitted as designed and the average remaining landfill life of our 18 operating landfills as of December 31, 2006 may not be approximately 54.1 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, 2006, 2005 and 2004. The table does not include airspace activity for the landfill acquired after December 31, 2006 as discussed in “—Acquisition History After Our Initial Public Offering” above.                                                                                                       Changes in         Balance as of   New   Landfills                   Engineering   Balance as of     December 31,   Expansions   Acquired, Net   Permits   Airspace   Estimates   December 31,     2005   Undertaken   of Divestiture   Granted   Consumed   and Design   2006 Permitted airspace:                                                         Cubic yards (in thousands)     92,583       —       3,171       5,204       (4,806 )     (476 )     95,676   Number of sites     19       —       1       —       —       —       20   Expansion airspace:                                                         Cubic yards (in thousands)     86,266       46,262       —       (5,204 )     —       85       127,409   Number of sites     12       3       —       (3 )     —       —       12                                                             Total available airspace:                                                         Cubic yards (in thousands)     178,849       46,262       3,171       —       (4,806 )     (391 )     223,085                                                             Number of sites     19               1                               20                                                                                                                           &nbs

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