UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 1, 2005
WCA Waste Corporation
(Exact name of registrant as specified in its charter)
Delaware 000-50808 20-0829917
- ------------------------------- --------------- --------------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
One Riverway, Suite 1400
Houston, Texas 77056
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 292-2400
NOT APPLICABLE
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
1
EXPLANATORY NOTE
This Form 8-K/A is filed as an amendment ("Amendment No. 1") to the
Current Report on Form 8-K filed by WCA Waste Corporation ("WCA") under Items
2.01, 2.03, 3.02 and 9.01 on April 6, 2005 (the "Initial 8-K"). Amendment No. 1
is being filed to include the financial information required under Item 9.01.
Item 2.01 Completion of Acquisition or Disposition of Assets.
As previously reported in the Initial 8-K, on April 1, 2005, WCA, WCA of
North Carolina, L.P., a subsidiary of WCA ("WCA NC"), and WCA of Wake County,
L.P. consummated the acquisition of the membership interests of Material
Recovery, LLC, Material Reclamation, LLC, MRR of High Point, LLC and MRR Wake
Transfer Station (collectively, "MRR") pursuant to a Membership Interest
Purchase Agreement (the "Acquisition"). Pursuant to the Acquisition, WCA
acquired two construction and demolition landfill operations, one in High Point,
North Carolina and one in Wake County, North Carolina, one material recovery
facility in High Point, North Carolina, and two transfer stations (one combined
with a material recovery facility) in Wake County, North Carolina. The
Acquisition expanded WCA's presence into the Raleigh/Durham, North Carolina and
Winston-Salem/Greensboro, North Carolina market areas.
The purchase price for the membership interests of the Acquired Companies
was approximately $40.0 million, including $1.0 million for MRR's working
capital and $0.3 million in transaction costs. WCA will pay (i) up to an
additional $1.5 million as an earn-out payment upon the achievement of certain
quarterly revenue targets over a two-year period for the High Point landfill (or
upon the opening of other construction and demolition landfills in the vicinity)
and (ii) an additional $1.5 million if WCA NC acquires a site in Guilford County
or Forsyth County, North Carolina, that is permitted as a transfer station or
material recovery facility within three years of the closing date. These
earn-out amounts are payable 50% in cash and 50% in WCA common stock, although
either party may elect to pay or receive, as applicable, cash in lieu of shares
of WCA common stock. The number of shares to be delivered upon payment of the
earn-out amounts, if any, shall be determined by dividing the portion of the
payment to be paid in WCA common stock by the average closing price per share on
each of the ten business days immediately preceding the date of the event
triggering the earn-out payment.
ITEM 9.01. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
The Audited Consolidated Financial Statements of Material Recovery, LLC
and certain affiliates ("MRR") as of and for the year ended December 31, 2004,
are attached hereto as Annex II.
The Unaudited Consolidated Statements of Income and Cash Flows of MRR for
the three months ended March 31, 2005 and 2004, and the Unaudited Consolidated
Balance Sheet of MRR as of March 31, 2005, are attached hereto as Annex III.
(b) Pro Forma Financial Information.
Pro forma financial information of the Company as of December 31, 2004 and
March 31, 2005 is attached hereto as Annex I.
(c) Exhibits.
Exhibit No. Description
- ----------- --------------------------------------------------------------
2.1 * + ** Membership Interest Purchase Agreement, dated effective
January 14, 2005, between WCA of North Carolina, L.P., MRR
2
Southern, LLC, Material Recovery, LLC, Material Reclamation,
LLC, MRR of High Point, LLC, MRR Wake Transfer Station, LLC,
WCA Waste Corporation, F. Norbert Hector, Jr., D.H. Griffin,
Paul M. Givens, Edward I. Weisiger, Jr. and David Griffin,
Jr. (incorporated by reference to Exhibit 2.4 to WCA's
Annual Report on Form 10-K (File No. 000-50808) filed with
the SEC on March 24, 2005).
2.2 ** First Amendment to Membership Interest Purchase Agreement, dated
March 30, 2005, between WCA of North Carolina, L.P., MRR
Southern, LLC, WCA Waste Corporation and WCA of Wake County,
L.P. (incorporated by reference to Exhibit 2.2 to WCA's
Quarterly Report on Form 10-Q (File No. 000-50808) filed with
the SEC on May 13, 2005).
99.1 ** WCA Waste Corporation Press Release, dated April 1, 2005
(incorporated by reference to Exhibit 99.1 to WCA's Current
Report on Form 8-K (File No. 000-50808) filed with the SEC on
April 6, 2005).
* Confidential treatment has been requested with respect to certain information
contained in this agreement.
+ Pursuant to Item 601(b)(2) of Regulation S-K, WCA agrees to furnish
supplementally a copy of any omitted schedule to the Commission upon request.
** Previously filed.
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WCA Waste Corporation
Date: June 14, 2005 By: /s/ Charles A. Casalinova
----------------------------
Senior Vice President and
Chief Financial Officer
4
ANNEX I
The following unaudited pro forma consolidated financial statements as of
March 31, 2005, and for the year ended December 31, 2004 and the three-month
period ended March 31, 2005, illustrate the effect of the acquisition of
Material Recovery, LLC and certain affiliates ("MRR"), as described in Note 1 to
the unaudited pro forma financial statements. The unaudited pro forma
consolidated balance sheet as of March 31, 2005, has been prepared assuming that
the acquisition was consummated as of March 31, 2005. The unaudited pro forma
consolidated statements of income for the year ended December 31, 2004 and
three-month period ended March 31, 2005, have been prepared assuming that the
transaction was consummated as of January 1, 2004 and 2005, respectively.
The historical results of our operations have been derived from our
consolidated financial statements. The historical results of MRR have been
derived from MRR's consolidated financial statements.
MRR's operations include two construction and demolition landfill
operations, two material recovery facilities, and two transfer stations. One
landfill began operating in October 2003 and the other began operating in
February 2004. At the time of their opening, limited volume of waste was being
received and therefore the historical results of operations do not reflect the
level of activity that was in effect at the time of the acquisition nor have any
pro forma adjustments been made to reflect such current or anticipated future
volume levels.
The pro forma adjustments and the resulting unaudited pro forma financial
statements are based upon available information and certain assumptions and
estimates as described in the Notes to the Unaudited Pro Forma Financial
Statements. A final determination of the required purchase accounting
adjustments, including the allocation of the purchase price to the assets
acquired and liabilities assumed based on their respective fair values, has not
yet been made. Accordingly, the purchase accounting adjustments reflected in the
pro forma information are preliminary and have been made solely for the purposes
of developing such information. As indicated in Note 3.(B) to the proforma
financial statements, consistent with the Company's accounting policy, the
majority of the purchase price was allocated to the landfills. The unaudited pro
forma financial statements and the notes thereto should be read in conjunction
with our and MRR's historical consolidated financial statements.
The unaudited pro forma consolidated statements of income do not include
and they do not purport to be indicative of the results of operations that would
actually have occurred if the transactions described had occurred at the
beginning of the periods presented, in such statements or the results that may
be obtained in the future.
5
WCA Waste Corporation
Unaudited Pro Forma Consolidated Balance Sheet
As of March 31, 2005
(In thousands)
WCA MRR Pro Forma
Historical Historical Adjustments Total
---------- ---------- ----------- -----------
ASSETS
Cash.......................................... $ 887 $ 233 $ 39,996 (A)
(233)(B)
(39,996)(B) $ 887
Accounts Receivable, Net...................... 10,146 979 (979)(B)
993 (B) 11,139
Prepaid and Other Current Assets.............. 4,602 - 4,602
---------- ---------- -----------
Total Current Assets.......................... 15,635 1,212 16,628
Property and Equipment, Net................... 101,808 15,136 (15,128)(B)
39,003 (B) 140,819
Goodwill, Net................................. 48,848 - 48,848
Intangible Assets, Net........................ 3,663 - 3,663
Cost Incurred on Possible Acquisitions........ 2,323 - (1,802)(A) 521
Deferred Financing Costs, Net................. 2,997 19 (19)(B) 2,997
Deferred Tax Assets........................... 2,096 - 2,096
Other Assets.................................. 2,654 - 2,654
---------- ---------- -----------
Total Assets.................................. $ 180,024 $ 16,367 $ 218,226
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable.............................. $ 5,816 $ 30 $ (30)(B) $ 5,816
Accrued Liabilities........................... 4,982 33 (33)(B) 4,982
Accrued Closure and Post-closure
Liabilities................................. 444 - 444
Note Payable.................................. 1,262 - 1,262
Current Portion of Long-term Debt............. 1,328 2,077 (2,077)(B) 1,328
---------- ---------- -----------
Total Current Liabilities..................... 13,832 2,140 13,832
Long-term Debt, Less Current Maturities 38,194 (A)
and Discount................................ 83,789 9,187 (9,187)(B) 121,983
Accrued Closure and Post-closure
Liabilities................................. 1,884 8 1,892
---------- ---------- -----------
Total Liabilities............................. 99,505 11,335 137,707
Common Stock.................................. 155 - 155
Additional Paid-in Capital.................... 79,307 - 79,307
Members' Equity............................... - 4,367 (4,367)(B) -
Unearned Compensation......................... (1,226) - (1,226)
Retained Earnings............................. 2,283 665 (665)(B) 2,283
---------- ---------- -----------
80,519 5,032 80,519
---------- ---------- -----------
Total Liabilities & Stockholders' Equity $ 180,024 $ 16,367 $ 218,226
========== ========== ===========
The accompanying notes are an integral part of this financial statement.
6
WCA Waste Corporation
Unaudited Pro Forma Consolidated Statement of Income
For The Year Ended December 31, 2004
(In thousands, except per share amounts)
Pro
WCA MRR Forma
Historical Historical Adjustments Total
---------- ---------- ----------- --------
Revenues................................ $ 73,461 $ 5,960 $ - $ 79,421
Cost of Services........................ 50,387 2,329 278 (C) 52,994
Depreciation and Amortization........... 8,828 1,038 359 (D) 10,225
General and Administrative Expenses..... 4,751 278 (278)(C) 4,751
Non-cash Compensation Charge............ 11,532 - 11,532
---------- ---------- --------
Operating Income (Loss)................. (2,037) 2,315 (81)
Interest Expense, Net................... (5,071) (484) (1,339)(E) (6,894)
Other................................... 268 77 345
---------- ---------- --------
Income (Loss) Before Income Tax......... (6,840) 1,908 (6,630)
Tax (Provision) Benefit................. 2,476 - (76)(F) 2,400
---------- ---------- --------
Net Income (Loss)....................... $ (4,364) $ 1,908 $ (4,230)
========== ========== ========
Basic Earnings Per Share................ $ (0.38) $ (0.36)
Diluted Earnings Per Share.............. (0.38) (0.36)
Weighted Average Shares
Outstanding (Basic)................... 11,599 11,599
Weighted Average Shares
Outstanding (Diluted)................. 11,599 11,599
The accompanying notes are an integral part of this financial statement.
7
WCA Waste Corporation
Unaudited Pro Forma Consolidated Statement of Income
For The Three Months Ended March 31, 2005
(In thousands, except per share amounts)
Pro
WCA MRR Forma
Historical Historical Adjustments Total
---------- ----------- ----------- --------
Revenues................................ $ 22,885 $ 1,785 $ - $ 24,670
Cost of Services........................ 15,784 706 16,490
Depreciation and Amortization........... 2,838 276 158 (D) 3,272
General and Administrative Expenses..... 1,746 - 1,746
---------- ----------- --------
Operating Income (Loss)................. 2,517 803 3,162
Interest Expense, Net................... (1,352) (136) (334)(E) (1,822)
Other................................... 4 (2) 2
---------- ----------- --------
Income Before Income Tax................ 1,169 665 1,342
Tax Provision (Benefit)................. 461 68 (F) 529
---------- ----------- --------
Net Income (Loss)....................... $ 708 $ 665 $ 813
========== =========== ========
Basic Earnings Per Share................ $ 0.05 $ 0.05
Diluted Earnings Per Share.............. 0.05 0.05
Weighted Average Shares
Outstanding (Basic)................... 15,305 15,305
Weighted Average Shares
Outstanding (Diluted)................. 15,326 15,326
The accompanying notes are an integral part of this financial statement.
8
WCA Waste Corporation
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND:
On April 1, 2005, WCA consummated the acquisition of the membership
interests of Material Reclamation, LLC and certain affiliates ("MRR"). Total
consideration for the acquisition was approximately $40.0 million including $1.0
million for working capital and $0.3 in transaction costs. Initial payments and
transaction costs totaling $1.8 million had been made as of March 31, 2005 and
are included in the historical balance sheet of the Company as "Costs incurred
on possible acquisitions". The purchase price was funded through the Company's
then-existing $160.0 million credit facility. MRR owns two construction and
demolition landfills, two transfer stations and two material recovery facilities
in North Carolina. One landfill began operating in October 2003 and the other
began operating in February 2004.
2. BASIS OF PRESENTATION:
The accompanying unaudited pro forma balance sheet has been prepared
assuming that the acquisition and the related financing transactions occurred as
of March 31, 2005. The accompanying unaudited pro forma statements of income for
the year ended December 31, 2004 and the three-month period ended March 31,
2005, has been prepared assuming that such transactions were consummated as of
January 1, 2004 and 2005, respectively.
3. PRO FORMA ADJUSTMENTS AND MANAGEMENT ASSUMPTIONS:
The unaudited pro forma financial statements reflect the following pro
forma adjustments related to the acquisition and the related financing
transactions:
(A) Receipt of aggregate proceeds of $40.0 million from our credit
facility including $1.8 million previously financed through the Company's credit
facility prior to March 31, 2005.
9
(B) Acquisition of MRR for total consideration of approximately $39.7
million plus $0.3 million in transaction costs. All of MRR's outstanding debt
was repaid by the seller with purchase price proceeds. Based on preliminary
determinations of the fair values of assets acquired, the preliminary purchase
price allocation is as follows:
Purchase Price:
Cash $ 38.7
Working Capital Adjustment 1.0
Transaction Costs 0.3
--------
40.0
Purchase Price Allocation:
Step-up in Fair Value of Assets:
Property and Equipment
(Primarily Landfills) 39.0
Accounts Receivable 1.0
--------
Net asset $ 40.0
========
(C) Entry to classify field general and administrative expenses to cost of
services to conform with Company presentation.
(D) Increase in depreciation and amortization due to depreciation on step
up in basis of assets over remaining useful lives and accretion of landfill
value over portion used in period in accordance with Company policy.
(E) Increase in interest expense, net, due to the increased indebtedness
of $40.0 million from the credit facility.
(F) To provide for taxes on MRR historical results and for the effects of
MRR pro forma adjustments herein, utilizing the Company's effective tax rate for
each period.
10
ANNEX II
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
February 18, 2005*
To the Members of
MATERIAL RECOVERY, LLC AND AFFILIATES
We have audited the accompanying combined balance sheet of Material
Recovery, LLC and Affiliates as of December 31, 2004, and the related combined
statements of operations and members' equity, and cash flows for the year then
ended. These financial statements are the responsibility of Material Recovery,
LLC and Affiliates' management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the combined
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined 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
audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of Material
Recovery, LLC and Affiliates as of December 31, 2004, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ MELTON & MELTON, LLP
*Except for Notes 3 and 11, as to which the date is April 1, 2005.
11
MATERIAL RECOVERY, LLC AND AFFILIATES
COMBINED BALANCE SHEET
DECEMBER 31, 2004
ASSETS
CURRENT ASSETS:
Cash $ 117,001
Accounts receivable - trade, less allowance
for doubtful accounts of $28,458 905,589
Accounts receivable - other 75,980
Prepaid expenses 34,188
-----------
Total current assets 1,132,758
PROPERTY, PLANT, AND EQUIPMENT, net 15,431,575
DEFERRED FINANCING COSTS 20,503
-----------
$16,584,836
===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 9,913,356
Accounts payable - trade 139,553
Accrued liabilities 54,065
-----------
Total current liabilities 10,106,974
LONG-TERM DEBT, net of current maturities 1,850,856
ACCRUED CLOSURE AND POST-CLOSURE OBLIGATION 14,286
-----------
Total liabilities 11,972,116
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY 4,612,720
-----------
$16,584,836
===========
(See Notes to Combined Financial Statements)
12
MATERIAL RECOVERY, LLC AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2004
SERVICE REVENUES $ 5,959,931
OPERATING COSTS AND EXPENSES:
Operations $ 3,366,883
General and administrative 278,187 3,645,070
----------- ------------
Income from operations 2,314,861
OTHER INCOME (EXPENSE):
Interest expense (483,592)
Other 76,519 (407,073)
----------- ------------
Net income 1,907,788
MEMBERS' EQUITY, DECEMBER 31, 2003 2,979,932
Contributions 1,052,000
Distributions (1,327,000)
------------
MEMBERS' EQUITY, DECEMBER 31, 2004 $ 4,612,720
============
(See Notes to Combined Financial Statements)
13
MATERIAL RECOVERY, LLC AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,907,788
----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,038,471
Provision for bad debts 24,076
Cash provided by (used for) the change in:
Accounts receivable - trade (463,047)
Accounts receivable - other (14,348)
Prepaid expenses (6,244)
Other assets 1,551
Accounts payable - trade (354,415)
Accrued liabilities (168,367)
----------
Total adjustments 57,677
----------
Net cash provided by operating activities 1,965,465
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,168,913)
----------
Net cash used in investing activities (1,168,913)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term debt 1,110,488
Principal payments under long-term debt (1,659,438)
Member contributions 1,052,000
Member distributions (1,327,000)
----------
Net cash used in financing activities (823,950)
----------
Net decrease in cash (27,398)
CASH, December 31, 2003 144,399
----------
CASH, December 31, 2004 $ 117,001
==========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 465,669
==========
(See Notes to Combined Financial Statements)
14
MATERIAL RECOVERY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMBINED FINANCIAL STATEMENTS
The combined financial statements of Material Recovery, LLC and
Affiliates (the "Company") include the accounts of Material Recovery, LLC
("Recovery"); Material Reclamation, LLC ("Reclamation"); MRR High Point, LLC
("High Point"); and MRR Wake Transfer Station, LLC ("WTS"). The companies have
been presented on a combined basis due to their related operations, common
ownership, and common management control and are not those of a separate legal
entity. All significant intercompany accounts and transactions have been
eliminated in the combined financial statements.
NATURE OF BUSINESS
The Company's operations consist of acquisition and operation of
landfills used for the deposit of construction and demolition ("C&D") waste and
reclamation centers for the processing, recovery, and recycling of C&D waste.
USE OF ESTIMATES
The preparation of combined financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the combined financial statements and reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. Management believes that these estimates and
assumptions provide a reasonable basis for the fair presentation of the combined
financial statements.
TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are reported net of an allowance for
doubtful accounts in the combined balance sheet. The allowance for doubtful
accounts is based on a review of outstanding receivables, historical collection
information, and existing economic conditions. Receivables past due more than 60
days are considered delinquent. Delinquent receivables are written off based on
individual credit evaluation and specific circumstances of the customer.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and depreciated
using the straight-line method over the estimated useful lives of the respective
assets. Useful lives are 30 years on land improvements, 3 to 7 years on
equipment and 3 to 5 years on vehicles.
Expenditures for repairs and maintenance are charged to expense as
incurred. The costs of major renewals and betterments are capitalized and
depreciated over their estimated useful lives. Upon disposition, the asset and
related accumulated depreciation or amortization accounts are relieved and any
related gain or loss is reflected in operations.
15
MATERIAL RECOVERY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may be
recoverable, in accordance with the provisions of Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.
LANDFILL COSTS
At December 31, 2004, the Company owned and operated two C&D
landfills.
Landfill costs which are capitalized include expenditures for
engineering and permitting costs, cell construction costs, and direct site
improvement costs. 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 third-party engineers.
The Company also capitalizes costs related to permit expansions when
management believes the permits are probable. The criteria used to determine if
a permit expansion is probable include, but are not limited to, the following:
- The land is controlled by the Company;
- Management is committed to the expansion;
- Personnel are actively working to obtain approvals for the
expansion;
- Management believes the permit is likely to be received;
- Financial analysis supports that the expansion has the prospect of a
positive financial and operational impact; and
- Management 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 the Company is unsuccessful in
obtaining such permits, the previously capitalized costs will be charged to
expense.
16
MATERIAL RECOVERY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from services provided at the time of
performance of the service.
INCOME TAXES
Material Recovery, LLC and its affiliates are limited liability
corporations whereby income taxes are the responsibility of the members of the
corporations. Accordingly, no provision for income taxes has been reflected in
the accompanying combined financial statements.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized using the straight-line
method, which approximates the effective interest method, over the term of the
related borrowings. During the year ended December 31, 2004, the Company's
amortization expense was $6,353.
ACCRUED 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 five years after final site closure.
The Company accounts for its accrued closure and post-closure
obligations in accordance with Statement of Financial Accounting Standards No.
143 (SFAS No. 143), Accounting for Asset Retirement Obligations. During 2004,
the Company changed its method of accounting for accrued closure and
post-closure obligations under SFAS No. 143 from the method of recording the
entire closure and post-closure obligations at the inception of the landfill to
the method more widely used in the refuse industry of recognizing the closure
and post-closure obligations as available airspace is consumed. The Company
believes that the new method more accurately reflects periodic results of
operations. The effect of the change was to increase net income for 2004 by
approximately $71,000. The effect on previously reported earnings was
insignificant. Generally, the requirements for recording closure and
post-closure obligations are as follows:
- Landfill closure and post-closure liabilities are calculated by
estimating the total obligation in current dollars. Cost estimates
equate the costs of third parties performing the work.
17
MATERIAL RECOVERY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- The total obligation is carried at the net present value of future
cash expenditures, which is calculated by inflating the obligations
based upon the expected date of the expenditure using an inflation
rate of 2.5% and discounting the inflated total to its present value
using an 8.5% discount rate. The 8.5% discount rate represents the
Company's credit-adjusted risk-free rate. The resulting closure and
post-closure obligation is recorded on the balance sheet as airspace
is consumed.
- Accretion expense is calculated by multiplying the discounted
closure and post-closure obligation at the beginning of the year by
the 8.5% credit-adjusted risk-free rate (discount rate). Accretion
expense is a non-cash charge to operating costs and increases the
related closure and post-closure obligation. This expense will
generally be less during the early portion of the landfill's
operating life and increase thereafter.
The 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.
NOTE 2 - PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following:
Land $ 6,065,261
Land improvements 4,731,542
Buildings and improvements 1,898,657
Capitalized closure and post-closure costs 14,286
Machinery and equipment 4,691,061
Transportation equipment 60,290
Office furniture and equipment 29,845
-------------
17,490,942
Allowance for depreciation (deduction) (2,059,367)
-------------
$ 15,431,575
=============
NOTE 3 - LONG-TERM DEBT
Long-term debt at December 31, 2004 consists of the following:
*Note payable to a financial institution, due in
monthly principal payments of $29,145 plus interest
at 30-day LIBOR plus 2.25%, maturing June 15, 2009,
collateralized by land and improvements. $3,351,638
18
MATERIAL RECOVERY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004
NOTE 3 - LONG-TERM DEBT (CONTINUED)
*Note payable to a financial institution, due in
monthly principal payments of $20,833 plus interest
at 30-day LIBOR plus 2.25%, maturing December 15,
2007. The notes are collateralized by the related
assets purchased. $ 750,000
Note payable to D.H. Griffin Holdings Co., due
in monthly installments of principal of $9,595
plus interest at 30-day LIBOR plus 2.25%, until
May 31, 2006, when all remaining principal and
accrued interest is due. The note is collateralized
by the Company's reclamation facility with a
carrying value of $1,569,891. 1,314,415
*Note payable, due in monthly principal payments
of $20,000 plus interest at 30-day LIBOR plus 2.25%,
until August 31, 2006, when all remaining principal
and accrued interest is due. The note is collateralized
by certain equipment with a carrying value of $656,860. 360,472
Notes (4) payable, in aggregate monthly installments
of $28,054 including interest at stated rates from
1.78% to 4.6%, maturing at various times through
January 2008. The notes are collateralized by the
related assets purchased. 961,418
*Note payable, due in monthly principal payments
of $32,467 plus interest at 30-day LIBOR plus 2.25%,
maturing June 15, 2009. Collateralized by land and
improvements. 3,733,651
*Note payable, due in monthly principal payments
of $26,042 plus interest at 30-day LIBOR plus 2.25%,
maturing December 15, 2007. The notes are collateralized
by the related assets purchased. 823,306
Note payable, due in quarterly installments of
principal and accrued interest at a stated rate of
6.0%, with final payment due on August 6, 2005. 32,812
*Note payable, due in monthly principal payments of
$8,083 plus interest at 30-day LIBOR plus 2.25%,
maturing June 15, 2009. Collateralized by land and
improvements. 436,500
-----------
11,764,212
Less: Current maturities 9,913,356
-----------
$ 1,850,856
===========
19
MATERIAL RECOVERY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004
NOTE 3 - LONG-TERM DEBT (CONTINUED)
*Certain debt agreements entered into during 2004 contain various restrictive
covenants to be measured annually beginning with the fiscal year ending December
31, 2004. As of December 31, 2004, the Company was in violation of maintaining
certain of these restrictive covenants.
Under the terms of the agreements, the financial institution has the right
to call the debt currently due because of these violations. Accordingly, the
debt associated with these covenants has been classified as a current liability
in the accompanying combined balance sheet. On April 1, 2005 such debt was paid
off.
Maturities of long-term debt as of December 31, 2004 are as follows:
2005 $ 9,913,356
2006 1,519,386
2007 331,470
--------------
$ 11,764,212
==============
NOTE 4 - ACCRUED CLOSURE AND POST-CLOSURE OBLIGATION
In October of 2003, the Company placed into service forty-five acres of
its landfill operated by Recovery. In February of 2004, the Company placed into
service fifty one acres of its landfill operated by High Point. In accordance
with SFAS No. 143, the Company recorded a liability and related asset of $4,656
and $9,630 for Recovery and High Point respectively, using the expected cash
flow approach to measure the obligation.
The following table shows the changes to the accrued closure and
post-closure obligation during the year ended December 31, 2004:
Accrued closure and post-closure obligation
as of December 31, 2003 $ 577,179
Change in accounting method (see note 1) (572,523)
Additions 9,630
-----------
Accrued closure and post-closure obligation
as of December 31, 2004 $ 14,286
===========
20
MATERIAL RECOVERY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004
NOTE 5 - OPERATING LEASE COMMITMENTS
Reclamation has entered into an operating lease agreement with a related
party for the use of land in Raleigh, North Carolina for the company's
reclamation operation. The lease requires monthly lease payments of $2,100 per
month through March 31, 2021. At the end of the lease period, Reclamation has
the option to renew for two successive 10 year periods at an increase rental
rate based on the increase in the Consumer Price Index. Rent expense on the
above operating lease totaled $25,200 for the year ended December 31, 2004.
Approximate future minimum rental commitments under the above operating lease,
exclusive of taxes and insurance, are summarized as follows:
For the Year Ending December 31:
2005 $ 25,200
2006 25,200
2007 25,200
2008 25,200
2009 25,200
Thereafter 283,500
--------
$409,500
========
NOTE 6 - RETIREMENT PLAN
The Company has a defined contribution retirement plan for its employees
over 21 years of age with 3 months of employment prior to the Company's quarter
end. Participants may elect to contribute a portion of their annual compensation
to the plan, after complying with certain limitations set by the Internal
Revenue Code. Since inception, the Company has not made any contributions to the
plan.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company has entered into a loan agreement (See Note 3) with D.H.
Griffin Holding Co., LLC, an affiliated company. Interest paid on the loan
amounted to $54,520 for the year ended December 31, 2004.
The Company leases real property from an affiliated company (See Note 5).
During the year ended December 31, 2004, the Company had net sales to
affiliated companies of approximately $666,000, with outstanding accounts
receivable - trade balances totaling $136,464 at December 31, 2004.
21
MATERIAL RECOVERY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004
NOTE 8 - CONCENTRATIONS OF CREDIT RISK
The Company provides services to customers primarily located in North
Carolina.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts receivable.
The Company has deposits with a commercial bank which at times may exceed the
deposit insurance limit of the Federal Deposit Insurance Corporation. Management
feels exposure of loss is minimal and any actual loss is unlikely.
The Company controls its credit risk associated with trade receivables by
maintaining credit policies which include credit evaluations and monitoring
procedures. The Company does not have any collateral requirements related to
trade receivables.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company will have material financial obligations relating to disposal
site closure and long-term care obligations of landfill facilities. The Company
provides accruals for future obligations (generally for a term of 40 years after
final closure of the landfill) based on engineering estimates of consumption of
permitted and deemed to be permitted landfill airspace over the useful life of
the landfill (See Note 4). The Company's ultimate financial obligation for
actual closing or post-closing costs might exceed the amount accrued. Such a
circumstance could have a material adverse effect on the Company's financial
condition or results of operations.
Additionally, in the normal course of business and as a result of the
extensive governmental regulation of the solid waste industry, the company may
periodically become subject to various judicial and administrative proceedings
involving federal, state, or local agencies. In these proceedings, an agency may
seek to impose fines on the Company or to revoke or deny renewal of an operating
permit of the Company. From time to time, the Company may also be subject to
actions brought by citizens' groups or adjacent landowners or residents in
connection with the permitting and licensing of landfills the Company operates,
or alleges environmental damage or violations of the permits and licenses
pursuant to which the Company operates. No assurance can be given with respect
to the outcome of any such proceedings or the effect such outcomes may have on
the Company. Although the Company is unable to estimate any possible losses, a
significant judgment against the Company, the loss of significant permits or
licenses, or the imposition of a significant fine could have a material adverse
effect on the Company's financial condition, results of operations, or cash
flows.
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. Management is not aware of any pending
material legal proceedings to which the Company is a party or to which any of
its property is subject. Additionally, the Company maintains insurance coverage
to mitigate such potential losses.
22
MATERIAL RECOVERY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004
NOTE 10 - ENVIRONMENTAL MATTERS
The Company is subject to liability for environmental damages that its
landfill operations may cause to neighboring landowners or residents,
particularly as a result of the contamination of soil, groundwater, surface
water, or drinking water. The Company may also be subject to liability for any
off-site environmental contaminations caused by pollutants or hazardous
substances whose transportation, treatment, or disposal was arranged by the
Company. 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, 2004, the
Company is not aware of any significant environmental liabilities.
NOTE 11 - MEMBERSHIP INTEREST PURCHASE AGREEMENT
The members of Material Recovery and Affiliates have entered into a
membership interest purchase agreement with WCA of North Carolina, L.P., a
Delaware limited partnership. This agreement is effective January 14, 2005
wherein members of Material Recovery, LLC and Affiliates have agreed to sell
their interest in the companies for $38,500,000. A portion of the purchase price
will be paid to certain creditors of the companies to discharge applicable
long-term debt. The purchase transaction was completed on April 1, 2005.
23
ANNEX III
MATERIAL RECOVERY, LLC AND AFFILIATES
Unaudited Consolidated Balance Sheet
As of March 31, 2005
(In thousands)
ASSETS
Cash............................................ $ 233
Accounts Receivable, Net........................ 979
----------
Total Current Assets............................ 1,212
Property and Equipment, Net..................... 15,136
Deferred Financing Costs, Net................... 19
----------
Total Assets.................................... $ 16,367
==========
LIABILITIES AND MEMBERS' EQUITY
Accounts Payable................................ $ 30
Accrued Liabilities............................. 33
Current Portion of Long-term Debt............... 2,077
----------
Total Current Liabilities....................... 2,140
Long-term Debt, Less Current Maturities
and Discount.................................. 9,187
Accrued Closure and Post-closure Liabilities.... 8
----------
Total Liabilities............................... 11,335
Members' Equity................................. 4,367
Retained Earnings............................... 665
----------
5,032
----------
Total Liabilities and Members' Equity........... $ 16,367
==========
24
MATERIAL RECOVERY, LLC AND AFFILIATES
Unaudited Consolidated Statements of Income
For The Three Months Ended March 31, 2005 and 2004
(In thousands)
Three Months Ended March 31,
2005 2004
--------- --------------
Revenues................................ $ 1,785 $ 1,019
Cost of Services........................ 706 546
Depreciation and Amortization........... 276 234
--------- --------------
Operating Income........................ 803 239
Interest Expense, Net................... (136) (105)
Other................................... (2) 1
--------- --------------
Net Income.............................. 665 135
========= ==============
25
MATERIAL RECOVERY, LLC AND AFFILIATES
Unaudited Condensed Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 2005 and 2004
(In thousands)
Three Months Ended March 31,
2005 2004
--------- --------------
Cash Flows from Operating Activities......... $ 882 $ (525)
Cash Flows from Investing Activities......... (20) (474)
Cash Flows from Financing Activities......... (746) 1,068
--------- --------------
Net Increase in Cash and Cash
Equivalents................................ 116 69
Cash and Cash Equivalents at Beginning
of Period.................................. 117 144
--------- --------------
Cash and Cash Equivalents at End of
Period..................................... $ 233 $ 213
========= ==============
26
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------------------------------------------------------
2.1 * + ** Membership Interest Purchase Agreement, dated effective
January 14, 2005, between WCA of North Carolina, L.P., MRR
Southern, LLC, Material Recovery, LLC, Material Reclamation,
LLC, MRR of High Point, LLC, MRR Wake Transfer Station, LLC,
WCA Waste Corporation, F. Norbert Hector, Jr., D.H. Griffin,
Paul M. Givens, Edward I. Weisiger, Jr. and David Griffin,
Jr. (incorporated by reference to Exhibit 2.4 to WCA's
Annual Report on Form 10-K (File No. 000-50808) filed with
the SEC on March 24, 2005).
2.2 ** First Amendment to Membership Interest Purchase Agreement, dated
March 30, 2005, between WCA of North Carolina, L.P., MRR
Southern, LLC, WCA Waste Corporation and WCA of Wake County,
L.P. (incorporated by reference to Exhibit 2.2 to WCA's
Quarterly Report on Form 10-Q (File No. 000-50808) filed with
the SEC on May 13, 2005).
99.1 ** WCA Waste Corporation Press Release, dated April 1, 2005
(incorporated by reference to Exhibit 99.1 to WCA's Current
Report on Form 8-K (File No. 000-50808) filed with the SEC on
April 6, 2005).
* Confidential treatment has been requested with respect to certain
information contained in this agreement.
+ Pursuant to Item 601(b)(2) of Regulation S-K, WCA agrees to furnish
supplementally a copy of any omitted schedule to the Commission upon
request.
** Previously filed.
27