##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission File Number: 000-25955
 Waste Services, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    01-0780204(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 1122 International Blvd., Suite 601, Burlington, Ontario, Canada L7L 6Z8  (Address of principal executive offices) (Zip Code)
 (905) 319-1237  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007
    
    
    2Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30,
2008 and 2007
    
    
    3Unaudited Condensed Consolidated Statement of Shareholders Equity for the nine months ended September 30, 2008
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    44Item 4. Controls and Procedures
    
    
    44PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    44Item 1A. Risk Factors
    
    
    44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3. Defaults Upon Senior Securities
    
    
    45Item 4. Submission of Matters to a Vote of Security Holders
    
    
    45Item 5. Other Information
    
    
    45Item 6. Exhibits
    
    
    45Signatures
    
    
    46EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEO and CFO
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 WASTE SERVICES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    40,995
    
    
    $
    20,706Accounts receivable (net of allowance for doubtful accounts of $508
and $985 as of September 30, 2008 and December 31, 2007, respectively)
    
    
    62,281
    
    
    
    67,195Prepaid expenses and other current assets
    
    
    7,375
    
    
    
    11,338Current assets of discontinued operations
    
    
    
    
    
    
    167Total current assets
    
    
    110,651
    
    
    
    99,406Property and equipment, net
    
    
    194,742
    
    
    
    192,598Landfill sites, net
    
    
    190,108
    
    
    
    190,451Goodwill and other intangible assets, net
    
    
    385,420
    
    
    
    397,766Other assets
    
    
    19,562
    
    
    
    17,741Non-current assets of discontinued operations
    
    
    
    
    
    
    40,526Total assets
    
    $
    900,483
    
    
    $
    938,488LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    22,353
    
    
    $
    26,641Accrued expenses and other current liabilities
    
    
    70,437
    
    
    
    65,338Short-term financing and current portion of long-term debt
    
    
    1,906
    
    
    
    2,631Current liabilities of discontinued operations
    
    
    
    
    
    
    765Total current liabilities
    
    
    94,696
    
    
    
    95,375Long-term debt
    
    
    399,110
    
    
    
    441,809Deferred income taxes, accrued closure, post-closure and other obligations
    
    
    48,435
    
    
    
    48,514Non-current liabilities of discontinued operations
    
    
    
    
    
    
    2,195Total liabilities
    
    
    542,241
    
    
    
    587,893Shareholders equity:Common stock $0.01 par value: 166,666,666 shares authorized, 43,985,436
and 43,972,362 shares issued and outstanding as of September 30, 2008
and December 31, 2007, respectively
    
    
    439
    
    
    
    439Additional paid-in capital
    
    
    513,131
    
    
    
    510,286Accumulated other comprehensive income
    
    
    50,711
    
    
    
    66,017Accumulated deficit
    
    
    (206,039
    )
    
    
    (226,147
    )Total shareholders equity
    
    
    358,242
    
    
    
    350,595Total liabilities and shareholders equity
    
    $
    900,483
    
    
    $
    938,488
  2




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WASTE SERVICES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    125,745
    
    
    $
    123,774
    
    
    $
    370,635
    
    
    $
    338,194Operating and other expenses:Cost of operations (exclusive of depreciation, depletion
and amortization)
    
    
    82,512
    
    
    
    80,729
    
    
    
    242,661
    
    
    
    221,995Selling, general and administrative expense (exclusive of
depreciation, depletion and amortization)
    
    
    15,074
    
    
    
    18,205
    
    
    
    47,943
    
    
    
    47,315Depreciation, depletion and amortization
    
    
    11,503
    
    
    
    15,370
    
    
    
    34,826
    
    
    
    40,845Foreign exchange loss (gain) and other
    
    
    135
    
    
    
    650
    
    
    
    (322
    )
    
    
    63Income from operations
    
    
    16,521
    
    
    
    8,820
    
    
    
    45,527
    
    
    
    27,976Interest expense
    
    
    7,730
    
    
    
    10,243
    
    
    
    25,770
    
    
    
    30,818Income (loss) from continuing operations
before income taxes
    
    
    8,791
    
    
    
    (1,423
    )
    
    
    19,757
    
    
    
    (2,842
    )Income tax provision
    
    
    5,322
    
    
    
    4,474
    
    
    
    6,892
    
    
    
    10,618Net income (loss) from continuing operations
    
    
    3,469
    
    
    
    (5,897
    )
    
    
    12,865
    
    
    
    (13,460
    )Net income from discontinued operations, net of income
tax provision of $301 for the nine months ended September 30, 2008
and nil for all other periods
    
    
    
    
    
    
    1,071
    
    
    
    374
    
    
    
    1,810Gain (loss) on sale of discontinued operations, net of income tax
provision of $4,485 for the nine months ended September 30, 2008
and nil for all other periods
    
    
    
    
    
    
    (198
    )
    
    
    6,869
    
    
    
    (11,452
    )Net income (loss)
    
    $
    3,469
    
    
    $
    (5,024
    )
    
    $
    20,108
    
    
    $
    (23,102
    )Basic and diluted earnings (loss) per share:Earnings (loss) per share  continuing operations
    
    $
    0.08
    
    
    $
    (0.13
    )
    
    $
    0.28
    
    
    $
    (0.29
    )Earnings (loss) per share  discontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    0.16
    
    
    
    (0.21
    )Basic and diluted earnings (loss) per share
    
    $
    0.08
    
    
    $
    (0.11
    )
    
    $
    0.44
    
    
    $
    (0.50
    )Weighted average common shares outstanding  basic
    
    
    46,079
    
    
    
    46,007
    
    
    
    46,076
    
    
    
    45,984Weighted average common shares outstanding  diluted
    
    
    46,088
    
    
    
    46,007
    
    
    
    46,085
    
    
    
    45,984
  3




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WASTE SERVICES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
For the Nine Months Ended September 30, 2008
(In thousands)
 AccumulatedWaste Services, Inc.
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Additional
    
    
    Comprehensive
    
    
    Accumulated
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Paid-in Capital
    
    
    Income
    
    
    Deficit
    
    
    EquityBalance, December 31, 2007
    
    
    43,972
    
    
    $
    439
    
    
    $
    510,286
    
    
    $
    66,017
    
    
    $
    (226,147
    )
    
    $
    350,595Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,785
    
    
    
    
    
    
    
    
    
    
    
    2,785Exercise of warrants
    
    
    7
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    60Conversion of exchangeable shares
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,306
    )
    
    
    
    
    
    
    (15,306
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,108
    
    
    
    20,108Balance, September 30, 2008
    
    
    43,985
    
    
    $
    439
    
    
    $
    513,131
    
    
    $
    50,711
    
    
    $
    (206,039
    )
    
    $
    358,242
  4




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WASTE SERVICES, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Nine Months Ended September 30,2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    20,108
    
    
    $
    (23,102
    )Adjustments to reconcile net income (loss) to net cash flows
from operating activities:Net loss (income) from discontinued operations
    
    
    (7,243
    )
    
    
    9,642Depreciation, depletion and amortization
    
    
    34,826
    
    
    
    40,845Amortization of debt issue costs
    
    
    2,008
    
    
    
    1,837Deferred income tax provision (benefit)
    
    
    (1,759
    )
    
    
    3,766Non-cash stock-based compensation expense
    
    
    2,785
    
    
    
    2,300Severence costs expensed, exclusive of stock-based compensation expense
    
    
    
    
    
    
    3,252Other non-cash items
    
    
    229
    
    
    
    925Changes in operating assets and liabilities (excluding
the effects of acquisitions and dispositions):Accounts receivable
    
    
    2,461
    
    
    
    (4,540
    )Prepaid expenses and other current assets
    
    
    2,851
    
    
    
    (776
    )Accounts payable
    
    
    (3,537
    )
    
    
    384Accrued expenses and other current liabilities
    
    
    (3,806
    )
    
    
    6,167Net cash provided by continuing operations
    
    
    48,923
    
    
    
    40,700Net cash provided by discontinued operations
    
    
    1,163
    
    
    
    6,653Net cash provided by operating activities
    
    
    50,086
    
    
    
    47,353Cash flows from investing activities:Cash used in business combinations and significant asset
acquisitions, net of cash acquired
    
    
    
    
    
    
    (32,289
    )Capital expenditures
    
    
    (39,220
    )
    
    
    (45,301
    )Proceeds from sale of the Jacksonville, Florida operations
    
    
    56,685
    
    
    
    Proceeds from asset sales
    
    
    1,030
    
    
    
    17,832Deposits for business acquisitions and other
    
    
    (3,876
    )
    
    
    (9,820
    )Net cash provided by (used in) continuing operations
    
    
    14,619
    
    
    
    (69,578
    )Net cash used in discontinued operations
    
    
    (43
    )
    
    
    (5,510
    )Net cash provided by (used in) investing activities
    
    
    14,576
    
    
    
    (75,088
    )Cash flows from financing activities:Proceeds from issuance of debt and draw on revolving credit facility
    
    
    
    
    
    
    84,066Principal repayments of debt and capital lease obligations
    
    
    (43,597
    )
    
    
    (49,537
    )Proceeds from the exercise of options and warrants
    
    
    60
    
    
    
    691Fees paid for financing transactions
    
    
    
    
    
    
    (1,259
    )Net cash provided by (used in) financing activities of continuing operations
    
    
    (43,537
    )
    
    
    33,961Effect of exchange rate changes on cash and cash equivalents
    
    
    (836
    )
    
    
    1,240Increase in cash and cash equivalents
    
    
    20,289
    
    
    
    7,466Cash and cash equivalents at the beginning of the period
    
    
    20,706
    
    
    
    8,532Cash and cash equivalents at the end of the period
    
    $
    40,995
    
    
    $
    15,998
  5




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WASTE SERVICES, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization of Business and Basis of Presentation
      6




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WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Three Months
    
    Nine MonthsEnded
    
    EndedSeptember 30,
    
    September 30,2007
    
    2007Common Shares issuable under exercisable options
    
    
    
    57

    
    
    
    43Common Shares issuable under exercisable warrants
    
    
    
    669

    
    
    
    625Dilutive securities
    
    
    
    726

    
    
    
    668
   2. Recently Issued Accounting Pronouncements and Adopted Accounting
 1 2
   7




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WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   3. Share-Based Payments
   Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007Annual dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average expected life (years)
    
    
    6.7
    
    
    
    3.0
    
    
    
    7.0
    
    
    
    3.0Risk-free interest rate
    
    
    3.8
    %
    
    
    4.6
    %
    
    
    3.2
    %
    
    
    4.5
    %Expected volatility
    
    
    53
    %
    
    
    89
    %
    
    
    61
    %
    
    
    92
    %
    8




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WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 4. Discontinued Operations
      2008
    
    
    2007Jacksonville
    
    
    Arizona
    
    
    TexasOperations
    
    
    Operations
    
    
    Operations
    
    
    TotalFair value of operations received
    
    $
    
    
    
    $
    52,351
    
    
    $
    18,471
    
    
    $
    70,822Cash received, net of amounts deferred and promissory
note issued relative to the Texas disposal
    
    
    46,685
    
    
    
    
    
    
    
    15,638
    
    
    
    15,638Less:Carrying value of operations sold
    
    
    35,331
    
    
    
    51,559
    
    
    
    46,353
    
    
    
    97,912Pre-tax gain (loss) on disposition of discontinued
operations
    
    $
    11,354
    
    
    $
    792
    
    
    $
    (12,244
    )
    
    $
    (11,452
    )
  9




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WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Prepaid expenses and other current assets
    
    $
    167Current assets of discontinued operations
    
    
    167Property and equipment
    
    
    7,219Landfill sites
    
    
    7,610Goodwill and other intangible assets
    
    
    25,697Non-current assets of discontinued operations
    
    
    40,526Total assets of discontinued operations
    
    $
    40,693Accrued expenses and other current liabilities
    
    $
    765Current liabilities of discontinued operations
    
    
    765Accrued closure, post closure and other obligations
    
    
    2,195Non-current liabilities of discontinued operations
    
    
    2,195Total liabilities of discontinued operations
    
    $
    2,960Net assets of discontinued operations
    
    $
    37,733
 5. Business Combinations and Significant Asset Acquisitions
     10




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WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Revenue
    
    $
    359,836Net loss from continuing operations
    
    $
    (12,597
    )Basic and diluted loss per share  continuing operations
    
    $
    (0.27
    )Basic and diluted pro forma weighted average number of
common shares outstanding
    
    
    45,984
  6. Prepaid Expenses and Other Current Assets
  September 30,
    
    
    December 31,2008
    
    
    2007Prepaid expenses
    
    $
    3,563
    
    
    $
    5,808Parts and supplies
    
    
    1,986
    
    
    
    2,192Royalty receivable
    
    
    
    
    
    
    1,321Other current assets
    
    
    1,826
    
    
    
    2,017$
    7,375
    
    
    $
    11,338
 7. Property and Equipment
  September 30,
    
    
    December 31,2008
    
    
    2007Land and buildings
    
    $
    73,236
    
    
    $
    67,088Vehicles
    
    
    151,463
    
    
    
    144,926Containers, compactors and landfill and recycling equipment
    
    
    92,988
    
    
    
    92,733Furniture, fixtures, other office equipment and leasehold improvements
    
    
    12,291
    
    
    
    12,449Total property and equipment
    
    
    329,978
    
    
    
    317,196Less: Accumulated depreciation
    
    
    (135,236
    )
    
    
    (124,598
    )Property and equipment, net
    
    $
    194,742
    
    
    $
    192,598
 11




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WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 8. Landfill Sites, Accrued Closure, Post-Closure, Deferred Income Taxes and Other Obligations
 Landfill Sites
  September 30,
    
    
    December 31,2008
    
    
    2007Landfill sites
    
    $
    258,312
    
    
    $
    253,266Less: Accumulated depletion
    
    
    (68,204
    )
    
    
    (62,815
    )Landfill sites, net
    
    $
    190,108
    
    
    $
    190,451
  Nine Months Ended September 30,2008
    
    
    2007Balance at the beginning of the period
    
    $
    190,451
    
    
    $
    187,796Landfill site construction costs
    
    
    7,289
    
    
    
    12,950Additional asset retirement obligations
    
    
    1,284
    
    
    
    2,116Depletion
    
    
    (7,784
    )
    
    
    (12,499
    )Purchase price adjustments for prior acquisitions
    
    
    49
    
    
    
    505Reclassification to conservatory
    
    
    
    
    
    
    (1,028
    )Effect of foreign exchange rate fluctuations
    
    
    (1,181
    )
    
    
    2,413Balance at the end of the period
    
    $
    190,108
    
    
    $
    192,253
 Deferred Income Taxes, Accrued Closure, Post-Closure and Other Obligations
  September 30,
    
    
    December 31,2008
    
    
    2007Deferred income tax liability
    
    $
    31,649
    
    
    $
    29,644Accrued closure and post-closure obligations
    
    
    13,871
    
    
    
    14,678Accrued severance
    
    
    1,290
    
    
    
    2,181Capital lease obligations
    
    
    684
    
    
    
    867Other obligations
    
    
    941
    
    
    
    1,144$
    48,435
    
    
    $
    48,514
  12




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WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Nine Months Ended September 30,2008
    
    
    2007Current portion at the beginning of period
    
    $
    4,153
    
    
    $
    5,570Long-term portion at the beginning of period
    
    
    14,678
    
    
    
    8,360Balance at the beginning of period
    
    
    18,831
    
    
    
    13,930Additional asset retirement obligations
    
    
    1,284
    
    
    
    2,116Accretion
    
    
    589
    
    
    
    417Payments
    
    
    (304
    )
    
    
    (1,097
    )Effect of foreign exchange rate
fluctuations
    
    
    (627
    )
    
    
    1,270Balance at the end of period
    
    
    19,773
    
    
    
    16,636Less: Current portion
    
    
    (5,902
    )
    
    
    (2,765
    )Long-term portion
    
    $
    13,871
    
    
    $
    13,871
 9. Goodwill and Other Intangible Assets
  September 30,
    
    
    December 31,2008
    
    
    2007Other intangible assets subject to amortization:Customer relationships and contracts
    
    $
    49,102
    
    
    $
    51,924Non-competition agreements and other
    
    
    5,583
    
    
    
    6,01154,685
    
    
    
    57,935Less: Accumulated amortization:Customer relationships and contracts
    
    
    (25,188
    )
    
    
    (23,714
    )Non-competition agreements and other
    
    
    (1,885
    )
    
    
    (1,396
    )Other intangible assets subject to amortization,
net
    
    
    27,612
    
    
    
    32,825Goodwill
    
    
    357,808
    
    
    
    364,941Goodwill and other intangible assets, net
    
    $
    385,420
    
    
    $
    397,766
  Nine Months Ended September 30, 2008Florida
    
    
    Canada
    
    
    TotalBalance at the beginning of the period
    
    $
    262,338
    
    
    $
    102,603
    
    
    $
    364,941Purchase price allocation adjustments for prior acquisitions
    
    
    (104
    )
    
    
    
    
    
    
    (104
    )Effect of foreign exchange rate fluctuations
    
    
    
    
    
    
    (7,029
    )
    
    
    (7,029
    )Balance at the end of the period
    
    $
    262,234
    
    
    $
    95,574
    
    
    $
    357,808
 13




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Nine Months Ended September 30, 2007Florida
    
    
    Canada
    
    
    TotalBalance at the beginning of the period
    
    $
    211,482
    
    
    $
    86,848
    
    
    $
    298,330Acquisitions
    
    
    25,089
    
    
    
    386
    
    
    
    25,475Purchase price allocation adjustments for
prior acquisitions
    
    
    3,536
    
    
    
    61
    
    
    
    3,597Effect of foreign exchange rate fluctuations
    
    
    
    
    
    
    14,942
    
    
    
    14,942Balance at the end of the period
    
    $
    240,107
    
    
    $
    102,237
    
    
    $
    342,344
 10. Other Assets
  September 30,
    
    
    December 31,2008
    
    
    2007Debt issue costs, net of accumulated amortization of $6,895 and
$5,787
as of September 30, 2008 and December 31, 2007, respectively
    
    $
    5,814
    
    
    $
    7,822Acquisition deposits and deferred acquisition costs
    
    
    13,234
    
    
    
    9,407Other assets
    
    
    514
    
    
    
    512$
    19,562
    
    
    $
    17,741
  11. Accrued Expenses and Other Current Liabilities
  September 30,
    
    
    December 31,2008
    
    
    2007Deferred revenue
    
    $
    10,954
    
    
    $
    11,613Accrued compensation and benefits
    
    
    10,685
    
    
    
    12,317Accrued acquisition costs
    
    
    7,811
    
    
    
    1,200Accrued interest
    
    
    7,780
    
    
    
    4,588Accrued insurance
    
    
    7,445
    
    
    
    6,055Accrued waste disposal and subcontractor costs
    
    
    7,355
    
    
    
    7,379Accrued closure and post-closure obligations
    
    
    5,902
    
    
    
    4,153Accrued royalties and franchise fees
    
    
    2,914
    
    
    
    3,239Accrued federal and provincial current taxes
payable
    
    
    1,889
    
    
    
    8,158Accrued capital expenditures
    
    
    1,558
    
    
    
    2,233Accrued professional fees
    
    
    1,403
    
    
    
    970Current portion of capital lease obligations
    
    
    243
    
    
    
    232Other accrued expenses and current liabilities
    
    
    4,498
    
    
    
    3,201$
    70,437
    
    
    $
    65,338
 14




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 12. Debt
  September 30,
    
    
    December 31,2008
    
    
    2007Senior Secured Credit Facilities:Revolving credit facility
    
    $
    
    
    
    $
    Term loan facility, floating interest rate at 4.7% and 7.4% as of September 30, 2008
and December 31, 2007, respectively, due $592 per quarter from September
2009through March 2010 and $57,409 per quarter thereafter, due March 2011
    
    
    231,410
    
    
    
    273,910Senior Subordinated Notes, fixed interest rate at 9.5%, due 2014
    
    
    160,000
    
    
    
    160,000Other secured notes payable, interest at 4.5% to 7.8%, due through
2025 (net of discount of $1,696 and $2,126 at September 30, 2008
and December 31, 2007, respectively)
    
    
    7,159
    
    
    
    7,932Other subordinated notes payable, interest at 6.7%, due through 2017
    
    
    2,447
    
    
    
    2,598401,016
    
    
    
    444,440Less: Current portion
    
    
    (1,906
    )
    
    
    (2,631
    )Long-term portion
    
    $
    399,110
    
    
    $
    441,809
 Senior Secured Credit Facilities
   15




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Canadian Term Loan
    
    
    U.S. Term Loan2009
    
    C$
    6.6
    
    
    $
    2.02010
    
    
    13.2
    
    
    
    4.02011
    
    
    19.8
    
    
    
    6.02012
    
    
    26.5
    
    
    
    8.02013
    
    
    66.1
    
    
    
    19.9C$
    132.2
    
    
    $
    39.9
  Other Secured Notes Payable
  Senior Subordinated Notes
 1 2
    16




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Direct Financing Lease Facility
  13. Commitments and Contingencies
 Environmental Risks
   Legal Proceedings
    Surety Bonds, Letters of Credit and Insurance
   17




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Nine Months Ended September 30,2008
    
    
    2007Balance at the beginning of the period
    
    $
    6,055
    
    
    $
    5,327Provisions
    
    
    3,975
    
    
    
    3,343Payments
    
    
    (3,408
    )
    
    
    (2,838
    )Unfavorable (favorable) claim
development for prior periods
    
    
    823
    
    
    
    (336
    )Balance at the end of the period
    
    $
    7,445
    
    
    $
    5,496
 Disposal Agreement
   Other Contractual Arrangements
  14. Authorized Capital Stock and Migration Transaction
 Total Shares
  
    
    166,666,666 shares of common stock, par value 0.01 per share; and
    
    5,000,000 shares of preferred stock, par value 0.01 per share, of which 100,000 shares
have been designated as Series A Preferred Stock and one share has been designated as
Special Voting Preferred Stock.
 18




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Preferred Stock
  Migration Transaction
     Warrants
  WeightedWeighted
    
    AverageNumber
    
    Average
    
    Remaining
    
    Aggregateof Shares
    
    Exercise
    
    Contractual
    
    IntrinsicIssuable
    
    Price
    
    Term
    
    ValueOutstanding at the beginning of the period
    
    
    4,931,295
    
    
    $
    9.09
    
    
    
    1.7
    
    
    $
    161Exercised
    
    
    (6,666
    )
    
    
    9.00Expired
    
    
    (1,606,934
    )
    
    
    9.24Outstanding at the end of the period
    
    
    3,317,695
    
    
    
    8.50
    
    
    
    1.6
    
    
    
    
 15. Comprehensive Income (Loss)
  19




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WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    3,469
    
    
    $
    (5,024
    )
    
    $
    20,108
    
    
    $
    (23,102
    )Foreign currency translation adjustment
    
    
    (9,275
    )
    
    
    13,881
    
    
    
    (15,306
    )
    
    
    29,984Comprehensive income (loss)
    
    $
    (5,806
    )
    
    $
    8,857
    
    
    $
    4,802
    
    
    $
    6,882
 16. Segment Information
    Three Months Ended September 30, 2008Florida
    
    Canada
    
    Corporate
    
    TotalRevenue
    
    $
    58,468
    
    
    $
    67,277
    
    
    $
    
    
    
    $
    125,745Depreciation, depletion and
amortization
    
    
    6,482
    
    
    
    4,714
    
    
    
    307
    
    
    
    11,503Income (loss) from operations
    
    
    9,347
    
    
    
    13,035
    
    
    
    (5,861
    )
    
    
    16,521Capital expenditures
    
    
    8,971
    
    
    
    9,688
    
    
    
    162
    
    
    
    18,821
 Three Months Ended September 30, 2007Florida
    
    Canada
    
    Corporate
    
    TotalRevenue
    
    $
    63,785
    
    
    $
    59,989
    
    
    $
    
    
    
    $
    123,774Depreciation, depletion and
amortization
    
    
    10,209
    
    
    
    4,814
    
    
    
    347
    
    
    
    15,370Income (loss) from operations
    
    
    6,600
    
    
    
    11,262
    
    
    
    (9,042
    )
    
    
    8,820Capital expenditures
    
    
    10,812
    
    
    
    12,357
    
    
    
    274
    
    
    
    23,443
 Nine Months Ended September 30, 2008Florida
    
    Canada
    
    Corporate
    
    TotalRevenue
    
    $
    179,331
    
    
    $
    191,304
    
    
    $
    
    
    
    $
    370,635Depreciation, depletion and
amortization
    
    
    19,828
    
    
    
    13,995
    
    
    
    1,003
    
    
    
    34,826Income (loss) from operations
    
    
    29,651
    
    
    
    35,885
    
    
    
    (20,009
    )
    
    
    45,527Capital expenditures
    
    
    16,472
    
    
    
    22,180
    
    
    
    568
    
    
    
    39,220
 20




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Nine Months Ended September 30, 2007Florida
    
    Canada
    
    Corporate
    
    TotalRevenue
    
    $
    177,546
    
    
    $
    160,648
    
    
    $
    
    
    
    $
    338,194Depreciation, depletion and
amortization
    
    
    26,717
    
    
    
    13,128
    
    
    
    1,000
    
    
    
    40,845Income (loss) from operations
    
    
    22,269
    
    
    
    27,972
    
    
    
    (22,265
    )
    
    
    27,976Capital expenditures
    
    
    24,550
    
    
    
    19,629
    
    
    
    1,122
    
    
    
    45,301
 17. Condensed Consolidating Financial Statements
  21




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WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 September 30, 2008Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    28,291
    
    
    $
    53
    
    
    $
    12,651
    
    
    $
    
    
    
    $
    40,995Accounts receivable, net
    
    
    
    
    
    
    25,089
    
    
    
    37,192
    
    
    
    
    
    
    
    62,281Prepaid expenses and other current assets
    
    
    407
    
    
    
    1,958
    
    
    
    5,010
    
    
    
    
    
    
    
    7,375Total current assets
    
    
    28,698
    
    
    
    27,100
    
    
    
    54,853
    
    
    
    
    
    
    
    110,651Property and equipment, net
    
    
    211
    
    
    
    102,424
    
    
    
    92,107
    
    
    
    
    
    
    
    194,742Landfill sites, net
    
    
    
    
    
    
    173,670
    
    
    
    16,438
    
    
    
    
    
    
    
    190,108Goodwill and other intangible assets, net
    
    
    
    
    
    
    289,054
    
    
    
    96,366
    
    
    
    
    
    
    
    385,420Other assets
    
    
    19,419
    
    
    
    143
    
    
    
    
    
    
    
    
    
    
    
    19,562Due from affiliates
    
    
    1,987
    
    
    
    
    
    
    
    
    
    
    
    (1,987
    )
    
    
    Investment in subsidiary
    
    
    771,491
    
    
    
    
    
    
    
    
    
    
    
    (771,491
    )
    
    
    Total assets
    
    $
    821,806
    
    
    $
    592,391
    
    
    $
    259,764
    
    
    $
    (773,478
    )
    
    $
    900,483LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    9,651
    
    
    $
    1,457
    
    
    $
    11,245
    
    
    $
    
    
    
    $
    22,353Accrued expenses and other current liabilities
    
    
    29,123
    
    
    
    25,329
    
    
    
    15,985
    
    
    
    
    
    
    
    70,437Short-term financing and current
portion of long-term debt
    
    
    1,693
    
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    1,906Total current liabilities
    
    
    40,467
    
    
    
    26,999
    
    
    
    27,230
    
    
    
    
    
    
    
    94,696Long-term debt
    
    
    396,876
    
    
    
    2,234
    
    
    
    
    
    
    
    
    
    
    
    399,110Deferred income taxes, accrued closure, post-closure
and other obligations
    
    
    26,221
    
    
    
    5,547
    
    
    
    16,667
    
    
    
    
    
    
    
    48,435Due to affiliates
    
    
    
    
    
    
    
    
    
    
    1,987
    
    
    
    (1,987
    )
    
    
    Total liabilities
    
    
    463,564
    
    
    
    34,780
    
    
    
    45,884
    
    
    
    (1,987
    )
    
    
    542,241Shareholders equity:Common stock of Waste Services, Inc
    
    
    439
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    439Other equity
    
    
    357,803
    
    
    
    557,611
    
    
    
    213,880
    
    
    
    (771,491
    )
    
    
    357,803Total shareholders equity
    
    
    358,242
    
    
    
    557,611
    
    
    
    213,880
    
    
    
    (771,491
    )
    
    
    358,242Total liabilities and shareholders equity
    
    $
    821,806
    
    
    $
    592,391
    
    
    $
    259,764
    
    
    $
    (773,478
    )
    
    $
    900,483
 22




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 December 31, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,080
    
    
    $
    239
    
    
    $
    11,387
    
    
    $
    
    
    
    $
    20,706Accounts receivable, net
    
    
    
    
    
    
    30,902
    
    
    
    36,293
    
    
    
    
    
    
    
    67,195Prepaid expenses and other current assets
    
    
    37
    
    
    
    2,449
    
    
    
    8,852
    
    
    
    
    
    
    
    11,338Current assets of discontinued operations
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    
    
    
    
    167Total current assets
    
    
    9,117
    
    
    
    33,757
    
    
    
    56,532
    
    
    
    
    
    
    
    99,406Property and equipment, net
    
    
    235
    
    
    
    99,541
    
    
    
    92,822
    
    
    
    
    
    
    
    192,598Landfill sites, net
    
    
    
    
    
    
    173,803
    
    
    
    16,648
    
    
    
    
    
    
    
    190,451Goodwill and other intangible assets, net
    
    
    
    
    
    
    294,056
    
    
    
    103,710
    
    
    
    
    
    
    
    397,766Other assets
    
    
    17,550
    
    
    
    191
    
    
    
    
    
    
    
    
    
    
    
    17,741Due from affiliates
    
    
    1,021
    
    
    
    
    
    
    
    
    
    
    
    (1,021
    )
    
    
    Investment in subsidiary
    
    
    816,054
    
    
    
    
    
    
    
    
    
    
    
    (816,054
    )
    
    
    Non-current assets of discontinued operations
    
    
    
    
    
    
    40,526
    
    
    
    
    
    
    
    
    
    
    
    40,526Total assets
    
    $
    843,977
    
    
    $
    641,874
    
    
    $
    269,712
    
    
    $
    (817,075
    )
    
    $
    938,488LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    9,480
    
    
    $
    2,903
    
    
    $
    14,258
    
    
    $
    
    
    
    $
    26,641Accrued expenses and other current liabilities
    
    
    17,571
    
    
    
    21,973
    
    
    
    25,794
    
    
    
    
    
    
    
    65,338Short-term
financing and current portion of long-term debt
    
    
    2,428
    
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    2,631Current liabilities of discontinued operations
    
    
    
    
    
    
    765
    
    
    
    
    
    
    
    
    
    
    
    765Total current liabilities
    
    
    29,479
    
    
    
    25,844
    
    
    
    40,052
    
    
    
    
    
    
    
    95,375Long-term debt
    
    
    439,415
    
    
    
    2,394
    
    
    
    
    
    
    
    
    
    
    
    441,809Deferred income taxes, accrued closure, post-closure
and other obligations
    
    
    24,488
    
    
    
    6,134
    
    
    
    17,892
    
    
    
    
    
    
    
    48,514Due to affiliates
    
    
    
    
    
    
    
    
    
    
    1,021
    
    
    
    (1,021
    )
    
    
    Non-current liabilities of discontinued operations
    
    
    
    
    
    
    2,195
    
    
    
    
    
    
    
    
    
    
    
    2,195Total liabilities
    
    
    493,382
    
    
    
    36,567
    
    
    
    58,965
    
    
    
    (1,021
    )
    
    
    587,893Shareholders equity:Common stock of Waste Services, Inc
    
    
    439
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    439Other equity
    
    
    350,156
    
    
    
    605,307
    
    
    
    210,747
    
    
    
    (816,054
    )
    
    
    350,156Total shareholders equity
    
    
    350,595
    
    
    
    605,307
    
    
    
    210,747
    
    
    
    (816,054
    )
    
    
    350,595Total liabilities and shareholders equity
    
    $
    843,977
    
    
    $
    641,874
    
    
    $
    269,712
    
    
    $
    (817,075
    )
    
    $
    938,488
 23




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Three Months Ended September 30, 2008Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    
    
    
    $
    58,468
    
    
    $
    67,277
    
    
    $
    
    
    
    $
    125,745Operating and other expenses:Cost of operations (exclusive of depreciation,
depletion and amortization)
    
    
    
    
    
    
    38,114
    
    
    
    44,398
    
    
    
    
    
    
    
    82,512Selling, general and administrative expense (exclusive
of depreciation, depletion and amortization)
    
    
    3,142
    
    
    
    4,505
    
    
    
    7,427
    
    
    
    
    
    
    
    15,074Depreciation, depletion and amortization
    
    
    27
    
    
    
    6,482
    
    
    
    4,994
    
    
    
    
    
    
    
    11,503Foreign exchange loss and other
    
    
    
    
    
    
    20
    
    
    
    115
    
    
    
    
    
    
    
    135Equity earnings in investees, net of tax
    
    
    (14,297
    )
    
    
    
    
    
    
    
    
    
    
    14,297
    
    
    
    Income from operations
    
    
    11,128
    
    
    
    9,347
    
    
    
    10,343
    
    
    
    (14,297
    )
    
    
    16,521Interest expense
    
    
    7,659
    
    
    
    42
    
    
    
    29
    
    
    
    
    
    
    
    7,730Income from continuing operations
before income taxes
    
    
    3,469
    
    
    
    9,305
    
    
    
    10,314
    
    
    
    (14,297
    )
    
    
    8,791Income tax provision
    
    
    
    
    
    
    1,739
    
    
    
    3,583
    
    
    
    
    
    
    
    5,322Net income
    
    $
    3,469
    
    
    $
    7,566
    
    
    $
    6,731
    
    
    $
    (14,297
    )
    
    $
    3,469
 24




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Three Months Ended September 30, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    
    
    
    $
    63,785
    
    
    $
    59,989
    
    
    $
    
    
    
    $
    123,774Operating and other expenses:Cost of operations
(exclusive of depreciation,
depletion and amortization)
    
    
    
    
    
    
    41,084
    
    
    
    39,645
    
    
    
    
    
    
    
    80,729Selling, general and
administrative expense
(exclusive
of depreciation, depletion
and amortization)
    
    
    6,125
    
    
    
    5,208
    
    
    
    6,872
    
    
    
    
    
    
    
    18,205Depreciation, depletion and
amortization
    
    
    22
    
    
    
    10,209
    
    
    
    5,139
    
    
    
    
    
    
    
    15,370Foreign exchange loss (gain)
and other
    
    
    
    
    
    
    684
    
    
    
    (34
    )
    
    
    
    
    
    
    650Equity earnings in
investees, net of tax
    
    
    (11,314
    )
    
    
    
    
    
    
    
    
    
    
    11,314
    
    
    
    Income from operations
    
    
    5,167
    
    
    
    6,600
    
    
    
    8,367
    
    
    
    (11,314
    )
    
    
    8,820Interest expense
    
    
    10,191
    
    
    
    39
    
    
    
    13
    
    
    
    
    
    
    
    10,243Income (loss) from
continuing operations
before income taxes
    
    
    (5,024
    )
    
    
    6,561
    
    
    
    8,354
    
    
    
    (11,314
    )
    
    
    (1,423
    )Income tax provision
    
    
    
    
    
    
    1,716
    
    
    
    2,758
    
    
    
    
    
    
    
    4,474Net income (loss) from
continuing operations
    
    
    (5,024
    )
    
    
    4,845
    
    
    
    5,596
    
    
    
    (11,314
    )
    
    
    (5,897
    )Net income from discontinued
operations, net of tax of
nil
    
    
    
    
    
    
    1,071
    
    
    
    
    
    
    
    
    
    
    
    1,071Loss on sale of discontinued
operations, net of tax of
nil
    
    
    
    
    
    
    (198
    )
    
    
    
    
    
    
    
    
    
    
    (198
    )Net income (loss)
    
    $
    (5,024
    )
    
    $
    5,718
    
    
    $
    5,596
    
    
    $
    (11,314
    )
    
    $
    (5,024
    )
 25




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Nine Months Ended September 30, 2008Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    
    
    
    $
    179,331
    
    
    $
    191,304
    
    
    $
    
    
    
    $
    370,635Operating and other expenses:Cost of operations (exclusive of depreciation,
depletion and amortization)
    
    
    
    
    
    
    116,497
    
    
    
    126,164
    
    
    
    
    
    
    
    242,661Selling, general and administrative expense (exclusive
of depreciation, depletion and amortization)
    
    
    10,236
    
    
    
    13,819
    
    
    
    23,888
    
    
    
    
    
    
    
    47,943Depreciation, depletion and amortization
    
    
    75
    
    
    
    19,828
    
    
    
    14,923
    
    
    
    
    
    
    
    34,826Foreign exchange loss (gain) and other
    
    
    1
    
    
    
    (464
    )
    
    
    141
    
    
    
    
    
    
    
    (322
    )Equity earnings in investees, net of tax
    
    
    (55,902
    )
    
    
    
    
    
    
    
    
    
    
    55,902
    
    
    
    Income from operations
    
    
    45,590
    
    
    
    29,651
    
    
    
    26,188
    
    
    
    (55,902
    )
    
    
    45,527Interest expense
    
    
    25,482
    
    
    
    134
    
    
    
    154
    
    
    
    
    
    
    
    25,770Income from continuing operations
before income taxes
    
    
    20,108
    
    
    
    29,517
    
    
    
    26,034
    
    
    
    (55,902
    )
    
    
    19,757Income tax provision (benefit)
    
    
    
    
    
    
    (1,979
    )
    
    
    8,871
    
    
    
    
    
    
    
    6,892Net income from continuing operations
    
    
    20,108
    
    
    
    31,496
    
    
    
    17,163
    
    
    
    (55,902
    )
    
    
    12,865Net income from discontinued operations,
net of income tax provision of $301
    
    
    
    
    
    
    374
    
    
    
    
    
    
    
    
    
    
    
    374Gain on sale of discontinued operations,
net of income tax provision of $4,485
    
    
    
    
    
    
    6,869
    
    
    
    
    
    
    
    
    
    
    
    6,869Net income
    
    $
    20,108
    
    
    $
    38,739
    
    
    $
    17,163
    
    
    $
    (55,902
    )
    
    $
    20,108
 26




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Nine Months Ended September 30, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    
    
    
    $
    177,546
    
    
    $
    160,648
    
    
    $
    
    
    
    $
    338,194Operating and other expenses:Cost of operations (exclusive of depreciation,
depletion and amortization)
    
    
    
    
    
    
    114,921
    
    
    
    107,074
    
    
    
    
    
    
    
    221,995Selling, general and administrative expense (exclusive
of depreciation, depletion and amortization)
    
    
    14,397
    
    
    
    13,114
    
    
    
    19,804
    
    
    
    
    
    
    
    47,315Depreciation, depletion and amortization
    
    
    52
    
    
    
    26,717
    
    
    
    14,076
    
    
    
    
    
    
    
    40,845Foreign exchange loss (gain) and other
    
    
    (175
    )
    
    
    525
    
    
    
    (287
    )
    
    
    
    
    
    
    63Equity earnings in investees, net of tax
    
    
    (21,699
    )
    
    
    
    
    
    
    
    
    
    
    21,699
    
    
    
    Income from operations
    
    
    7,425
    
    
    
    22,269
    
    
    
    19,981
    
    
    
    (21,699
    )
    
    
    27,976Interest expense
    
    
    30,527
    
    
    
    140
    
    
    
    151
    
    
    
    
    
    
    
    30,818Income (loss) from continuing operations
before income taxes
    
    
    (23,102
    )
    
    
    22,129
    
    
    
    19,830
    
    
    
    (21,699
    )
    
    
    (2,842
    )Income tax provision
    
    
    
    
    
    
    3,504
    
    
    
    7,114
    
    
    
    
    
    
    
    10,618Net income (loss) from continuing operations
    
    
    (23,102
    )
    
    
    18,625
    
    
    
    12,716
    
    
    
    (21,699
    )
    
    
    (13,460
    )Net income from discontinued operations, net
of tax of nil
    
    
    
    
    
    
    1,810
    
    
    
    
    
    
    
    
    
    
    
    1,810Loss on sale of discontinued operations, net
of tax of nil
    
    
    
    
    
    
    (11,452
    )
    
    
    
    
    
    
    
    
    
    
    (11,452
    )Net income (loss)
    
    $
    (23,102
    )
    
    $
    8,983
    
    
    $
    12,716
    
    
    $
    (21,699
    )
    
    $
    (23,102
    )
 27




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##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Nine Months Ended September 30, 2008Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating activities
    
    $
    (17,164
    )
    
    $
    43,426
    
    
    $
    23,824
    
    
    $
    
    
    
    $
    50,086Cash flows from investing activities:Capital expenditures
    
    
    (61
    )
    
    
    (16,472
    )
    
    
    (22,687
    )
    
    
    
    
    
    
    (39,220
    )Proceeds from sale of the Jacksonville,
Florida operations
    
    
    
    
    
    
    56,685
    
    
    
    
    
    
    
    
    
    
    
    56,685Proceeds from asset sales and business divestitures
    
    
    10
    
    
    
    891
    
    
    
    129
    
    
    
    
    
    
    
    1,030Deposits for business acquisitions and other
    
    
    (3,827
    )
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    (3,876
    )Intercompany
    
    
    83,640
    
    
    
    
    
    
    
    
    
    
    
    (83,640
    )
    
    
    Net cash provided by (used in) continuing operations
    
    
    79,762
    
    
    
    41,104
    
    
    
    (22,607
    )
    
    
    (83,640
    )
    
    
    14,619Net cash used in discontinued operations
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    
    
    
    
    (43
    )Net cash provided by ( used in) investing activities
    
    
    79,762
    
    
    
    41,061
    
    
    
    (22,607
    )
    
    
    (83,640
    )
    
    
    14,576Cash flows from financing activities:Principal repayments of debt and capital lease obligations
    
    
    (43,447
    )
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    (43,597
    )Proceeds from the exercise of options and warrants
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60Intercompany
    
    
    
    
    
    
    (84,523
    )
    
    
    883
    
    
    
    83,640
    
    
    
    Net cash provided by (used in) financing
activities  continuing operations
    
    
    (43,387
    )
    
    
    (84,673
    )
    
    
    883
    
    
    
    83,640
    
    
    
    (43,537
    )Effect of exchange rate changes
on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (836
    )
    
    
    
    
    
    
    (836
    )Increase (decrease) in cash and cash equivalents
    
    
    19,211
    
    
    
    (186
    )
    
    
    1,264
    
    
    
    
    
    
    
    20,289Cash and cash equivalents at the beginning of the period
    
    
    9,080
    
    
    
    239
    
    
    
    11,387
    
    
    
    
    
    
    
    20,706Cash and cash equivalents at the end of the period
    
    $
    28,291
    
    
    $
    53
    
    
    $
    12,651
    
    
    $
    
    
    
    $
    40,995
 28




---



##### Table of Contents



WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Nine Months Ended September 30, 2007Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating activities
    
    $
    (32,802
    )
    
    $
    53,005
    
    
    $
    27,150
    
    
    $
    
    
    
    $
    47,353Cash flows from investing activities:Cash used in business combinations and significant
asset acquisitions, net of cash acquired
    
    
    
    
    
    
    (30,892
    )
    
    
    (1,397
    )
    
    
    
    
    
    
    (32,289
    )Capital expenditures
    
    
    (123
    )
    
    
    (24,550
    )
    
    
    (20,628
    )
    
    
    
    
    
    
    (45,301
    )Proceeds from asset sales
    
    
    
    
    
    
    17,772
    
    
    
    60
    
    
    
    
    
    
    
    17,832Deposits for business acquisitions and other
    
    
    (8,338
    )
    
    
    117
    
    
    
    (1,599
    )
    
    
    
    
    
    
    (9,820
    )Intercompany
    
    
    10,648
    
    
    
    
    
    
    
    
    
    
    
    (10,648
    )
    
    
    Net cash used in continuing operations
    
    
    2,187
    
    
    
    (37,553
    )
    
    
    (23,564
    )
    
    
    (10,648
    )
    
    
    (69,578
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (5,510
    )
    
    
    
    
    
    
    
    
    
    
    (5,510
    )Net cash used in investing activities
    
    
    2,187
    
    
    
    (43,063
    )
    
    
    (23,564
    )
    
    
    (10,648
    )
    
    
    (75,088
    )Cash flows from financing activities:Proceeds from issuance of debt and
draws on revolving credit facility
    
    
    84,066
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,066Principal repayments of debt and capital lease
obligations
    
    
    (49,395
    )
    
    
    (142
    )
    
    
    
    
    
    
    
    
    
    
    (49,537
    )Proceeds from the exercise of options and warrants
    
    
    691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    691Fees paid for financing costs
    
    
    (1,259
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,259
    )Intercompany
    
    
    
    
    
    
    (9,344
    )
    
    
    (1,304
    )
    
    
    10,648
    
    
    
    Net cash provided by (used in) financing
activities  continuing operations
    
    
    34,103
    
    
    
    (9,486
    )
    
    
    (1,304
    )
    
    
    10,648
    
    
    
    33,961Effect of exchange rate changes
on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    1,240
    
    
    
    
    
    
    
    1,240Increase (decrease) in cash and cash equivalents
    
    
    3,488
    
    
    
    456
    
    
    
    3,522
    
    
    
    
    
    
    
    7,466Cash and cash equivalents at the beginning of the period
    
    
    2,190
    
    
    
    563
    
    
    
    5,779
    
    
    
    
    
    
    
    8,532Cash and cash equivalents at the end of the period
    
    $
    5,678
    
    
    $
    1,019
    
    
    $
    9,301
    
    
    $
    
    
    
    $
    15,998
 29




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
  Sources of Revenue
       30




---



##### Table of Contents



Expense Structure
       Recent Developments
 Refinancing of Credit Facilities
   31




---



##### Table of Contents



Acquisitions and Dispositions
       32




---



##### Table of Contents



Results of Operations for the Three and Nine Months Ended September 30, 2008 and 2007
   Three Months Ended September 30, 2008Florida
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    $
    58,468
    
    
    
    100.0
    %
    
    $
    67,277
    
    
    
    100.0
    %
    
    $
    125,745
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    38,114
    
    
    
    65.2
    %
    
    
    44,398
    
    
    
    66.0
    %
    
    
    82,512
    
    
    
    65.6
    %Selling, general and administrative expense
    
    
    7,647
    
    
    
    13.1
    %
    
    
    7,427
    
    
    
    11.0
    %
    
    
    15,074
    
    
    
    12.0
    %Depreciation, depletion and amortization
    
    
    6,509
    
    
    
    11.1
    %
    
    
    4,994
    
    
    
    7.4
    %
    
    
    11,503
    
    
    
    9.1
    %Foreign exchange loss and other
    
    
    20
    
    
    
    0.0
    %
    
    
    115
    
    
    
    0.2
    %
    
    
    135
    
    
    
    0.2
    %Income from operations
    
    $
    6,178
    
    
    
    10.6
    %
    
    $
    10,343
    
    
    
    15.4
    %
    
    $
    16,521
    
    
    
    13.1
    %
 Three Months Ended September 30, 2007Florida
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    $
    63,785
    
    
    
    100.0
    %
    
    $
    59,989
    
    
    
    100.0
    %
    
    $
    123,774
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    41,084
    
    
    
    64.4
    %
    
    
    39,645
    
    
    
    66.1
    %
    
    
    80,729
    
    
    
    65.2
    %Selling, general and administrative expense
    
    
    7,338
    
    
    
    11.5
    %
    
    
    6,872
    
    
    
    11.5
    %
    
    
    14,210
    
    
    
    11.5
    %Severance and related costs
    
    
    3,995
    
    
    
    6.3
    %
    
    
    
    
    
    
    0.0
    %
    
    
    3,995
    
    
    
    3.2
    %Depreciation, depletion and amortization
    
    
    10,231
    
    
    
    16.0
    %
    
    
    5,139
    
    
    
    8.6
    %
    
    
    15,370
    
    
    
    12.4
    %Foreign exchange loss (gain) and other
    
    
    684
    
    
    
    1.1
    %
    
    
    (34
    )
    
    
    -0.1
    %
    
    
    650
    
    
    
    0.6
    %Income from operations
    
    $
    453
    
    
    
    0.7
    %
    
    $
    8,367
    
    
    
    13.9
    %
    
    $
    8,820
    
    
    
    7.1
    %
 33




---



##### Table of Contents



Nine Months Ended September 30, 2008Florida
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    $
    179,331
    
    
    
    100.0
    %
    
    $
    191,304
    
    
    
    100.0
    %
    
    $
    370,635
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    116,497
    
    
    
    65.0
    %
    
    
    126,164
    
    
    
    65.9
    %
    
    
    242,661
    
    
    
    65.5
    %Selling, general and administrative expense
    
    
    24,055
    
    
    
    13.4
    %
    
    
    23,888
    
    
    
    12.5
    %
    
    
    47,943
    
    
    
    12.9
    %Depreciation, depletion and amortization
    
    
    19,903
    
    
    
    11.1
    %
    
    
    14,923
    
    
    
    7.8
    %
    
    
    34,826
    
    
    
    9.4
    %Foreign exchange loss (gain) and other
    
    
    (463
    )
    
    
    -0.3
    %
    
    
    141
    
    
    
    0.1
    %
    
    
    (322
    )
    
    
    -0.1
    %Income from operations
    
    $
    19,339
    
    
    
    10.8
    %
    
    $
    26,188
    
    
    
    13.7
    %
    
    $
    45,527
    
    
    
    12.3
    %
 Nine Months Ended September 30, 2007Florida
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    $
    177,546
    
    
    
    100.0
    %
    
    $
    160,648
    
    
    
    100.0
    %
    
    $
    338,194
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    114,921
    
    
    
    64.7
    %
    
    
    107,074
    
    
    
    66.7
    %
    
    
    221,995
    
    
    
    65.6
    %Selling, general and administrative expense
    
    
    23,516
    
    
    
    13.2
    %
    
    
    19,804
    
    
    
    12.3
    %
    
    
    43,320
    
    
    
    12.8
    %Severance and related costs
    
    
    3,995
    
    
    
    2.3
    %
    
    
    
    
    
    
    0.0
    %
    
    
    3,995
    
    
    
    1.2
    %Depreciation, depletion and amortization
    
    
    26,769
    
    
    
    15.1
    %
    
    
    14,076
    
    
    
    8.8
    %
    
    
    40,845
    
    
    
    12.1
    %Foreign exchange loss (gain) and other
    
    
    350
    
    
    
    0.2
    %
    
    
    (287
    )
    
    
    -0.2
    %
    
    
    63
    
    
    
    0.0
    %Income from operations
    
    $
    7,995
    
    
    
    4.5
    %
    
    $
    19,981
    
    
    
    12.4
    %
    
    $
    27,976
    
    
    
    8.3
    %
 Revenue
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    2008
    
    
    
    
    
    
    2007Collection
    
    $
    102,284
    
    
    
    73.7
    %
    
    $
    98,747
    
    
    
    72.0
    %
    
    $
    303,654
    
    
    
    74.2
    %
    
    $
    272,942
    
    
    
    72.6
    %Landfill disposal
    
    
    12,818
    
    
    
    9.2
    %
    
    
    15,966
    
    
    
    11.6
    %
    
    
    37,404
    
    
    
    9.1
    %
    
    
    43,302
    
    
    
    11.5
    %Transfer station
    
    
    17,676
    
    
    
    12.7
    %
    
    
    16,808
    
    
    
    12.2
    %
    
    
    50,243
    
    
    
    12.3
    %
    
    
    46,075
    
    
    
    12.3
    %Material recovery facilities
    
    
    5,302
    
    
    
    3.8
    %
    
    
    5,185
    
    
    
    3.8
    %
    
    
    16,695
    
    
    
    4.1
    %
    
    
    12,590
    
    
    
    3.3
    %Other specialized services
    
    
    651
    
    
    
    0.6
    %
    
    
    508
    
    
    
    0.4
    %
    
    
    1,475
    
    
    
    0.3
    %
    
    
    1,017
    
    
    
    0.3
    %138,731
    
    
    
    100.0
    %
    
    
    137,214
    
    
    
    100.0
    %
    
    
    409,471
    
    
    
    100.0
    %
    
    
    375,926
    
    
    
    100.0
    %Intercompany elimination
    
    
    (12,986
    )
    
    
    
    
    
    
    (13,440
    )
    
    
    
    
    
    
    (38,836
    )
    
    
    
    
    
    
    (37,732
    )$
    125,745
    
    
    
    
    
    
    $
    123,774
    
    
    
    
    
    
    $
    370,635
    
    
    
    
    
    
    $
    338,194
   34




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##### Table of Contents



Cost of Operations
       Selling, General and Administrative Expense
  35




---



##### Table of Contents



Severance and Related Costs
  Depreciation, Depletion and Amortization
   36




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##### Table of Contents



Foreign Exchange Gain and Other
  Interest Expense
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Credit Facility and Senior Subordinated Note interest
    
    $
    6,790
    
    
    $
    9,248
    
    
    $
    22,325
    
    
    $
    27,771Amortization of debt issue costs
    
    
    492
    
    
    
    522
    
    
    
    2,008
    
    
    
    1,837Other interest expense
    
    
    448
    
    
    
    473
    
    
    
    1,437
    
    
    
    1,210$
    7,730
    
    
    $
    10,243
    
    
    $
    25,770
    
    
    $
    30,818
    Income Tax Provision (Benefit)
  37




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##### Table of Contents



Liquidity and Capital Resources
  Senior Secured Credit Facilities
   38




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##### Table of Contents



Maximum
    
    Maximum
    
    MinimumConsolidated
    
    Consolidated
    
    ConsolidatedLeverage
    
    Senior Secured
    
    InterestRatio
    
    Leverage Ratio
    
    Coverage RatioThird quarter  2008
    
    4.50 : 1.00
    
    2.75 : 1.00
    
    2.50 : 1.00Fourth quarter  2008
    
    4.50 : 1.00
    
    2.75 : 1.00
    
    2.50 : 1.00First quarter  2009
    
    4.50 : 1.00
    
    2.75 : 1.00
    
    2.50 : 1.00Second quarter  2009
    
    4.50 : 1.00
    
    2.75 : 1.00
    
    2.50 : 1.00Third quarter  2009
    
    4.25 : 1.00
    
    2.75 : 1.00
    
    2.75 : 1.00
  Other Secured Notes Payable
  Senior Subordinated Notes
 1 2
   39




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##### Table of Contents



Direct Financing Lease Facility
  Surety Bonds, Letters of Credit and Insurance
   Cash Flows
  Cash Flows from Operating Activities
  Cash Flows from Investing Activities
  40




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##### Table of Contents



Cash Flows from Financing Activities
  Cash Flow from Discontinued Operations
  Off-Balance Sheet Financing
  Landfill Sites
  Balance,
    
    
    
    
    
    
    
    
    
    
    Balance,Beginning
    
    
    Landfills
    
    
    Airspace
    
    
    Endof Period
    
    
    Expanded
    
    
    Consumed
    
    
    of PeriodUnited StatesPermitted capacity
    
    
    51,255
    
    
    
    29,577
    
    
    
    (1,720
    )
    
    
    79,112Probable expansion capacity
    
    
    29,577
    
    
    
    (29,577
    )
    
    
    
    
    
    
    Total available airspace
    
    
    80,832
    
    
    
    
    
    
    
    (1,720
    )
    
    
    79,112Number of sites
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3CanadaPermitted capacity
    
    
    11,564
    
    
    
    
    
    
    
    (320
    )
    
    
    11,244Probable expansion capacity
    
    
    4,709
    
    
    
    
    
    
    
    
    
    
    
    4,709Total available airspace
    
    
    16,273
    
    
    
    
    
    
    
    (320
    )
    
    
    15,953Number of sites
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3TotalPermitted capacity
    
    
    62,819
    
    
    
    29,577
    
    
    
    (2,040
    )
    
    
    90,356Probable expansion capacity
    
    
    34,286
    
    
    
    (29,577
    )
    
    
    
    
    
    
    4,709Total available airspace
    
    
    97,105
    
    
    
    
    
    
    
    (2,040
    )
    
    
    95,065Number of sites
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6
  41




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##### Table of Contents



Trend Information
 Seasonality
  New Accounting Pronouncements
 1 2
   42




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##### Table of Contents



Disclosure Regarding Forward-Looking Statements and Factors Affecting Future Results
   
    
    our substantial indebtedness and the significant restrictive covenants in our
various credit facilities and our ability to finance acquisitions with cash on hand, debt
or equity offerings;
    
    our business is capital intensive and may consume cash in excess of cash flow from
operations and borrowings;
    
    our ability to vertically integrate our operations;
    
    our ability to maintain and perform our financial assurance obligations;
    
    changes in regulations affecting our business and costs of compliance;
    
    revocation of existing permits and licenses or the refusal to renew or grant new
permits and licenses, which are required to enable us to operate our business or
implement our growth strategy;
    
    our domestic operations are concentrated in Florida, which may be subject to
specific economic conditions that vary from those nationally as well as weather related
events that may impact our operations;
    
    construction, equipment delivery or permitting delays for our transfer stations or
landfills;
    
    our ability to successfully implement our corporate strategy and integrate any
acquisitions we undertake;
    
    our ability to negotiate renewals of existing service agreements at favorable
rates;
    
    our ability to enhance profitability of certain aspects of our operations in
markets where we are not internalized through either divestiture or asset swaps;
    
    costs and risks associated with litigation; and
    
    changes in general business and economic conditions, exchange rates and the
financial markets and accounting standards or pronouncements.
  43




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  44




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit 4.1
    
    Supplemental Indenture dated as of October 6, 2008 among Waste Services, Inc., the
Guarantors and Wells Fargo Bank, National Association (Incorporated by reference to
Exhibit 4.1 to Form 8-K (No. 000-25955) filed on October 10, 2008).Exhibit 4.2
    
    Supplemental Indenture dated as of October 8, 2008 among Capital Environmental
Holdings Company, Waste Services (CA) Inc., Ram-Pak Compaction Systems Ltd., Waste
Services, Inc., the Guarantors and Wells Fargo Bank, National Association
(Incorporated by reference to Exhibit 4.2 to Form 8-K (No. 000-25955) filed on
October 10, 2008).Exhibit 10.1
    
    Credit Agreement dated as of October 8, 2008 among Waste Services, Inc., Waste
Services (CA) Inc., the several lenders from time to time parties thereto, Barclays
Capital and Banc of America Securities LLC, as Joint Lead Arrangers and Joint Lead
Bookrunners, Bank of America, N.A., as Syndication Agent, Bosic Inc., Suntrust Bank
and The Bank of Nova Scotia, as Co-Documentation Agents, The Bank of Nova Scotia as
Canadian Agent and Canadian Collateral Agent and Barclays Bank PLC as Administrative
Agent (Incorporated by reference to Exhibit 99.2 to Form 8-K (No. 000-25955) filed on
October 10, 2008).Exhibit 31.1
    
    Section 302 Certification of David Sutherland-Yoest, Chief Executive Officer.Exhibit 31.2
    
    Section 302 Certification of Edwin D. Johnson, Chief Financial Officer.Exhibit 32.1
    
    Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer.
 45




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##### Table of Contents



SIGNATURES
  WASTE SERVICES, INC.
  By:
    /s/ DAVID SUTHERLAND-YOESTDavid Sutherland-YoestPresident and Chief Executive OfficerBy:
    /s/ EDWIN D. JOHNSONEdwin D. JohnsonExecutive Vice President, Chief Financial Officer 46




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No
    
    DescriptionExhibit 4.1
    
    Supplemental Indenture dated as of October 6, 2008 among Waste Services, Inc., the
Guarantors and Wells Fargo Bank, National Association (Incorporated by reference to
Exhibit 4.1 to Form 8-K (No. 000-25955) filed on October 10, 2008).Exhibit 4.2
    
    Supplemental Indenture dated as of October 8, 2008 among Capital Environmental
Holdings Company, Waste Services (CA) Inc., Ram-Pak Compaction Systems Ltd., Waste
Services, Inc., the Guarantors and Wells Fargo Bank, National Association
(Incorporated by reference to Exhibit 4.2 to Form 8-K (No. 000-25955) filed on
October 10, 2008).Exhibit 10.1
    
    Credit Agreement dated as of October 8, 2008 among Waste Services, Inc., Waste
Services (CA) Inc., the several lenders from time to time parties thereto, Barclays
Capital and Banc of America Securities LLC, as Joint Lead Arrangers and Joint Lead
Bookrunners, Bank of America, N.A., as Syndication Agent, Bosic Inc., Suntrust Bank
and The Bank of Nova Scotia, as Co-Documentation Agents, The Bank of Nova Scotia as
Canadian Agent and Canadian Collateral Agent and Barclays Bank PLC as Administrative
Agent (Incorporated by reference to Exhibit 99.2 to Form 8-K (No. 000-25955) filed on
October 10, 2008).Exhibit 31.1
    
    Section 302 Certification of David Sutherland-Yoest, Chief Executive Officer.Exhibit 31.2
    
    Section 302 Certification of Edwin D. Johnson, Chief Financial Officer.Exhibit 32.1
    
    Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer.
 47