UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

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

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)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at October 26, 2009 was 46,253,107.

 

 

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008			2
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008			3
Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the Nine Months Ended September 30, 2009			4
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008			5
Notes to Unaudited Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			46
Item 4. Controls and Procedures			47
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 3. Defaults Upon Senior Securities			47
Item 4. Submission of Matters to a Vote of Security Holders			47
Item 5. Other Information			47
Item 6. Exhibits			48
Signatures			49
EX-4.3
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WASTE SERVICES, INC.

		September 30,				December 31,
		2009				2008
		(Unaudited)
ASSETS
Current assets:
Cash		$	3,209			$	7,227
Accounts receivable (net of allowance for doubtful accounts of $639 and $631 as of September 30, 2009 and December 31, 2008, respectively)			57,585				52,062
Prepaid expenses and other current assets			9,754				13,672
Total current assets			70,548				72,961
Property and equipment, net			199,540				188,800
Landfill sites, net			196,349				196,632
Goodwill and other intangible assets, net			393,514				372,886
Other assets			10,841				9,648
Total assets		$	870,792			$	840,927
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	24,100			$	19,341
Accrued expenses and other current liabilities			57,220				62,802
Short-term financing and current portion of long-term debt			17,750				11,102
Total current liabilities			99,070				93,245
Long-term debt			355,529				360,967
Deferred income taxes			38,100				32,298
Accrued closure, post-closure and other obligations			21,361				19,399
Total liabilities			514,060				505,909
Shareholders’ equity:
Common stock $0.01 par value: 166,666,666 shares authorized, 46,253,107 and 43,985,436 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively			462				439
Additional paid-in capital			501,200				512,942
Accumulated other comprehensive income			46,102				38,221
Accumulated deficit			(191,032	)			(216,584	)
Total shareholders’ equity			356,732				335,018
Total liabilities and shareholders’ equity		$	870,792			$	840,927

The accompanying notes are an integral part of these condensed consolidated financial statements.

WASTE SERVICES, INC.

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Revenue		$	112,461			$	125,745			$	315,738			$	370,635
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)			71,204				82,512				203,896				242,661
Selling, general and administrative expense (exclusive of depreciation, depletion and amortization)			13,085				15,074				39,034				47,943
Depreciation, depletion and amortization			10,940				11,503				32,016				34,826
Loss (gain) on sale of property and equipment, foreign exchange and other			(7	)			135				(2,533	)			(322	)
Income from operations			17,239				16,521				43,325				45,527
Interest expense			7,528				7,730				22,418				25,770
Change in fair value of warrants			(688	)			—				(2,103	)			—
Income from continuing operations before income taxes			10,399				8,791				23,010				19,757
Income tax provision			3,682				5,322				8,837				6,927
Income from continuing operations			6,717				3,469				14,173				12,830
Income from discontinued operations, net of income tax provision of $266 for the nine months ended September 30, 2008			—				—				—				409
Gain on sale of discontinued operations, net of income tax provision of $4,485 for the nine months ended September 30, 2008			—				—				—				6,869
Net income		$	6,717			$	3,469			$	14,173			$	20,108
Basic and diluted earnings per share:
Earnings per share — continuing operations		$	0.15			$	0.08			$	0.31			$	0.28
Earnings per share — discontinued operations			—				—				—				0.16
Earnings per share — basic and diluted		$	0.15			$	0.08			$	0.31			$	0.44
Weighted average common shares outstanding — basic			46,253				46,079				46,206				46,076
Weighted average common shares outstanding — diluted			46,302				46,088				46,231				46,085

The accompanying notes are an integral part of these condensed consolidated financial statements.

WASTE SERVICES, INC.

														Accumulated
		Waste Services, Inc.								Additional				Other								Total
		Common Stock								Paid-in				Comprehensive				Accumulated				Shareholders’
		Shares				Amount				Capital				Income				Deficit				Equity
Balance, December 31, 2008, as previously reported			43,985			$	439			$	512,942			$	38,221			$	(216,584	)		$	335,018
Cumulative effect of reclassification of warrants			—				—				(13,774	)			—				11,379				(2,395	)
Balance, January 1, 2009, as adjusted			43,985				439				499,168				38,221				(205,205	)			332,623
Stock-based compensation			172				2				2,053				—				—				2,055
Conversion of exchangeable shares			2,096				21				(21	)			—				—				—
Foreign currency translation adjustment			—				—				—				7,881				—				7,881
Net income			—				—				—				—				14,173				14,173
Balance, September 30, 2009			46,253			$	462			$	501,200			$	46,102			$	(191,032	)		$	356,732

The accompanying notes are an integral part of these condensed consolidated financial statements.

WASTE SERVICES, INC.

		Nine Months Ended September 30,
		2009				2008
Cash flows from operating activities:
Net income		$	14,173			$	20,108
Adjustments to reconcile net income to net cash flows from operating activities:
Income from discontinued operations, net of income tax			—				(7,278	)
Depreciation, depletion and amortization			32,016				34,826
Amortization of debt issue costs and discounts			2,593				2,008
Deferred income tax provision (benefit)			3,862				(1,724	)
Non-cash stock-based compensation expense			2,055				2,785
Change in fair value of warrants			(2,103	)			—
Loss (gain) on sale of property and equipment and other non-cash items			(1,834	)			229
Changes in operating assets and liabilities (excluding the effects of acquisitions and dispositions):
Accounts receivable			(731	)			2,461
Prepaid expenses and other current assets			5,826				2,851
Accounts payable			3,074				(3,537	)
Accrued expenses and other current liabilities			(11,777	)			(3,806	)
Net cash provided by continuing operations			47,154				48,923
Net cash provided by discontinued operations			—				1,163
Net cash provided by operating activities			47,154				50,086
Cash flows from investing activities:
Cash used in business combinations			(16,681	)			—
Capital expenditures			(24,413	)			(39,220	)
Proceeds from asset sales and business divestitures			6,862				57,715
Deposits for business acquisitions and other			(529	)			(3,876	)
Net cash provided by (used in) continuing operations			(34,761	)			14,619
Net cash used in discontinued operations			—				(43	)
Net cash provided by (used in) investing activities			(34,761	)			14,576
Cash flows from financing activities:
Proceeds from Senior Subordinated Notes			51,563				—
Draws on revolving credit facility			34,419				—
Proceeds from the exercise of options and warrants			—				60
Principal repayments of debt and capital lease obligations			(102,681	)			(43,597	)
Fees paid for financing transactions			(1,204	)			—
Net cash used in financing activities — continuing operations			(17,903	)			(43,537	)
Effect of exchange rate changes on cash			1,492				(836	)
Increase (decrease) in cash			(4,018	)			20,289
Cash at the beginning of the period			7,227				20,706
Cash at the end of the period		$	3,209			$	40,995

The accompanying notes are an integral part of these condensed consolidated financial statements.

WASTE SERVICES, INC.

1. Organization of Business and Basis of Presentation

     The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of Waste Services, Inc. (“Waste Services”) and its wholly owned subsidiaries (collectively, “we”, “us”, or “our”). We are a multi-regional, integrated solid waste services company, providing collection, transfer, landfill disposal and recycling services for commercial, industrial and residential customers. Our operating strategy is disposal-based, whereby we enter geographic markets with attractive growth or positive competitive characteristics by acquiring and developing landfill disposal capacity, then acquiring and developing waste collection and transfer operations. Our operations are located in the United States and Canada. Our U.S. operations are located in Florida and our Canadian operations are located in Eastern Canada (Ontario) and Western Canada (Alberta, Saskatchewan and British Columbia). We divested our Jacksonville, Florida operations in March 2008 and as a result, these operations are presented as discontinued for all periods presented.

     These Unaudited Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All significant intercompany transactions and accounts have been eliminated. All figures are presented in thousands of U.S. dollars, except share and per share data, or except where expressly stated as being in Canadian dollars (“C$”) or in millions. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these Unaudited Condensed Consolidated Financial Statements are consistent with those followed in our annual consolidated financial statements for the year ended December 31, 2008, as filed on Form 10-K. In the opinion of management, these Unaudited Condensed Consolidated Financial Statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with our Form 10-K for the year ended December 31, 2008. Income taxes during these interim periods have been provided based on our anticipated annual effective income tax rate for each respective tax jurisdiction. Certain reclassifications have been made to the prior period financial statement amounts to conform to the current presentation. We evaluated subsequent events through the date the accompanying financial statements were issued, which was October 29, 2009. Due to the seasonal nature of our business, operating results for interim periods are not necessarily indicative of the results for full years.

     The preparation of financial statements in conformity with GAAP 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for doubtful accounts, depletion of landfill development costs, carrying amounts of goodwill and other intangible assets, liabilities for landfill capping, closure and post-closure obligations, insurance reserves, restructuring reserves, revenue recognition, liabilities for potential litigation, valuation assumptions for share-based payments and warrants, carrying amounts of long-lived assets and deferred taxes.

     A portion of our operations is domiciled in Canada. For each reporting period we translate the results of operations and financial condition of our Canadian operations into U.S. dollars. Therefore, the reported results of our operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the Canadian dollar strengthens against the U.S. dollar, revenue is favorably affected and conversely expenses are unfavorably affected. Assets and liabilities of our Canadian operations are translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet dates, and revenue and expenses of our Canadian operations are translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of our Canadian operations into U.S. dollars are reported as a separate component of shareholders’ equity and are included in comprehensive income or loss. Monetary assets and liabilities are re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of re-measurement are reported currently as a component of net income. Currently, we do not hedge our exposure to changes in foreign exchange rates.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period, including exchangeable shares of Waste Services (CA) Inc. not owned by us. Diluted earnings per share is calculated based on the weighted average number of common shares outstanding for the period, including the exchangeable shares, plus the dilutive effect of common stock purchase warrants, stock options and restricted stock units using the treasury stock method. Contingently issuable shares will be included in the calculation of basic earnings per share when all contingencies surrounding the issuance of the shares are met and the shares are issued or issuable. Contingently issuable shares are included in the calculation of dilutive earnings per share as of the beginning of the reporting period if, at the end of the reporting period, all contingencies surrounding the issuance of the shares are satisfied or would be satisfied if the end of the reporting period were the end of the contingency period.

     For purposes of computing net income per common share, the basic and diluted weighted average number of common shares outstanding for the nine months ended September 30, 2009 includes the effect of 2,414,932 exchangeable shares of Waste Services (CA) Inc. (exchangeable for 804,977 shares of our common stock), as if they were shares of our outstanding common stock, and for the three and nine months ended September 30, 2008 includes the effect of 6,288,637 and 6,299,102 exchangeable shares of Waste Services (CA) Inc., respectively (exchangeable for 2,096,212 and 2,099,700 shares of our common stock, respectively), as if they were shares of our outstanding common stock. During the second quarter of 2009, all remaining exchangeable shares of Waste Services (CA) Inc. not owned by affiliates were exchanged for shares of our common stock and accordingly, no exchangeable shares of Waste Services (CA) Inc. were included in basic and diluted weighted average common shares outstanding for the three months ended September 30, 2009.

     For the three and nine months ended September 30, 2009, stock options and common stock purchase warrants for the purchase of 3,659,011 common shares were antidilutive as the exercise price of such options and warrants was in excess of the average market price for our common stock for such periods. For the three and nine months ended September 30, 2008, stock options and common stock purchase warrants for the purchase of 6,040,490 common shares were antidilutive as the exercise price of such options and warrants was in excess of the average market price for our common stock for such periods.

2. Recently Issued Accounting Pronouncements and Adopted Accounting

     In August 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2009-5, “Measuring Liabilities at Fair Value” (“ASU 2009-05”). ASU 2009-05 amends Accounting Standards Codification Topic 820, “Fair Value Measurements.” Specifically, ASU 2009-5 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets and/or (ii) a valuation technique that is consistent with the principles of Topic 820 of the Accounting Standards Codification (e.g. an income approach or market approach). ASU 2009-05 also clarifies that (i) when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability and (ii) that both a quoted price in an active market for an identical liability at the measurement date and a quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are level one fair value measurements. ASU 2009-05 is effective for financial statements issued for interim and annual periods beginning after August 28, 2009. We do not anticipate that the adoption of this standard will have a material impact on our financial position and results of operations.

     In June 2009, the FASB issued guidance for determining whether an entity is a variable interest entity (“VIE”). This guidance requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. Under this guidance, an enterprise has a controlling financial interest when it has (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. Enterprises are also required to assess whether they have an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance. This guidance also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities. This guidance is effective for annual reporting periods beginning after November 15, 2009. We do not anticipate that the adoption of this guidance will have a material impact on our financial position and results of operations.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     In June 2009, the FASB issued guidance that seeks to improve the relevance and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Specifically, this guidance eliminates the concept of a qualifying special-purpose entity, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor’s interest in transferred financial assets. This guidance is effective for annual reporting periods beginning after November 15, 2009. We do not anticipate that the adoption of this guidance will have a material impact on our financial position and results of operations.

     Effective January 1, 2009 we adopted guidance related to determining whether an instrument or embedded feature is indexed to an entity’s own stock. This guidance applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. As a result of adopting this accounting guidance, outstanding common stock purchase warrants to purchase 2,383,333 common shares that were previously treated as equity pursuant to the derivative treatment exemption, were no longer afforded equity treatment. These warrants have an exercise price of $9.00 per share and expire in May 2010. As such, effective January 1, 2009 we reclassified the fair value of these common stock purchase warrants, which have exercise price reset features, from equity to liability status as if these warrants were treated as a derivative liability since their date of issue in May 2003. On January 1, 2009, we reclassified from additional paid-in capital to beginning accumulated deficit $11.4 million, as a cumulative effect adjustment, and $2.4 million to a long-term warrant liability to recognize the fair value of these warrants on such date. The fair value of these common stock purchase warrants declined to $0.3 million as of September 30, 2009. We recognized a gain of $0.7 million and $2.1 million from the change in the fair value of these warrants for the three and nine months ended September 30, 2009, respectively.

     These common stock purchase warrants were initially issued in connection with our May 2003 issuance of 55,000 shares of redeemable preferred stock, which were subsequently exchanged and/or redeemed in December 2006. The common stock purchase warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. The warrants do not qualify for hedge accounting, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire.

     These common stock purchase warrants do not trade in an active securities market, and as such, we estimate the fair value of these warrants using the Black-Scholes option pricing model using the following assumptions:

		September 30,				January 1,
		2009				2009
Annual dividend yield			—				—
Expected life (years)			0.6				1.4
Risk-free interest rate			0.4	%			0.4	%
Expected volatility			63	%			56	%

     Expected volatility is based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods that correspond to the last twelve months. We believe this method produces an estimate that is representative of our expectations of future volatility over the expected term of these warrants. We currently have no reason to believe future volatility over the expected remaining life of these warrants is likely to differ materially from historical volatility. The expected life is based on the remaining term of the warrants. The risk-free interest rate is based on one-year U.S. Treasury securities.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     In December 2007, the FASB issued revised guidance for accounting for business combinations, which established the principles and requirements for how an acquirer (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Previously, any changes in valuation allowances as a result of income from acquisitions for certain deferred tax assets would serve to reduce goodwill. Under this revised guidance, any changes in the valuation allowance related to income from acquisitions currently or in prior periods now serves to reduce income taxes in the period in which the reserve is reversed. Additionally, transaction related expenses that were previously capitalized are now expensed as incurred. As of December 31, 2008, we had no deferred transaction related expenses for business combination transactions in negotiation. The provisions of this revised guidance apply prospectively to business combinations consummated on or after January 1, 2009 and we had no transition adjustments on January 1, 2009.

3. Fair Value Measurements

     The book values of cash, accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these instruments. The fair value of the term loan facilities under our Senior Secured Credit Facilities and our 9¹/2% Senior Subordinated Notes at September 30, 2009 is estimated at $145.1 million and $209.0 million, respectively, based on quoted market prices. The fair value hierarchy under GAAP distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

	•		Level one — Quoted market prices in active markets for identical assets or liabilities;
	•		Level two — Inputs other than level one inputs that are either directly or indirectly observable; and
	•		Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

     Determining which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter. Liabilities measured at fair value on a recurring basis are summarized as follows as of September 30, 2009 (unaudited):

		Level 1				Level 2				Level 3				Total
Accrued closure and post-closure obligations		$	—			$	—			$	19,856			$	19,856
Accrued rent relative to October 2008 restructuring			—				—				625				625
Fair value of warrants			—				293				—				293
		$	—			$	293			$	20,481			$	20,774

     A discussion of the valuation techniques used to measure fair value for the liabilities listed above and activity for these liabilities for the nine months ended September 30, 2009 is provided elsewhere in Notes 2, 9 and 14. We have no assets that are measured at fair value on a recurring basis. There were no assets or liabilities measured at fair value on a non-recurring basis during the nine months ended September 30, 2009 other than those acquired in business combinations, which are discussed in Note 5.

4. Share-Based Payments

     We have one active share-based stock award plan that provides for the grant of stock options and stock awards, such as restricted stock units, to our employees and members of our Board of Directors, as approved by our Board of Directors. Under this plan, the maximum number of shares that will be available for award will not exceed 4,500,000 shares of our common stock. As of September 30, 2009, there were 2,767,417 shares available for grant under the plan.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Stock-based compensation expense was $0.3 million and $0.8 million for the three months ended September 30, 2009 and 2008, respectively, and $2.1 million and $2.8 million for the nine months ended September 30, 2009 and 2008, respectively. During 2008, we granted 742,500 restricted stock units (“RSU’s”) to certain employees and directors, which are eligible to vest in three equal tranches over each of the next three years following the grant, and are contingent on the achievement of specific annual performance criteria. During 2008, 55,000 of these RSU’s were forfeited. The aggregate fair value of the first tranche of restricted stock units is approximately $2.2 million, or $9.02 per unit, of which a total of $1.6 million has been expensed based on the achievement of specific performance criteria for 2008. We recognized $0.7 million of this expense in the first quarter of 2009. A total of 171,875 shares with an aggregate fair value of $0.7 million vested in the first quarter of 2009. Performance criteria for the second tranche of the 2008 grant were set in the first quarter of 2009 and resulted in an aggregate fair value for the second tranche of $1.1 million, or $4.76 per unit, which is being expensed based on our estimate of achieving the specific performance criteria for 2009 on a straight-line basis over the requisite service period. We expect performance criteria for the third tranche of this grant to be specified in the first quarter of 2010.

     In the first quarter of 2009, we granted 628,500 RSU’s to certain employees and directors, which are eligible to vest in three equal tranches over each of the next three years following the grant, and are also contingent on the achievement of specific annual performance criteria. The fair value of the first tranche of RSU’s of approximately $0.9 million, or $4.33 per unit, is being expensed based on our estimate of achieving the specific performance criteria for 2009 on a straight-line basis over the requisite service period. We expect performance criteria for the second and third tranches of this grant to be specified during the year in which they are eligible to vest.

     Activity for the nine months ended September 30, 2009 for our RSU’s for which performance based vesting criteria have been specified is as follows (aggregate intrinsic value in thousands):

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
		Number				Grant				Contractual				Intrinsic
		of Shares				Value				Term (Years)				Value
Nonvested restricted stock units -
Beginning of the period			229,158			$	9.02				0.3			$	1,508
Granted			438,669				4.55
Vested			(171,875	)			9.02
Forfeited			(3,751	)			5.04
End of the period			492,201				5.07				0.5			$	2,274

     As of September 30, 2009, 643,161 RSU’s have been excluded from the above table as the performance based vesting criteria for these RSU’s had not yet been set at that time.

     During the nine months ended September 30, 2009, we granted options to purchase 282,500 shares of our common stock to certain employees. These options have an exercise price of $4.33 per share, a weighted-average grant-date fair value of $2.40 per share and vest one-third over each of the next three years following the grant. During the nine months ended September 30, 2008, we granted options to purchase 233,500 shares of our common stock to certain employees. These options have an exercise price of $9.50 per share, a weighted-average grant-date fair value of $5.55 per share and vest one-third over each of next three years following the grant. The fair value of options granted is estimated using the Black-Scholes option pricing model using the following assumptions:

		Three Months
		Ended				Nine Months Ended September 30,
		September 30, 2008				2009				2008
Annual dividend yield			—				—				—
Weighted average expected life (years)			6.7				7.0				7.0
Risk-free interest rate			3.8	%			2.6	%			3.2	%
Expected volatility			53	%			52	%			61	%

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Expected volatility is based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods that correspond to the expected life of the grant. We believe this method produces an estimate that is representative of our expectations of future volatility over the expected term of our options. We currently have no reason to believe future volatility over the expected life of these options is likely to differ materially from historical volatility. The weighted-average expected life is based on share option exercises, pre and post vesting terminations and share option term expiration. The risk-free interest rate is based on the U.S. Treasury security rate for the expected life of the options at the date of grant.

     We estimate forfeitures when recognizing compensation expense and adjust this estimate over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment, which is recognized in the period of change and which impacts the amount of unamortized compensation expense to be recognized in future periods.

     Stock option activity for the nine months ended September 30, 2009 for employee options covered by our stock option plans is as follows (unaudited):

		Number of				Weighted Average Exercise Price
		Shares Issuable				US$ Options				C$ Options (C$)
Options outstanding at the beginning of the period			2,218,965			$	12.29			$	20.41
Granted			282,500				4.33				—
Forfeited			(45,667	)			8.45				—
Expired			(1,328,982	)			14.19				20.41
Options outstanding at the end of the period			1,126,816				8.59				—
Options vested or expected to vest at the end of the period			1,029,351				8.85				—
Options exercisable at the end of the period			752,947				10.00				—

     The intrinsic value of options outstanding at September 30, 2009 was $0.1 million. As of September 30, 2009, $0.8 million and $0.7 million of total unrecognized compensation cost related to employee stock options and RSU’s is expected to be recognized over a weighted average period of approximately 2.0 years and 0.5 years, respectively.

5. Business Combinations

     We believe the primary value of an acquisition is the opportunity made available to vertically integrate operations or increase market presence within a geographic market. We expect goodwill generated from the acquisitions described below to be deductible for income tax purposes.

     In September 2009, we acquired the Miami-Dade County, Florida hauling operations of DisposAll of South Florida, Inc. (“DisposAll”) for approximately $15.6 million, of which $1.3 million was paid by way of a disposal credit for future fees charged to DisposAll for waste disposed at certain of our transfer station and landfill facilities. We intend to internalize the waste flow from this acquisition into our existing transfer station and landfill facilities.

     During the first nine months of 2009, we also acquired four separate “tuck-in” hauling operations in southwest Florida for an aggregate purchase price of $2.6 million. We are internalizing construction and demolition waste volumes associated with these acquisitions into certain of our existing transfer station and landfill facilities.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Details of the net assets acquired and the purchase price paid for acquisitions that occurred during the nine months ended September 30, 2009 are as follows:

		DisposAll				All Others				Total
Purchase price:
Cash paid		$	14,313			$	2,368			$	16,681
Deferred purchase price			—				168				168
Other consideration			1,250				54				1,304
Total purchase price		$	15,563			$	2,590			$	18,153
Allocated as follows:
Accounts receivable		$	629			$	21			$	650
Accrued expenses and other current liabilities			(677	)			—				(677	)
Property and equipment			3,634				1,332				4,966
Other intangible assets			4,163				673				4,836
Fair value of assets acquired		$	7,749			$	2,026			$	9,775
Goodwill allocation		$	7,814			$	564			$	8,378

     The amounts allocated to assets acquired and liabilities assumed in the above table were determined using level three inputs and are complete with the exception of certain property and equipment acquired and liabilities assumed in the DisposAll transaction, for which we have made a preliminary estimate of fair value. Fair value for property and equipment was based on other observable transactions for similar property and equipment. Accounts receivable in the above table primarily relates to the DisposAll acquisition and represents our best estimate of balances that will ultimately be collected, which is based in part on our allowance for doubtful accounts reserve criteria and an evaluation of the specific receivable balances. These receivables have a gross contractual balance due of $0.8 million. The weighted-average amortization period for other intangible assets in the above table is as follows:

						Weighted -
						Average
						Amortization
		Amount				Period
		Allocated				(Years)
Customer relationships and contracts		$	3,706				3.0
Non-competition agreements			1,130				5.0
Total other intangible assets acquired		$	4,836				3.4

     Fair value for customer relationships and contracts is based on a discounted cash flow model that discounts the earnings attributable to acquired customers and considers attrition factors based on historically observed attrition rates in a particular market. Fair value for non-competition agreements is based on a discounted cash flow model that compares the present value of cash flows with and without the non-competition agreement in place, with the fair value of the agreement equal to the difference between the two scenarios.

     Acquisitions completed during 2009 primarily relate to hauling operations that have been integrated into our Florida reporting unit. We have internalized the majority of waste volumes associated with these acquisitions into our existing transfer station and landfill facilities. Accordingly, we believe it to be impracticable to determine the amount of earnings related to these acquisitions that are included in our consolidated income statement. Revenue from these acquisitions, included in our consolidated revenue, was $1.1 million and $2.3 million for the three and nine months ended September 30, 2009.

     In December 2008, we acquired RIP, Inc., the owner of a construction and demolition waste landfill in Citrus Country, Florida, for an aggregate purchase price of $7.7 million. Should the site be permitted as a Class I landfill, Class III landfill, transfer station or a construction and demolition operation, the sellers are entitled to future royalties at varied rates per ton based on the volume and type of waste deposited at the site.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     In December 2008, we acquired the assets of Commercial Clean-up Enterprises, Inc. and We Haul of South Florida, Inc., collectively a construction and demolition hauling operation in Fort Myers and Naples, Florida, for a total purchase price of $6.1 million, of which $1.6 million is deferred and is being paid as we collect waste volumes from within the counties of Charlotte, Lee and Collier, Florida. We are internalizing the waste volumes associated with this acquisition to our SLD Landfill in southwest Florida.

     The following unaudited pro forma information shows the results of our operations for the three and nine months ended September 30, 2009 as if acquisitions completed prior to September 30, 2009 had occurred as of January 1, 2009 (in thousands except per share amounts):

		Three Months				Nine Months
		Ended				Ended
		September 30, 2009				September 30, 2009
Revenue		$	113,699			$	321,615
Income from continuing operations		$	6,451			$	13,036
Basic and diluted earnings per share — continuing operations		$	0.14			$	0.28
Pro forma weighted average number of common shares outstanding:
Basic			46,253				46,206
Diluted			46,302				46,231

     The following unaudited pro forma information shows the results of our operations for the three and nine months ended September 30, 2008 as if acquisitions completed prior to September 30, 2009 and in 2008 had occurred as of January 1, 2008 (in thousands except per share amounts):

		Three Months				Nine Months
		Ended				Ended
		September 30, 2008				September 30, 2008
Revenue		$	129,481			$	381,843
Income from continuing operations		$	2,504			$	9,740
Basic and diluted earnings per share — continuing operations		$	0.05			$	0.21
Pro forma weighted average number of common shares outstanding:
Basic			46,079				46,076
Diluted			46,088				46,085

     These unaudited pro forma condensed consolidated results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place as of the beginning of 2009 or 2008, or of the results of our future operations. Furthermore, the pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of these acquisitions.

     In October 2009, we acquired Republic Services’ operations in Miami-Dade County, Florida for $32.0 million in cash plus an adjustment for working capital. We intend to internalize the waste flow from this acquisition into our existing transfer station and landfill facilities. In October 2009, we also acquired a tuck-in hauling operation in the Tampa, Florida area for an aggregate purchase price of $1.1 million. As of the date of this filing, the purchase price allocation for these two acquisitions has not yet been completed.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Discontinued Operations

     In March 2008, we sold our hauling and material recovery operations and a construction and demolition landfill site in the Jacksonville, Florida market to an independent third party. The proceeds from this sale approximated $56.7 million in cash, including working capital. At the time of close, we were actively pursuing an expansion at the landfill. If the construction and demolition landfill site did not obtain certain permits relating to an expansion, we would have been required to refund $10.0 million of the purchase price and receive title to the expansion property. Accordingly, at the time of closing we deferred this portion of the proceeds, net of our $3.0 million cost basis. During December 2008, the permits relating to the expansion were secured and the deferred gain was recognized. Simultaneously with the closing of the sale transaction we entered into an operating lease with the buyer for certain land and buildings used in the Jacksonville, Florida operations, for a term of five years at $0.5 million per year. The lessee had the option to purchase the leased assets for a purchase price of $6.0 million, which it exercised in March 2009 resulting in a gain on sale of $3.3 million, which is reflected in “Gain on sale of property and equipment, foreign exchange and other” on the accompanying Unaudited Condensed Consolidated Statement of Operations for the nine months ended September 30, 2009. The proceeds from the sale of the leased assets were utilized to repay amounts under the revolver portion of our Credit Facilities. At the time of close in March 2008, we utilized $42.5 million of the proceeds to make a prepayment of the term loan under our Senior Secured Credit Facilities. Accordingly, we expensed approximately $0.5 million of unamortized debt issue costs relating to this retirement. For the year ended December 31, 2008, we recognized a pre-tax gain on disposal of $18.4 million ($11.1 million net of tax) relative to the sale of the Jacksonville, Florida operations, of which $11.4 million ($6.9 million net of tax) was realized during the first nine months of 2008. Included in the calculation of the gain on disposal for the Jacksonville, Florida operations was approximately $23.6 million of goodwill. Subsequent to the disposal of the Jacksonville, Florida operations, we adjusted the pre-tax gain on disposal for the settlement of working capital of approximately $0.2 million.

     We have presented the net assets and operations of our Jacksonville, Florida operations, as discontinued operations for all periods presented. Revenue from discontinued operations was nil and $4.7 million for the three and nine months ended September 30, 2008, respectively, and pre-tax income from discontinued operations was nil and $0.7 million for the three and nine months ended September 30, 2008, respectively. The transaction to dispose of the Jacksonville, Florida operations was completed in 2008 and accordingly, these operations do not impact our 2009 results.

7. Prepaid Expenses and Other Current Assets

     Prepaid expenses and other current assets consist of the following:

		September 30,				December 31,
		2009				2008
		(Unaudited)
Prepaid expenses		$	4,659			$	9,793
Parts and supplies			1,928				1,733
Income taxes receivable			1,040				563
Other current assets			2,127				1,583
		$	9,754			$	13,672

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. Property and Equipment

     Property and equipment consist of the following:

		September 30,				December 31,
		2009				2008
		(Unaudited)
Land and buildings		$	82,005			$	74,497
Vehicles			155,518				141,650
Containers, compactors and landfill and recycling equipment			104,472				89,568
Furniture, fixtures, other office equipment and leasehold improvements			13,025				11,060
Total property and equipment			355,020				316,775
Less: Accumulated depreciation			(155,480	)			(127,975	)
Property and equipment, net		$	199,540			$	188,800

9. Landfill Sites, Accrued Closure, Post-Closure and Other Obligations

Landfill Sites

     Landfill sites consist of the following:

		September 30,				December 31,
		2009				2008
		(Unaudited)
Landfill sites		$	273,565			$	262,732
Less: Accumulated depletion			(77,216	)			(66,100	)
Landfill sites, net		$	196,349			$	196,632

     The changes in landfill sites for the nine months ended September 30, 2009 and 2008 are as follows (unaudited):

		Nine Months Ended September 30,
		2009				2008
Balance at the beginning of the period		$	196,632			$	190,451
Landfill site construction costs			3,545				7,289
Additional asset retirement obligations			1,023				1,284
Depletion			(6,934	)			(7,784	)
Purchase price adjustments for prior acquisitions			9				49
Effect of foreign exchange rate fluctuations			2,074				(1,181	)
Balance at the end of the period		$	196,349			$	190,108

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accrued Closure, Post-Closure and Other Obligations

     Accrued closure, post-closure and other obligations consist of the following:

		September 30,				December 31,
		2009				2008
		(Unaudited)
Accrued closure and post-closure obligations		$	16,050			$	12,749
Accrued restructuring and severance costs			2,068				3,624
Capital lease obligations			3				568
Other obligations			3,240				2,458
		$	21,361			$	19,399

     Accrued closure and post-closure obligations include costs associated with obligations for closure and post-closure of our landfills. Landfill closure and post-closure liabilities are calculated by estimating the total obligation of capping and closure events in current dollars, inflating the obligation based on the expected date of the expenditure using an inflation rate of approximately 2.5% and discounting the inflated total to its present value using a credit-adjusted risk-free discount rate of approximately 6.5%. The anticipated timeframe for paying these costs varies based on the remaining useful life of each landfill as well as the duration of the post-closure monitoring period. Accretion of discounted cash flows associated with the closure and post closure obligations is accrued over the life of the landfill, as a charge to cost of operations.

     The changes in accrued closure and post-closure obligations for the nine months ended September 30, 2009 and 2008 are as follows (unaudited):

		Nine Months Ended September 30,
		2009				2008
Current portion at the beginning of the period		$	7,589			$	4,153
Long-term portion at the beginning of the period			12,749				14,678
Balance at the beginning of the period			20,338				18,831
Additional asset retirement obligations			1,023				1,284
Accretion			477				589
Payments			(3,452	)			(304	)
Acquisitions			250				—
Other additions			150				—
Effect of foreign exchange rate fluctuations			1,070				(627	)
Balance at the end of the period			19,856				19,773
Less: Current portion			(3,806	)			(5,902	)
Long-term portion		$	16,050			$	13,871

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10. Goodwill and Other Intangible Assets

     Goodwill and other intangible assets consist of the following:

		September 30,				December 31,
		2009				2008
		(Unaudited)
Other intangible assets subject to amortization:
Customer relationships and contracts		$	52,725			$	48,997
Non-competition agreements and other			6,845				5,629
			59,570				54,626
Less: Accumulated amortization:
Customer relationships and contracts			(29,735	)			(26,536	)
Non-competition agreements and other			(3,122	)			(2,133	)
Other intangible assets subject to amortization, net			26,713				25,957
Goodwill			366,801				346,929
Goodwill and other intangible assets, net		$	393,514			$	372,886

     The changes in goodwill for the nine months ended September 30, 2009 and 2008 are as follows (unaudited):

		Nine Months Ended September 30, 2009
		Florida				Canada				Total
Balance at the beginning of the period		$	263,428			$	83,501			$	346,929
Acquisitions			8,378				—				8,378
Effect of foreign exchange rate fluctuations			—				11,494				11,494
Balance at the end of the period		$	271,806			$	94,995			$	366,801

		Nine Months Ended September 30, 2008
		Florida				Canada				Total
Balance at the beginning of the period		$	262,338			$	102,603			$	364,941
Purchase 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

11. Other Assets

     Other assets consist of the following:

		September 30,				December 31,
		2009				2008
		(Unaudited)
Debt issue costs, net of accumulated amortization of $4,485 and $3,035 as of September 30, 2009 and December 31, 2008, respectively		$	9,188			$	8,538
Acquisition deposits			1,129				561
Other assets			524				549
		$	10,841			$	9,648

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. Accrued Expenses and Other Current Liabilities

     Accrued expenses and other current liabilities consist of the following:

		September 30,				December 31,
		2009				2008
		(Unaudited)
Deferred revenue		$	11,900			$	10,980
Accrued interest			9,873				3,702
Accrued compensation, benefits and subcontractor costs			6,635				7,893
Insurance reserves			6,443				6,505
Accrued waste disposal costs			5,930				7,964
Accrued closure and post-closure obligations			3,806				7,589
Accrued restructuring and severance costs			2,042				3,183
Accrued royalties and franchise fees			1,795				2,137
Accrued capital expenditures			1,306				2,204
Accrued insurance premiums			987				6,123
Accrued professional fees			798				794
Current portion of capital lease obligations			693				315
Accrued acquisition costs			366				631
Fair value of warrants			293				—
Other accrued expenses and current liabilities			4,353				2,782
		$	57,220			$	62,802

13. Debt

     Debt consists of the following:

		September 30,				December 31,
		2009				2008
		(Unaudited)
Credit Facilities:
U.S. dollar denominated revolving credit facility, floating interest rate at 4.5% as of December 31, 2008		$	—			$	34,600
Canadian dollar denominated revolving credit facility, floating interest rate at 4.8% and 5.3%, net of discount of nil and $56, as of September 30, 2009 and December 31, 2008, respectively			5,604				27,699
U.S. dollar denominated term loan facility, floating interest rate at 3.8% and 4.5%, net of discount of $993 and $1,268, as of September 30, 2009 and December 31, 2008, respectively			36,902				38,125
Canadian dollar denominated term loan facility, floating interest rate at 4.0% and 5.3%, net of discount of $3,330 and $3,668, as of September 30, 2009 and December 31, 2008, respectively			113,962				103,505
Senior Subordinated Notes, fixed interest rate at 9.5%, due 2014, net of discount of $1,480 and $1,146 as of September 30, 2009 and December 31, 2008, respectively			208,520				158,854
Other secured notes payable, interest at 4.5% to 7.8%, due through 2025, net of discount of $1,190 and $1,563 as of September 30, 2009 and December 31, 2008, respectively			6,058				6,891
Other subordinated notes payable, interest at 6.7%, due through 2017			2,233				2,395
			373,279				372,069
Less: Current portion			(17,750	)			(11,102	)
Long-term portion		$	355,529			$	360,967

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Senior Secured Credit Facilities

     On October 8, 2008 we refinanced our Senior Secured Credit Facilities with new Senior Secured Credit Facilities (the “Credit Facilities”) with a consortium of new lenders. The Credit Facilities provide for a revolving credit facility of $124.8 million, which is available to either Waste Services, Inc. and our U.S. operations or our Canadian operations, in U.S. or Canadian dollars, and C$16.3 million, which is available to our Canadian operations. The new Credit Facilities also provide for term loans with initial principal balances of $39.9 million to Waste Services, Inc. and C$132.2 million to Waste Services (CA) Inc. The revolver commitments terminate on October 8, 2013 and the term loans mature in specified quarterly installments through October 8, 2013. The Credit Facilities are available to us as base rate loans, Eurodollar loans or Bankers Acceptance loans, plus an applicable margin, as defined, at our option in the respective lending jurisdiction. The Credit Facilities are secured by all of our assets, including those of our domestic and foreign subsidiaries, and are guaranteed by all of our domestic and foreign subsidiaries. As of September 30, 2009, there was C$6.0 million outstanding on the Canadian dollar denominated revolving credit facility and $11.6 million and C$14.0 million of revolver capacity was used to support outstanding letters of credit in the U.S. and Canada, respectively. As of September 30, 2009, no amounts were drawn on our U.S. dollar denominated revolving credit facility and we had unused availability of $109.8 million under our revolving credit facilities, subject to certain conditions.

     Our Credit Facilities contain certain financial and other covenants that restrict our ability to, among other things, make capital expenditures, incur indebtedness, incur liens, dispose of property, repay debt, pay dividends, repurchase shares and make certain acquisitions. Our financial covenants include: (i) maximum total leverage; (ii) maximum senior secured leverage; and (iii) minimum interest coverage. The covenants and restrictions limit the manner in which we conduct our operations and could adversely affect our ability to raise additional capital. As of September 30, 2009, we were in compliance with the financial covenants.

Other Secured Notes Payable

     Included in our other secured notes payable is a $10.5 million non-interest bearing promissory note with payments of $125,000 per month until June 2014. The net present value of the remaining payments due under the note as of September 30, 2009 approximates $5.9 million and accretes at 7.8%. The note is secured by a transfer station and related permit.

Senior Subordinated Notes

     On April 30, 2004, we completed a private offering of 9¹/2% Senior Subordinated Notes (“Senior Subordinated Notes”) due 2014 for gross proceeds of $160.0 million. On September 21, 2009 we completed an additional private placement of $50.0 million aggregate principal of our Senior Subordinated Notes, with terms identical to the initial offering. This additional private placement resulted in gross proceeds of $49.5 million with an additional $2.1 million received from the purchasers for accrued interest. The Senior Subordinated Notes mature on April 15, 2014. Interest on the Senior Subordinated Notes is payable semiannually on October 15 and April 15. The Senior Subordinated Notes are redeemable, in whole or in part, at our option, on or after April 15, 2009, at a redemption price of 104.75% of the principal amount, declining ratably in annual increments to par on or after April 15, 2012, together with accrued interest to the redemption date. Upon a change of control, as such term is defined in the Indenture, we are required to offer to repurchase all the Senior Subordinated Notes at 101.0% of the principal amount, together with accrued interest and liquidated damages, if any, and obtain the consent of our senior lenders to such payment or repay indebtedness under our Credit Facilities.

     The Senior Subordinated Notes are unsecured and are subordinate to our existing and future senior secured indebtedness, including our Credit Facilities, rank equally with any unsecured senior subordinated indebtedness and senior to our existing and future subordinated indebtedness. Our obligations with respect to the Senior Subordinated Notes, including principal, interest, premium, if any, and liquidated damages, if any, are fully and unconditionally guaranteed on an unsecured, senior subordinated basis by all of our existing and future domestic and foreign restricted subsidiaries.

     The Senior Subordinated Notes contain certain covenants that, in certain circumstances and subject to certain limitations and qualifications, restrict, among other things: (i) the incurrence of additional debt; (ii) the payment of dividends and repurchases of stock; (iii) the issuance of preferred stock and the issuance of stock of our subsidiaries; (iv) certain investments; (v) transactions with affiliates; and (vi) certain sales of assets.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     The indenture relating to our Senior Subordinated Notes contains cross default provisions (i) should we fail to pay the principal amount of other indebtedness when due (after applicable grace periods) or the maturity date of that indebtedness is accelerated and the amount in question is $10.0 million or more or (ii) should we fail to pay judgments in excess of $10.0 million in the aggregate for more than 60 days.

14. Commitments and Contingencies

Environmental Risks

     We are subject to liability for environmental damage that our solid waste facilities may cause, including damage to neighboring landowners or residents, particularly as a result of the contamination of soil, groundwater or surface water, including damage resulting from conditions existing prior to the acquisition of such facilities. Pollutants or hazardous substances whose transportation, treatment or disposal was arranged by us or our predecessors, may also subject us to liability for any off-site environmental contamination caused by these pollutants or hazardous substances.

     Any substantial liability for environmental damage incurred by us could have a material adverse effect on our financial condition, results of operations or cash flows. As of the date of these Condensed Consolidated Financial Statements, we estimate the range of reasonably possible losses related to environmental matters to be insignificant, and we are not aware of any such environmental liabilities that would be material to our operations or financial condition.

Legal Proceedings

     In the normal course of our business and as a result of the extensive governmental regulation of the solid waste industry, we may periodically become subject to various judicial and administrative proceedings involving federal, provincial, state or local agencies. In these proceedings, an agency may seek to impose fines on us or revoke or deny renewal of an operating permit or license that is required for our operations. From time to time, we may also be subject to actions brought by citizens’ groups, adjacent landowners or residents in connection with the permitting and licensing of transfer stations and landfills or allegations related to environmental damage or violations of the permits and licenses pursuant to which we operate. In addition, we may become party to various claims and suits for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of a waste management business.

     No provision has been made in these Condensed Consolidated Financial Statements for the above matters. We do not currently believe that the possible losses in respect of outstanding litigation matters would have a material adverse impact on our business, financial condition, results of operations or cash flows.

Surety Bonds, Letters of Credit and Insurance

     Municipal solid waste service and other service contracts, permits and licenses to operate transfer stations, landfills and recycling facilities may require performance or surety bonds, letters of credit or other means of financial assurance to secure contractual performance. To collateralize our obligations we have provided customers, various regulatory authorities and our insurer with such bonds and letters of credit amounting to approximately $83.2 million and $83.8 million as of September 30, 2009 and December 31, 2008, respectively. The majority of these obligations expire each year and will need to be renewed.

     Our domestic based workers’ compensation, automobile and general liability insurance coverage is subject to certain deductible limits. We retain up to $0.5 million and $0.25 million of risk per claim, plus claims handling expense under our workers’ compensation and our auto and general liability insurance programs, respectively. Claims in excess of such deductible levels are fully insured subject to our policy limits. However, we have a limited claims history for our U.S. operations and it is reasonably possible that recorded reserves may not be adequate to cover future payments of claims. Adjustments, if any, to our reserves will be reflected in the period in which the adjustments are known. As of September 30, 2009, and included in the $83.2 million of bonds and letters of credit previously discussed, we have posted a letter of credit with our U.S. insurer of approximately $10.9 million to secure the liability for losses within the deductible limit. Provisions for retained claims are made by charges to expense based on periodic evaluations by management of the estimated ultimate liabilities on both reported and incurred but not reported claims. Adjustments, if any, to the estimated reserves resulting from ultimate claim payments will be reflected in operations in the periods in which such adjustments become known.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     The changes in insurance reserves for our U.S. operations for the nine months ended September 30, 2009 and 2008 are as follows (unaudited):

		Nine Months Ended September 30,
		2009				2008
Balance at the beginning of the period		$	6,505			$	6,055
Provisions			2,801				3,975
Payments			(2,542	)			(3,408	)
Unfavorable (favovable) claim development for prior periods			(321	)			823
Balance at the end of the period		$	6,443			$	7,445

Disposal Agreement

     On November 22, 2002, we entered into a Put or Pay Disposal Agreement (the “Disposal Agreement”) with RCI Environment Inc., Centres de Transbordement et de Valorisation Nord Sud Inc., RCM Environnement Inc., collectively the RCI Companies, and Intersan Inc. (“Intersan”), a subsidiary of Waste Management of Canada Corporation (formerly Canadian Waste Services, Inc.), pursuant to which we, together with the RCI Companies, agreed to deliver to certain of Intersan’s landfill sites and transfer stations in Quebec, Canada, over the five year period from the date of the Disposal Agreement, 850,000 metric tonnes of waste per year, and for the next two years after the expiration of the first five year term, 710,000 metric tonnes of waste per year at a fixed disposal rate set out in the Disposal Agreement. If we and the RCI Companies fail to deliver the required tonnage, we are jointly and severally required to pay to Intersan, C$23.67 per metric tonne for every tonne below the required tonnage. If a portion of the annual tonnage commitment is not delivered to a specific site we are also required to pay C$8.00 per metric tonne for every tonne below the site specific allocation. Our obligations to Intersan are secured by a letter of credit for C$4.0 million. During the nine months ended September 30, 2009, we were not required to make any payments to Intersan under the Disposal Agreement. The Disposal Agreement will expire on November 22, 2009, at which time our letter of credit also expires. The annual cost to us of maintaining the letter of credit is approximately $0.1 million. The companies within the RCI Group are controlled by a director of ours and/or individuals related to that director.

     Concurrent with the Disposal Agreement, we entered into a three-year agreement with Canadian Waste Services, Inc. to allow us to deliver up to 75,000 tons in year one and up to 100,000 tons in years two and three of non-hazardous solid waste to their landfill in Michigan at negotiated fixed rates per ton, which has since expired.

Purchase Agreement

     During July 2009, we entered into an agreement to acquire 875 acres of agricultural land in Hardee County, Florida, subject to the land being permitted for the operation of a Class I landfill. The purchase price, at the seller’s option, will be either (i) a lump sum payment of $10.0 million to $11.6 million depending on the timing of the closing of the transaction and payable on closing or (ii) a portion of the lump sum payment at closing, ranging from $1.0 million to $7.0 million, plus a future stream of annual payments calculated as the greater of a specified annual minimum, ranging from $0.2 million to $0.5 million, or a percentage of revenues from the operation of the landfill, until the property ceases to be used for landfill related operations, but not less than twenty years.

Office Lease

     We lease office premises in an office tower in Burlington, Ontario owned by Westbury International (1991) Corporation, a property development company controlled by Michael H. DeGroote, one of our directors, the son of Michael G. DeGroote, our Chairman and brother of Gary W. DeGroote, one of our directors. The leased premises consist of approximately 9,255 square feet. The term of the lease is 10¹/2 years commencing in 2004, with a right to extend for a further five years. Rent expense recognized under the terms of this lease was less than $0.1 million for the three months ended September 30, 2009 and 2008 and $0.2 million for the nine months ended September 30, 2009 and 2008.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Contractual Arrangements

     During the fourth quarter of 2008, we completed a restructuring of corporate overhead and other administrative and operational functions. The plan included the closing of our U.S. corporate office and the consolidation of corporate administrative functions to our headquarters in Burlington, Ontario, reductions in staffing levels in both overhead and operational positions and the termination of certain consulting arrangements. In connection with the execution of the plan, in the fourth quarter of 2008 we recognized a charge of $6.9 million for selling, general and administrative expense, which consists of (i) $3.6 million for severance and related costs, (ii) $0.9 million for rent, net of estimated sub-let income of $0.7 million, due to the closure of our U.S. corporate office and (iii) $2.4 million for the termination of certain consulting arrangements, the majority of which relate to agreements we had entered into with previous owners of businesses that were acquired. As of September 30, 2009, $2.9 million remains accrued relative to this plan.

     The following table summarizes the activity for these accrued restructuring costs for the nine months ended September 30, 2009 (unaudited):

		Severance
		and Related
		Costs				Rent				Consulting				Total
Balance at the beginning of the period		$	3,238			$	984			$	812			$	5,034
Changes in estimates and other provisions			(86	)			(106	)			—				(192	)
Payments			(1,689	)			(253	)			(187	)			(2,129	)
Foreign exchange and other			171				—				—				171
Balance at the end of the period		$	1,634			$	625			$	625			$	2,884

     During October 2009 we entered into a sub-lease of our former U.S. corporate office. This sublease is for an initial term of three years commencing November 1, 2009 and includes a three year extension term at the discretion of the tenant, which we have assumed will occur. Our original estimates have been revised to reflect these circumstances and other changes based on revised information. Should our assumptions require future revision as additional information becomes available, we may have additional charges in future periods.

     In connection with the additional private placement of Senior Subordinated Notes completed on September 21, 2009, we entered into a Registration Rights Agreement with the initial purchasers of these notes in which we agreed to (i) file a registration statement with respect to the Senior Subordinated Notes within 120 days of the closing date of the issuance of the notes, or the issuance date, pursuant to which we will exchange the Senior Subordinated Notes for registered notes with terms identical to the Senior Subordinated Notes; (ii) have such registration statement declared effective within 210 days of the closing date; (iii) maintain the effectiveness of such registration statement for minimum periods specified in the agreement; and (iv) file a shelf registration statement in the circumstances and within the time periods specified in the agreement. If we do not comply with these obligations, we will be required to pay liquidated damages, in cash, in an amount equal to $0.05 per week per $1,000 in principal amount of the unregistered Senior Subordinated Notes for each week that the default continues, for the first 90-days following default. Thereafter, the amount of liquidated damages will increase by an additional $0.05 per week per $1,000 in principal amount of unregistered Senior Subordinated Notes for each subsequent 90-day period until all defaults have been cured, to a maximum of $0.50 per week per $1,000 in principal amount of unregistered Senior Subordinated Notes outstanding. Liquidated damages, if any, are payable at the same time as interest payments due under the Senior Subordinated Notes. We do not believe it is probable that penalty payments will be made for this Registration Rights Agreement, and accordingly we have not accrued for such potential penalties as of September 30, 2009.

     From time to time and in the ordinary course of business we may enter into certain acquisitions whereby we will also enter into a royalty agreement. Royalty agreements are usually based on the amount of waste deposited at our landfill sites or in certain instances our transfer stations. Royalties are expensed as incurred and recognized as a cost of operations.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

15. Authorized Capital Stock and Migration Transaction

Total Shares

     As of September 30, 2009, we were authorized to issue a total of 171,666,666 shares of capital stock consisting of:

	•		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.

Preferred Stock

     The Series A Preferred Stock, with a par value of $0.01 per share and a liquidation preference of $1,000.00 per share, have the powers, preferences and other special rights and the qualifications, limitations and restrictions that are set forth in the Certificate of Designations of Series A Preferred Stock as amended. As of September 30, 2009 and December 31, 2008, no shares of Series A Preferred Stock were outstanding. The Special Voting Preferred Stock has the rights, preference, and limitations set forth in the Amended Certificate of Designation of Special Voting Preferred Stock. Upon the completion of the exchange of all the exchangeable shares of Waste Services (CA) Inc.in the second quarter of 2009, the one share that was designated as Special Voting Preferred Stock was automatically redeemed for $1.00 and is now deemed retired and cancelled, and may not be reissued.

Migration Transaction

     Effective July 31, 2004, we entered into a migration transaction by which our corporate structure was reorganized so that Waste Services became the ultimate parent company of our corporate group. Prior to the migration transaction, we were a subsidiary of Waste Services (CA) Inc. After the migration transaction, Waste Services (CA) Inc. became our subsidiary.

     The migration transaction occurred by way of a plan of arrangement under the Business Corporations Act (Ontario) and consisted primarily of: (i) the exchange of 29,219,011 common shares of Waste Services (CA) Inc. for 29,219,011 shares of our common stock; and (ii) the conversion of the remaining 3,076,558 common shares of Waste Services (CA) Inc. held by non-U.S. residents and who elected to receive exchangeable shares into 9,229,676 exchangeable shares of Waste Services (CA) Inc., which are exchangeable into 3,076,558 shares of our common stock. The transaction was approved by the Ontario Superior Court of Justice on July 30, 2004 and by our shareholders at a special meeting held on July 27, 2004.

     The terms of the exchangeable shares of Waste Services (CA) Inc. were the economic and functional equivalent of our common stock. Holders of exchangeable shares (i) were entitled to receive the same dividends as holders of shares of our common stock and (ii) were entitled to vote on the same matters as holders of shares of our common stock. Such voting was accomplished through the one share of Special Voting Preferred Stock held by Computershare Trust Company of Canada as trustee, who voted on the instructions of the holders of the exchangeable shares (one-third of one vote for each exchangeable share). Holders of exchangeable shares also had the right to exchange their exchangeable shares for shares of our common stock on the basis of one-third of a share of our common stock for each one exchangeable share. Upon the occurrence of certain events, such as the liquidation of Waste Services (CA) Inc., or after the redemption date, our Canadian holding company, Capital Environmental Holdings Company had the right to purchase each exchangeable share for one-third of one share of our common stock, plus all declared and unpaid dividends on the exchangeable share and payment for any fractional shares.

     During the second quarter of 2009, all remaining exchangeable shares of Waste Services (CA) Inc. not owned by affiliates were exchanged for shares of our common stock.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Warrants

     We have outstanding warrants to purchase shares of our common stock. As of September 30, 2009, all of these warrants were exercisable. Activity for the nine months ended September 30, 2009 for shares issuable upon exercise of these warrants, which expire at various dates through September 2011, is summarized as follows (unaudited):

										Weighted
						Weighted				Average
		Number				Average				Remaining				Aggregate
		of Shares				Exercise				Contractual				Intrinsic
		Issuable				Price				Term (Years)				Value
Outstanding at the beginning of the period			3,317,695			$	9.47				1.3			$	—
Expired during the period			(513,000	)			12.68
Outstanding at the end of the period			2,804,695			$	8.88				0.8			$	—

16. Comprehensive Income (Loss)

     Comprehensive income (loss) includes the effects of foreign currency translation. Comprehensive income (loss) for the three and nine months ended September 30, 2009 and 2008 is as follows (unaudited):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Net income		$	6,717			$	3,469			$	14,173			$	20,108
Foreign currency translation adjustment			5,261				(9,275	)			7,881				(15,306	)
Comprehensive income (loss)		$	11,978			$	(5,806	)		$	22,054			$	4,802

17. Segment Information

     In making the determination of our operating and reporting segments, we consider our organization and reporting structure and the information used by our chief operating decision maker to make decisions about resource allocation and performance assessment. We are organized along geographic locations or regions within the U.S. and Canada. Our Canadian operations are organized between two regions, Eastern and Western Canada, while in the U.S. we operate exclusively in Florida. For segment reporting, we define “Corporate” as overhead expenses, not specifically attributable to our Florida or Canadian operations, incurred both domestically and in Canada. As previously discussed, we have divested of our Jacksonville, Florida operations and as such, the results of these operations are presented as discontinued operations and are not included in the segment data presented.

     We believe our Canadian operating segments may be aggregated for segment reporting purposes for the following reasons: (i) these segments are economically similar; (ii) the nature of the service, waste collection and disposal, is the same and transferable across locations; (iii) the type and class of customer is consistent among our regions and districts; (iv) the methods used to deliver services are essentially the same (e.g. containers collect waste at market locations and trucks collect and transfer waste to landfills); and (v) the regulatory environment is consistent within Canada.

     We do not have significant (in volume or dollars) inter-segment operation-related transactions. Summarized financial information concerning our reportable segments for the three and nine months ended September 30, 2009 and 2008 is as follows (unaudited):

		Three Months Ended September 30, 2009
		Florida				Canada				Corporate				Total
Revenue		$	50,821			$	61,640			$	—			$	112,461
Depreciation, depletion and amortization			6,293				4,424				223				10,940
Income (loss) from operations			9,972				12,504				(5,237	)			17,239
Capital expenditures			2,901				5,051				114				8,066

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Three Months Ended September 30, 2008
		Florida				Canada				Corporate				Total
Revenue		$	58,468			$	67,277			$	—			$	125,745
Depreciation, depletion and amortization			6,482				4,714				307				11,503
Income (loss) from operations			9,347				13,035				(5,861	)			16,521
Capital expenditures			8,971				9,688				162				18,821

		Nine Months Ended September 30, 2009
		Florida				Canada				Corporate				Total
Revenue		$	151,801			$	163,937			$	—			$	315,738
Depreciation, depletion and amortization			18,973				12,362				681				32,016
Income (loss) from operations			29,053				29,700				(15,428	)			43,325
Capital expenditures			11,132				12,915				366				24,413

		Nine Months Ended September 30, 2008
		Florida				Canada				Corporate				Total
Revenue		$	179,331			$	191,304			$	—			$	370,635
Depreciation, depletion and amortization			19,828				13,995				1,003				34,826
Income (loss) from operations			29,651				35,885				(20,009	)			45,527
Capital expenditures			16,472				22,180				568				39,220

18. Condensed Consolidating Financial Statements

     As of September 30, 2009 and December 31, 2008, Waste Services is the primary obligor under the Senior Subordinated Notes. Waste Services has no independent operating assets or operations, and the guarantees of our domestic and Canadian subsidiaries, which are all wholly owned subsidiaries, are full and unconditional and joint and several with respect to the Senior Subordinated Notes, including principal, interest, premium, if any, and liquidated damages, if any. In October 2008 and pursuant to certain amendments to the Indenture to the Senior Subordinated Notes, our Canadian subsidiaries became guarantors under the Senior Subordinated Notes. Prior to these amendments, our Canadian subsidiaries did not guarantee the Senior Subordinated Notes.

WASTE SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Presented below are our Unaudited Condensed Consolidating Statement of Operations for the three and nine months ended September 30, 2008 and the Unaudited Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 2008 of Waste Services, Inc. (the “Parent”), our U.S. guarantor subsidiaries (“Guarantors”) and the then non-guarantor Canadian subsidiaries (“Non-guarantors”):

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