Summary of WASTE SERVICES, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes thereto included elsewhere herein as well as our annual report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission, including the factors set forth in the section titled "Cautionary Statement Regarding Forward-Looking Statements" and factors affecting future results as well as our other filings made with the Securities and Exchange Commission. Overview
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, our Texas operations in June 2007 and our Arizona operations in March 2007 and as a result, these operations are presented as discontinued for all periods presented.
Sources of Revenue
Our revenue consists primarily of fees charged to customers for solid waste collection, landfill disposal, transfer and recycling services.
We derive our collection revenue from services provided to commercial, industrial and residential customers. Collection services are generally performed under service agreements or pursuant to contracts with municipalities. We recognize revenue when services are rendered. Amounts billed to customers prior to providing the related services are reflected as deferred revenue and reported as revenue in the periods in which the services are rendered.
We provide collection services for commercial and industrial customers generally under one to five year service agreements. We determine the fees we charge our customers based on a variety of factors, including collection frequency, level of service, route density, the type, volume and weight of the waste collected, type of equipment and containers furnished, the distance to the disposal or processing facility, the cost of disposal or processing and prices charged by competitors for similar services. Our contracts with commercial and industrial customers typically allow us to pass on increased costs resulting from variable items such as disposal and fuel costs and surcharges. Our ability to pass on cost increases is however, sometimes limited by the terms of our contracts.
We provide residential waste collection services through a variety of contractual arrangements, including contracts with municipalities, owners and operators of large residential complexes, mobile home parks and homeowner associations or through subscription arrangements with individual homeowners. Our contracts with municipalities are typically for a term of three to ten years and contain a formula, generally based on a predetermined published price index, for adjustments to fees to cover increases in some, but not all, of our operating costs. Certain of our contracts with municipalities contain renewal provisions. The fees we charge for residential solid waste collection services provided on a subscription basis are based primarily on route density, the frequency and level of service, the distance to the disposal or processing facility, the cost of disposal or processing and prices we charge in the market for similar services.
We charge our landfill and transfer station customers a tipping fee on a per ton or per cubic yard basis for disposing of their solid waste at our transfer stations and landfills. We generally base our landfill tipping fees on market factors and the type and weight of, or volume of the waste deposited. We generally base our transfer station tipping fees on market factors and the cost of processing the waste deposited at the transfer station, the cost of transporting the waste to a disposal facility and the cost of disposal.
Material recovery facilities generate revenue from the sale of recyclable commodities. In an effort to reduce our exposure to commodity price fluctuations on recycled materials, where competitive pressures permit, we charge collection or processing fees for recycling volume collected from our customers. We may also manage our exposure to commodity price fluctuations through the use of commodity brokers who will arrange for the sale of recyclable materials from our collection operations to third-party purchasers.

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Expense Structure
Our cost of operations primarily includes tipping fees and related disposal costs, labor and related benefit costs, equipment maintenance, fuel, vehicle, liability and workers' compensation insurance and landfill capping, closure and post-closure costs. Our strategy is to create vertically integrated operations where possible, using transfer stations to link collection operations with our landfills to increase internalization of our waste volume. Internalization lowers our disposal costs by allowing us to eliminate tipping fees otherwise paid to third-party landfill or transfer station operators. We believe that internalization provides us with a competitive advantage by allowing us to be a low cost provider in our markets. We expect that our internalization will gradually increase over time as we develop our network of transfer stations and maximize delivery of collection volumes to our landfill sites.
In markets where we do not have our own landfills, we seek to secure disposal arrangements with municipalities or private owners of landfills or transfer stations. In these markets, our ability to maintain competitive prices for our collection services is generally dependent upon our ability to secure competitive disposal pricing. If owners of third-party disposal sites discontinue our arrangements, we would have to seek alternative disposal sites which could impact our profitability and cash flow. In addition, if third-party disposal sites increase their tipping fees and we are unable to pass these increases on to our collection customers, our profitability and cash flow would be negatively impacted.
We believe that the age and condition of our vehicle fleet has a significant impact on operating costs, including, but not limited to, repairs and maintenance, insurance and driver training and retention costs. Through capital investment, we seek to maintain an average fleet age of approximately six to seven years. We believe that this enables us to best control our repair and maintenance costs, safety and insurance costs and employee turnover related costs.
Selling, general and administrative expenses include managerial costs, information systems, sales force, administrative expenses and professional fees.
Depreciation, depletion and amortization includes depreciation of fixed assets over their estimated useful lives using the straight-line method, depletion of landfill costs, including capping, closure and post-closure obligations using the units-of-consumption method, and amortization of intangible assets including customer relationships and contracts and covenants not-to-compete, which are amortized over the expected life of the benefit to be received from such intangibles.
We currently capitalize certain third-party costs related to pending acquisitions or development projects. These costs remain deferred until we cease to be engaged on a regular and ongoing basis with completion of the proposed acquisition or upon our adoption of SFAS No. 141 (revised 2007), "Business Combinations" on January 1, 2009, at which point they are charged to current earnings. In the event that the target is acquired, these costs are incorporated in the cost of the acquired business. We expense indirect and internal costs including executive salaries, overhead and travel costs related to acquisitions as they are incurred.
Recent Developments
Refinancing of 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 a term loan of $39.9 million to Waste Services, Inc. and a term loan of 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 beginning December 31, 2008 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 blended rate on the Credit Facilities was 7.2%, at the time of close, on a weighted average basis. Also at the time of the refinancing, we drew $27.0 million and C$35.8 million on our revolving credit facility in the U.S. and Canada, respectively. The Credit Facilities are secured by all of our assets and our domestic and foreign subsidiaries, and have the guarantee of our domestic and foreign subsidiaries.
Simultaneously with entering into our new Credit Facilities in October 2008, certain amendments to the governing Indenture to the Senior Subordinated Notes became operative. These amendments enabled our Canadian subsidiaries, upon becoming guarantors of the Senior Subordinated Notes, to incur indebtedness to the same extent as other guarantors of the notes and allowed for the refinancing of our Senior Secured Credit Facilities. Following the amendments to the Indenture, our obligations with respect to the

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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.
Acquisitions and Dispositions
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 of cash, including working capital. Should the construction and demolition landfill site not obtain certain permits relating to an expansion of at least 2.4 million cubic yards by the fourth anniversary of the closing, we shall refund to the buyer $10.0 million of purchase price and receive title to the expansion property free and clear of all liens. Accordingly, we have deferred this portion of the proceeds, net of our $3.0 million cost basis. Should these permits be obtained, we will recognize an additional gain on sale of $7.0 million. Should the property be returned to us, we will record the property at the lower of its cost or current fair market value on the date it is returned. 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. Commencing in April 2009, the lessee has the option to purchase the leased assets at a purchase price of $6.0 million. We utilized $42.5 million of the proceeds to make a prepayment of the term notes under our Senior Secured Credit Facilities. Accordingly, we expensed approximately $0.5 million of unamortized debt issue costs relating to this retirement.
In June 2007, we completed transactions to acquire WCA Waste Corporation's ("WCA") hauling and transfer station operations near Fort Myers, Florida and to sell our Texas operations to WCA. The transfer station is permitted to accept construction and demolition waste volume, and we are internalizing this additional volume to our southwest Florida landfill site. The estimated fair value of the WCA assets approximated $18.4 million. Additionally, as part of the transaction with WCA we received $23.7 million in cash and issued 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 note at the time of closing was approximately $8.1 million.
Prior to the WCA transaction, we had significant operations in the construction and demolition market in Fort Myers. We believed that by acquiring WCA's Southwest Florida operations, we could create greater long-term shareholder value by removing a market competitor, increasing our density and internalizing construction and demolition waste volume to our southwest Florida construction and demolition landfill site. Conversely, our Texas Class I landfill site required significant capital investment for cell construction and new equipment within the next two years. While both markets are extremely competitive, our lack of dedicated collection or hauling assets in Texas meant that in order to realize the full potential of the Texas marketplace earlier in the site life, we would need to acquire additional hauling company assets rather than building them organically over time. Hence we believed that the WCA assets, which were immediately integrated into existing operations, would yield higher future returns than that of the developing Texas market.
In April 2007, we completed the acquisition of a roll-off collection and transfer operation, a transfer station development project and a landfill development project in southwest Florida operated by USA Recycling Holdings, LLC, USA Recycling, LLC and Freedom Recycling Holdings, LLC for a total purchase price of $51.2 million, of which $7.5 million is contingent upon the receipt of certain landfill operating permits, $2.5 million is contingent on the receipt of certain operating permits for the transfer station and $18.5 million is due and payable at the earlier of the receipt of all operating permits for the landfill site, or January, 2009, and delivery of title to the property. To date we have advanced $9.5 million towards the purchase of the landfill development project. The existing transfer station is permitted to accept construction and demolition waste volume, and we are internalizing this additional volume to our SLD Landfill in southwest Florida. Also in April 2007, we acquired a "tuck-in" hauling operation in Ontario, Canada for cash consideration of approximately C$1.5 million.
In March 2007, we completed transactions to acquire Allied Waste Industries, Inc's. ("Allied Waste") South Florida operations and to sell our Arizona operations to Allied Waste and paid $15.8 million including net working capital between the two operations and transaction costs.
We have presented the net assets and operations of our Jacksonville, Florida operations, Texas operations and Arizona operations as discontinued operations for all periods presented. Revenue from discontinued operations was nil and $6.8 million for the three months ended September 30, 2008 and 2007, respectively, and $4.7 million and $30.2 million for the nine months ended September 30, 2008 and 2007, respectively. Pre-tax net income from discontinued operations was nil and $1.1 million for the three months ended September 30, 2008 and 2007, respectively, and $0.7 million and $1.8 million for the nine months ended September 30, 2008 and 2007, respectively. During the nine months ended September 30, 2008, we recognized a pre-tax gain on disposal of $11.4 million

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relative to the sale of the Jacksonville, Florida operations and an associated income tax provision of $4.5 million. During the nine months ended September 30, 2007, we recognized a loss on disposal of $12.2 million relative to the sale of the Texas operations and a gain on disposal of $0.8 million relative to the sale of the Arizona operations. No income tax provision or benefit has been attributed to the Texas or Arizona disposals. Included in the calculation of the gain on disposal for the Jacksonville, Florida operations and Arizona operations was approximately $23.6 million and $21.0 million of goodwill, respectively. There was no goodwill associated with the Texas operations. The decrease in pre-tax net income from discontinued operations for 2008 compared to 2007 relates primarily to the exclusion of our Jacksonville, Florida operations for the second and third quarters of 2008.
Results of Operations for the Three and Nine Months Ended September 30, 2008 and 2007
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, in accordance with SFAS No. 52, "Foreign Currency Translation", ("SFAS 52"). 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 relationship of 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 the 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, as well as intercompany receivables, denominated in U.S. dollars held by our Canadian operations 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 (loss). Currently, we do not hedge our exposure to changes in foreign exchange rates.
Our consolidated results of operations for the three and nine months ended September 30, 2008 and 2007 are as follows (in thousands):

                                                   Three Months Ended September 30, 2008
                           Florida                         Canada                          Total
Revenue                    $ 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, 2007
                           Florida                         Canada                          Total
Revenue                    $ 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 %

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                                                     Nine Months Ended September 30, 2008
                            Florida                         Canada                           Total
Revenue                    $ 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, 2007
                            Florida                         Canada                           Total
Revenue                    $ 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
   A summary of our revenue is as follows (in thousands):

                             Three Months Ended September 30,                        Nine Months Ended September 30,
                      2008                        2007                        2008                        2007
Collection          $ 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

Revenue was $125.7 million and $123.8 million for the three months ended September 30, 2008 and 2007, respectively, an increase of $1.9 million or 1.6%. The decrease in revenue from our Florida operations for the three months ended September 30, 2008 of $5.3 million or 8.3% was driven by decreased collection, primarily in our industrial and commercial lines of business, and decreased third-party transfer station and landfill volumes of $6.1 million and other net decreases of $3.3 million, primarily related to the expiration of certain residential collection contracts. Offsetting these decreases were price increases of $4.1 million, of which $1.8 million related to fuel and environmental surcharges.
The increase in revenue from our Canadian operations for the three months ended September 30, 2008 of $7.2 million or 12.0% was due to price increases of $5.8 million, of which $2.6 million related to fuel and environmental surcharges and organic volume growth of $1.6 million. Offsetting these increases were decreases of $1.3 million, primarily related to the loss of residential contracts. The favorable effect of foreign exchange movements increased revenue by $1.1 million.

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Revenue was $370.6 million and $338.2 million for the nine months ended September 30, 2008 and 2007, respectively, an increase of $32.4 million or 9.6%. The increase in revenue from our Florida operations for the nine months ended September 30, 2008 of $1.8 million or 1.0% was driven by acquisitions net of dispositions of $18.5 million and price increases of $11.0 million, of which $5.0 million related to fuel and environmental surcharges. Offsetting these net increases were decreased collection, primarily in our industrial and commercial lines of business, third-party transfer station and landfill volumes of $18.5 million and other net decreases of $9.2 million, primarily related to the expiration of certain residential collection contracts.
The increase in revenue from our Canadian operations for the nine months ended September 30, 2008 of $30.6 million or 19.1% was due to price increases of $13.6 million, of which $5.5 million related to fuel and environmental surcharges, and organic volume growth of $5.3 million. Offsetting these increases were decreases of $3.4 million, primarily related to the loss of residential contracts. The favorable effect of foreign exchange movements increased revenue by $15.1 million.
Cost of Operations
Cost of operations was $82.5 million and $80.7 million for the three months ended September 30, 2008 and 2007, respectively, an increase of $1.8 million or 2.2%. As a percentage of revenue, cost of operations was 65.6% and 65.2% for the three months ended September 30, 2008 and 2007, respectively.
The decrease in cost of operations from our Florida operations for the three months ended September 30, 2008 of $3.0 million or 7.2% was due to lower costs for third-party disposal due to overall lower collection volumes of $2.4 million, lower variable labor costs of $1.4 million and decreases in other operating costs of $0.6 million. Offsetting these decreases were increased fuel costs of $0.9 million and increased insurance and support costs of $0.5 million. As a percentage of revenue, cost of operations was 65.2% and 64.4% for the three months ended September 30, 2008 and 2007, respectively. The decrease in our domestic gross margin is primarily due to lower landfill volumes, which generally have higher operating margins, and higher insurance and support costs. . . .