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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
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                                 FORM 10-K/A-3
    
 
(Mark One)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
 
                  For the fiscal year ended December 31, 1996
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
      1934
 
                         Commission File Number 0-19285
 
                         Allied Waste Industries, Inc.
             (Exact name of registrant as specified in its charter)
 
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<TABLE>
<S>                                                <C>
                     Delaware                                          88-0228636
          (State or other jurisdiction of                           (I.R.S. Employer
          incorporation or organization)                         Identification Number)
    15880 North Greenway-Hayden Loop, Suite 100
                Scottsdale, Arizona                                       85260
     (Address of principal executive offices)                          (Zip Code)
</TABLE>
 
       Registrant's telephone number, including area code: (602) 423-2946
 
                            ------------------------
 
          Securities registered pursuant to Section 12(g) of the Act:
 
<TABLE>
<CAPTION>
                TITLE OF EACH CLASS                     NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------------------------------------------------------------------------------------------
<S>                                                <C>
           Common Stock, $.01 par value                                NASDAQ/NMS
</TABLE>
 
     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 and 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 [X]     No [ ].
 
     Indicated by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]
 
     The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant was $274,537,542 as of March 24, 1997.
 
     The number of shares of the Company's common stock, $.01 par value,
outstanding at March 24, 1997 was 75,648,107.
 
     The registrant's proxy statement is to be filed in connection with the
registrant's 1996 annual meeting of stockholders and is incorporated by
reference into Part III of this report.
 
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                                     PART I
 
ITEM L.  BUSINESS
 
     Allied Waste Industries, Inc., a Delaware corporation ("Allied" or the
"Company"), is a vertically-integrated, non-hazardous solid waste management
company providing collection, transfer, processing and disposal services. On
December 30, 1996, the Company completed the acquisition of substantially all of
the non-hazardous solid waste management business conducted by Laidlaw Inc.
("Laidlaw") in the United States and Canada (the "Laidlaw Acquisition"), for
total consideration of approximately $1.5 billion comprised of $1.2 billion
cash, 14.6 million shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), warrants to acquire 20.4 million shares of Common
Stock, and two junior subordinated debentures with an aggregate face amount of
$318 million (the "Allied Canada Debentures"). The cash consideration was
financed from the proceeds of a senior credit facility in the aggregate amount
of $1.275 billion (the "Senior Credit Facility") and the sale of $525 million of
the Company's 10 1/4% Senior Subordinated Notes due 2006 (the "1996 Notes").
 
     On March 16, 1997, pursuant to a Share Purchase Agreement with USA Waste
Services, Inc. ("USA Waste") the Company sold to USA Waste (the "Canadian Sale")
all of the Canadian non-hazardous solid waste management operations of the
Company for approximately $518 million. The Company used the proceeds from the
Canadian Sale to pay down approximately $517 million in debt under the Senior
Credit Facility. The Company acquired the Canadian operations in connection with
the Laidlaw Acquisition. Unless otherwise indicated, all references to the
Company and its operations contained herein give effect to the Canadian Sale.
 
     The Company is the fourth largest solid waste management company in the
United States, as measured by revenues. The Company pursues a business strategy
designed to develop vertically-integrated operations centered around landfills
that are owned or operated by the Company in the markets it currently serves.
The Company serves 1.4 million customers through operations in 22 states located
primarily in the midwest, northeast, southeast and southwest United States. The
Company has an extensive network of 32 transfer stations, 46 landfills, and 20
recycling facilities.
 
INDUSTRY TRENDS
 
     According to the National Solid Waste Management Association and Waste Age
Magazine, the North American solid waste industry was estimated to have had
revenues of more than $32 billion in 1995. The industry is highly fragmented
with the four largest companies accounting, in 1995, for approximately 30% of
revenues, seven mid-sized public companies accounting for approximately 4% of
revenues, and several thousand municipalities and independent collection firms
accounting for the remainder. The solid waste management industry has been
affected significantly by increased regulation of disposal activities and to a
lesser extent collection activities also, have been affected. In October 1991,
the Environmental Protection Agency (the "EPA") adopted new regulations pursuant
to Subtitle D ("Subtitle D") of the Resource Conservation and Recovery Act of
1976, as amended ("RCRA") governing the disposal of non-hazardous solid waste.
These regulations led to a variety of requirements applicable to landfill
disposal sites, including the construction of liners and the installation of
leachate collection systems, groundwater monitoring systems and methane gas
recovery systems. The regulations also require enhanced control systems to
monitor more closely the waste streams being disposed at landfills, extensive
post-closure monitoring of sites and financial assurances that landfill
operators will be able to comply with the stringent regulations. The rising
costs associated with increasingly stringent industry regulations have tended to
promote consolidation and acquisition activity within the industry.
 
     The Company believes that these trends will continue and are the result of
several factors:
 
          (1) Subtitle D and similar state regulations have significantly
              increased the amount of capital and technical expertise required
              to own and operate a landfill. As a result, many landfill
              operators that lack the necessary capital or expertise are
              electing to sell their landfills as an alternative to closing
              them;
 
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          (2) a number of municipalities are electing to privatize their
              municipal landfills as an alternative to funding the changes to
              such landfills required by Subtitle D and related state
              regulations; and
 
          (3) as a result of heightened sensitivity to environmental conditions
              in many communities, it is becoming increasingly desirable for
              solid waste management companies to provide waste recycling
              programs in addition to conventional collection and disposal
              services.
 
These developments, as well as more stringent bonding requirements being imposed
on solid waste management companies by various municipalities, have increased
the amount of capital generally required for solid waste management operations,
causing smaller companies that lack the requisite capital to sell their
operations to better-capitalized companies.
 
BUSINESS STRATEGY
 
     The Company's business strategy is to build a vertically-integrated solid
waste management company with a strong presence in specific markets. The Company
plans to implement this strategy by (i) establishing a market presence generally
based on the acquisition or development of a landfill; (ii) increasing volume in
its markets through "tuck-in" acquisitions of collection companies and marketing
to new customers; (iii) providing a high level of customer service; (iv)
competitively pricing its services based on the particular circumstances of each
market; and (v) continuing to control costs and reduce corporate overhead as a
percentage of revenues. The Company believes that its strategy to build
vertically-integrated operations will provide the Company with competitive
advantages in its targeted regional markets.
 
     The Company pursues acquisitions in geographic areas characterized by one
or more of the following criteria: (i) the availability of permitted and
underutilized landfill capacity located either close to or outside of, but
within economic range of, a major population center, (ii) disposal fees that
justify necessary transportation expenses, (iii) near or medium-term scheduled
closures of landfills near such a population center, (iv) a shift in landfill
ownership from public to private and (v) rural landfills that are likely to
provide opportunities in a local market.
 
     The Company has adopted the following four-step program in executing its
business strategy:
 
          (1) Landfill Acquisitions.  Once the Company identifies an area that
              qualifies under its target market criteria, the Company seeks to
              establish a market presence, generally by acquiring one or more
              landfills in that area that can be accessed economically from the
              metropolitan center or from the regional market area, either
              through direct hauling or through strategically located transfer
              operations. In evaluating a landfill acquisition, the Company
              considers, among others, the following factors: (i) current
              disposal costs together with transportation costs to the targeted
              landfill relative to transportation and disposal costs of
              potential competitors, (ii) expected landfill capacity, (iii)
              opportunities for landfill expansion, and (iv) projected
              short-term ability to secure an acceptable level of disposal
              volume.
 
          (2) Secure Captive Waste Volumes.  The Company seeks to build a market
              presence and increase the utilization of the landfill by securing
              captive waste streams, which includes developing and acquiring
              transfer stations, entering into waste collection contracts and
              acquiring waste collection companies. Generally, the Company
              pursues the acquisition of collection companies that: (i) have
              well-established residential or commercial collection routes and
              accounts, (ii) own and operate transfer stations, or (iii) do not
              own landfills and are vulnerable to volatile disposal pricing,
              which the Company believes it can minimize through landfill
              ownership.
 
          (3) "Tuck-in" Acquisitions.  The Company acquires service rights,
              obligations, machinery and equipment in "tuck-in" acquisitions of
              collection companies to: (i) increase the waste stream directed to
              its landfills, (ii) maximize its market presence, and (iii)
              increase customer density on collection routes to reduce operating
              costs and strengthen return on capital.
 
          (4) Integration of Operations.  Immediately following an acquisition,
              the Company begins to integrate the acquired company into its
              operating and control systems, internalizing waste
 
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           previously disposed at third party landfills to facilities owned or
           operated by the Company, establishing an operating plan, implementing
           the Company's operating policies and procedures, including the
           consolidation and rationalization of routes and pricing, establishing
           new banking and cash control procedures, integrating the acquired
           company's accounting, data processing and management reporting
           systems and appointing a new board of directors. In many
           acquisitions, the Company retains the management of the company it
           acquires in order to benefit from the existing management's
           understanding of the local market, personal and business contacts,
           and goodwill in the community.
 
OPERATIONS
 
     COLLECTION.  Collection operations involve collecting and transporting
non-hazardous waste from the point of generation to the transfer station or the
site of disposal. Solid waste collection is generally provided under two primary
types of arrangements, depending on the customer being served.
 
     Commercial.  The Company provides containerized non-hazardous solid waste
disposal services to a wide variety of commercial and industrial customers.
These customers are provided with containers that are designed to be lifted
mechanically and either emptied into a collection vehicle's compaction hopper
or, in the case of roll-off containers, to be loaded onto the collection
vehicle. The Company's commercial containers generally range in size from one to
eight cubic yards and its roll-off containers generally range in size from 20 to
40 cubic yards. Contracts for commercial containers typically have terms of up
to five years, may not be terminated by the customer prior to the end of the
term and have renewal options. Contracts for roll-off containers may provide for
temporary (such as the removal of waste from a construction site) or ongoing
services. Fees relating to those contracts are determined by general competitive
and prevailing local economic conditions and include other considerations such
as collection frequency, type of equipment furnished, distance traveled to the
disposal site, the cost of disposal and the type and volume or weight of the
waste collected.
 
     Residential.  Residential collection services are performed pursuant to
individual monthly subscriptions directly to households or long-term contracts
with municipal governments that give the Company exclusive rights to service all
or a portion of the homes in such municipalities at established rates. The
Company seeks to obtain municipal contracts which enhance the efficiency and
profitability of the Company's operations as a result of the density of
collection customers within a given area. At the end of the term of most
municipal contracts, the Company will attempt to renegotiate the contract, and
if unable to do so, will rebid the contract on a sealed bid basis. Residential
collection service arrangements with households are made directly between the
Company and the resident. The Company seeks to enter into residential service
arrangements where the route density is high, thereby creating additional
economic benefit. Collection fees are determined by the Company and the customer
based on general competitive and prevailing local economic conditions and
include other considerations such as collection frequency, the type and volume
or weight of the waste collected, the distance to the disposal facility, and
cost of disposal. Residential collection fees are either paid by the
municipalities out of tax revenues or service charges or are paid directly by
the residents who receive the service.
 
     TRANSFER STATIONS.  A transfer station is a facility where solid waste is
received from third-party and Company owned collection vehicles and then
transferred to and compacted in large, specially-constructed trailers for
transportation to disposal facilities. This consolidation reduces costs by
increasing the density of the waste being transported through competition and by
improving utilization of collection personnel and equipment, and is an
increasingly common procedure in the solid waste management industry. Fees are
generally based upon such factors as the type and volume or weight of the waste
transferred and the transport distance involved. The Company believes that as
increased regulations and public pressure restrict the development of landfills
in urban and suburban areas, transfer stations will increasingly be used as an
efficient means to transport waste over longer distances to available landfills.
 
     RECYCLING.  In response to increasing awareness by the customer of
environmental concerns and expanding federal and state regulations pertaining to
waste recycling, the Company includes recycling as a
 
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component of its vertically integrated solid waste business strategy. Services
include curbside collection of recyclable materials for residential customers,
commercial and industrial collection of recyclable materials, and, to a lesser
extent, material recovery/waste reduction. Recycling fees are generally service
based wherein the customer pays for the cost of removing, processing and
disposing of potentially recyclable materials. In most cases, mixed waste
materials are received at an owned or leased materials recovery facility ("MRF")
which is often integrated into or contiguous to a transfer operation. Materials
such as paper, cardboard, plastic, aluminum and other metals are sorted,
separated, accumulated, bound or placed in a container and readied for
transportation to a third-party which will reuse the separated materials. The
purchaser generally pays for the materials based on fluctuating spot-market
prices. Material for which there is no market or for which the market price is
insufficient to warrant processing are disposed of at a landfill or other
disposal facility. The Company seeks to avoid exposure to fluctuating commodity
prices by passing through substantially all of the profit or loss from the sale
of recyclables to its service customers.
 
     LANDFILLS.  Solid waste landfills are the primary method of disposal of
solid waste in the United States. Currently, a landfill must be designed,
permitted, operated and closed in compliance with federal, state and local
regulations pursuant to Subtitle D. Operating procedures include excavation,
continuous spreading and compacting of waste, and covering of waste with earth
or other inert material. The cost of transferring solid waste to a disposal
location places an economic restriction on the geographic scope of landfill
operations in a particular market. Access to a disposal facility, such as a
landfill, is a requirement for all solid waste management companies. While
access can generally be obtained to disposal facilities owned or operated by
unaffiliated parties, the Company believes that, in keeping with its business
strategy, it is preferable for collection companies to own or operate their own
disposal facilities thereby ensuring access on favorable terms and the
internalization of disposal fees.
 
MARKETING AND SALES
 
     Each of the Company's districts has a staff responsible for sales and
marketing. The Company's policy is to periodically visit each commercial account
to ensure customer satisfaction and to sell additional services. In addition to
calling on existing customers, each salesperson calls upon potential customers
within a defined area in each market.
 
     In addition to its sales efforts directed at commercial and industrial
customers, the Company has a municipal marketing coordinator in most service
areas. The municipal marketing coordinators are responsible for interfacing with
each municipality or community to which the Company provides residential service
to assure customer satisfaction. In addition, the municipal coordinators
organize and handle bids for renewal and new municipal contracts in their
service area.
 
COMPETITION
 
     The non-hazardous waste collection and disposal industry is highly
competitive. The industry is comprised of four national waste companies in
addition to the Company, WMX Technologies, Inc., Browning-Ferris Industries,
Inc. ("BFI"), Republic Industries, Inc., USA Waste Services, Inc. and local and
regional companies of varying sizes and competitive resources such as United
Waste Systems, Inc. and Superior Services, Inc. The Company also competes with
those counties and municipalities that maintain their own waste collection or
disposal operations. These counties and municipalities may have financial
advantages through their access to tax revenues and tax-exempt financing and
their ability to mandate the disposal of waste collected within the jurisdiction
at a municipal landfill. The Company may also experience competition from
companies using alternative methods of managing solid waste streams, such as
incineration.
 
     The solid waste collection and disposal industry is currently undergoing
significant consolidation, and the Company encounters competition in its efforts
to acquire landfills and collection operations. Accordingly, it may become
uneconomical for the Company to make further acquisitions or the Company may be
unable to locate or acquire suitable acquisition candidates at price levels and
on terms and conditions that the Company considers appropriate, particularly in
markets the Company does not already serve.
 
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ENVIRONMENTAL AND OTHER REGULATIONS
 
     The Company is subject to extensive and evolving environmental laws and
regulations. These regulations are administered by the EPA and various other
federal, state and local environmental, zoning, health and safety agencies, many
of which periodically examine the Company's operations to monitor compliance
with such laws and regulations. The Company believes that there will be
increased regulation and legislation related to the waste management industry
and the Company attempts to anticipate such future regulatory requirements to
ensure compliance.
 
     The Company's operation of landfills subjects it to certain operational,
monitoring, site maintenance, closure, post-closure and other obligations which
could give rise to increased costs for monitoring and corrective measures. In
connection with the Company's acquisition of existing landfills, it is often
necessary to expend considerable time, effort and money to obtain permits
required to increase the capacity of these landfills. Governmental authorities
have the power to enforce compliance with these regulations and to obtain
injunctions or impose civil or criminal penalties in case of violations. The
Company cannot predict whether or not it will be able to obtain the governmental
approvals necessary to establish new or expand existing landfills and, if it
does, whether or not it will be economically beneficial to do so.
 
     The Company's operations are subject to extensive regulation, principally
under the following federal statutes:
 
          The Resource Conservation and Recovery Act of 1976, as amended.  RCRA
     regulates the handling, transportation and disposal of hazardous and
     non-hazardous wastes and delegates authority to states to develop programs
     to ensure the safe disposal of solid wastes. On October 9, 1991, the EPA
     promulgated Solid Waste Disposal Facility Criteria for nonhazardous solid
     waste landfills under Subtitle D. Subtitle D includes location standards,
     facility design and operating criteria, closure and post-closure
     requirements, financial assurance standards and groundwater monitoring as
     well as corrective action standards, many of which had not commonly been in
     place or enforced previously at landfills. Subtitle D applies to all solid
     waste landfill cells that received waste after October 9, 1991, and, with
     limited exceptions, all landfills were required to meet these requirements
     by October 9, 1993. Landfills that were not in compliance with the
     requirements of Subtitle D on the applicable date of implementation were
     required to close. In addition, landfills that stopped receiving waste
     before October 9, 1993 were not required to comply with the final cover
     provisions of Subtitle D. Each state must comply with Subtitle D and was
     required to submit a permit program designed to implement Subtitle D to the
     EPA for approval by April 9, 1993. States may impose requirements for
     landfill units that are more stringent than the requirements of Subtitle D.
     Once a state has an approved program, it must review all existing landfill
     permits to ensure that they comply with Subtitle D.
 
          The Federal Water Pollution Control Act of 1972 (the "Clean Water
     Act"), as amended.  This act establishes rules regulating the discharge of
     pollutants into streams and other waters of the United States (as defined
     in the Clean Water Act) from a variety of sources, including solid waste
     disposal sites. If runoff from the Company's landfills or transfer stations
     may be discharged into surface waters, the Clean Water Act requires the
     Company to apply for and obtain discharge permits, conduct sampling and
     monitoring and, under certain circumstances, reduce the quantity of
     pollutants in those discharges. The permit program has been expanded to
     include stormwater discharges from landfills that receive, or in the past
     received, industrial waste. In addition, if development may alter or affect
     "wetlands," a permit may have to be obtained and certain mitigation
     measures may need to be undertaken before such development may be
     commenced. This requirement is likely to affect the construction or
     expansion of many solid waste disposal sites, including some owned or being
     developed by the Company. The Clean Water Act provides civil, criminal and
     administrative penalties for violations of its provisions.
 
          The Comprehensive Environmental Response, Compensation and Liability
     Act of 1980, as amended. The Comprehensive Environmental Response,
     Compensation and Liability Act of 1980, as amended ("CERCLA") addresses
     problems created by the release or threatened release of hazardous
     substances into the environment. CERCLA's primary mechanism for remediating
     such problems is to impose strict, joint and several liability for cleanup
     of disposal sites on current owners and operators of the site, former
 
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     site owners and operators at the time of disposal, and waste generators and
     parties who arranged for disposal at the facility. The costs of a CERCLA
     cleanup can be substantial. Liability under CERCLA is not dependent on the
     existence or disposal of "hazardous wastes" (as defined under RCRA), but
     can also be founded on the existence of even minute amounts of the more
     than 700 "hazardous substances" listed by the EPA.
 
          The Clean Air Act of 1970 (the "Clean Air Act"), as amended.  The
     Clean Air Act provides for increased federal, state and local regulation of
     the emission of air pollutants. The EPA has construed the Clean Air Act to
     apply to landfills. In March 1996, the EPA adopted New Source Performance
     Standard and Emission Guidelines (the "Emission Guidelines") for municipal
     solid waste landfills. These regulations impose limits on air emissions
     from solid waste landfills. The Emission Guidelines propose two sets of
     emissions standards, one of which is applicable to all solid waste
     landfills that commence construction, reconstruction or modification after
     May 30, 1991 and another which is applicable to all solid waste landfills
     that received waste or had the capacity to receive waste after November 8,
     1987. The Emission Guidelines may be implemented by the states. These
     guidelines, combined with the new permitting programs established under the
     recent Clean Air Act amendments, will likely subject solid waste landfills
     to significant new permitting requirements and, in some instances, require
     installation of methane gas recovery systems.
 
          The Occupational Safety and Health Act of 1970 ("OSHA"), as
     amended.  OSHA establishes certain employer responsibilities, including
     maintenance of a workplace free of recognized hazards likely to cause death
     or serious injury, compliance with standards promulgated by the
     Occupational Safety and Health Administration, and various recordkeeping,
     disclosure and procedural requirements. Various standards, including
     standards for notices of hazards, safety in excavation and demolition work,
     and the handling of asbestos, may apply to the Company's operations.
 
          Future Federal Legislation.  In the future, the Company's collection,
     transfer and landfill operations may also be affected by legislation that
     may be proposed in the United States Congress that would authorize the
     states to enact legislation governing interstate shipments of waste. Such
     proposed federal legislation may allow individual states to prohibit the
     disposal of out-of-state waste or to limit the amount of out-of-state waste
     that could be imported for disposal and would require states, under certain
     circumstances, to reduce the amounts of waste exported to other states. If
     this or similar legislation is enacted, states in which the Company will
     operate landfills could act to limit or prohibit the importation of
     out-of-state waste. Such state actions could adversely affect landfills
     within these states that receive a significant portion of waste originating
     from out-of-state.
 
          State Regulation.  Each state in which the Company operates has laws
     and regulations governing solid waste disposal and water and air pollution
     and, in most cases, regulations governing the design, operation,
     maintenance and closure of landfills and transfer stations. Management
     believes that several states have proposed or have considered adopting
     legislation that would regulate the interstate transportation and disposal
     of waste in their landfills. Many states have also adopted legislative and
     regulatory measures to mandate or encourage waste reduction at the source
     and waste recycling.
 
     The Company's collection and landfill operations may be affected by the
current trend toward laws requiring the development of waste reduction and
recycling programs. For example, a number of states have recently enacted laws
that will require counties to adopt comprehensive plans to reduce, through waste
planning, composting and recycling or other programs, the volume of solid waste
deposited in landfills within the next few years. A number of states have also
taken or propose to take steps to ban or otherwise limit the disposal of certain
wastes, such as yard wastes, beverage containers, newspapers, unshredded tires,
lead-acid batteries and household appliances into landfills.
 
     The Company has implemented and will continue to implement its own
environmental safeguards that comply with or exceed these governmental
requirements. Additionally, the Company's policy will be to obtain an
environmental assessment prepared by an independent environmental consulting
firm for all real estate acquired.
 
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LIABILITY INSURANCE AND BONDING
 
     The Company carries general liability, comprehensive property damage,
workers' compensation, employer's liability, directors' and officers' liability
and other coverages it believes are customary to the industry. The Company also
has environmental impairment liability insurance for all of its operating
landfills except one owned and four operated sites. The environmental impairment
liability insurance is in the amount of up to $5 million for the policy term in
excess of a $1 million deductible per claim. Except as discussed in Legal
Proceedings below, management does not expect the impact of any known
environmental or other contingencies to be material to the Company's
consolidated liquidity, financial position or results of operations.
 
     The Company is required to provide certain financial assurances to
governmental agencies under applicable environmental regulations relating to its
landfill and collection operations. These financial assurances include
performance bonds, letters-of-credit, insurance contracts and trust deposits
required principally to secure the Company's estimated landfill closure and
post-closure obligations and collection contracts. The Company expects to be
required to provide approximately $227.6 million in financial assurance
obligations relating to its landfill operations by the end of fiscal year 1997.
The Company expects that financial assurances will increase in the future as the
Company acquires and expands its activities and that a greater percentage of the
financial assurances will be comprised, directly and indirectly, of
letters-of-credit.
 
EMPLOYEES
 
     The Company employs approximately 5,000 persons. Certain employees of the
Company are covered by collective bargaining agreements. The Company believes
relations with its employees are satisfactory.
 
ITEM 2.  PROPERTIES
 
     The Company's principal executive offices are located at 15880
Greenway-Hayden Loop, Suite 100, Scottsdale, Arizona 85260 where it currently
leases approximately 33,000 square feet of office space. The Company also
maintains regional administrative offices in Arizona, Illinois, Missouri, North
Carolina and Ohio.
 
     The principal property and equipment of the Company consists of land
(primarily landfill sites, transfer stations, and bases for collection
operations), buildings, and vehicles and equipment. The Company owns or leases
real property in the states in which it is doing business. At December 31, 1996,
46 solid waste landfills, aggregating approximately 13,606 total acres,
including approximately 5,610 permitted acres, were owned and/or operated by the
Company. In addition, the Company owned and/or operated 32 transfer stations and
20 recycling facilities at December 31, 1996.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     The Company is currently involved in certain routine litigation. The
Company believes that all such litigation arose in the ordinary course of
business and that costs of settlements or judgments arising from such suits will
not have a materially adverse effect on the Company's consolidated liquidity
financial position or results of operations.
 
     The business of the Company is regulated by federal, state and local
provisions that relate to the protection of the environment. The nature of the
Company's business results in it frequently becoming a party to judicial or
administrative proceedings involving governmental authorities and other
interested parties. At December 31, 1996, the Company was not involved in any
such proceedings where management believes sanctions imposed by governmental
authorities may exceed $100,000. From time to time the Company may also be
subject to actions brought by citizens' groups, adjacent landowners or others in
connection with the permitting and licensing of its landfills or transfer
stations, or alleging personal injury, environmental damage or violations of the
permits and licenses pursuant to which the Company operates.
 
     In connection with the Laidlaw Acquisition, Allied engaged an independent
environmental consulting firm to assist in conducting an environmental
assessment of the real property owned by certain subsidiaries of the Company
acquired from Laidlaw (the "LWS Subsidiaries") or third-parties, and properties
under the
 
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management of the LWS Subsidiaries. Several contaminated landfills and other
properties have been identified, two of which are owned by subsidiaries of the
Company, that would require those subsidiaries to incur costs for incremental
closure and post-closure measures, remediation activities and litigation costs
in the future. The costs of performing the investigation, design, remediation
and allocation of responsibility to the subsidiaries of Allied vary
significantly between sites. Based on information available to the Company,
Allied recorded a provision of $51.5 million for environmental matters,
including closure and post-closure costs, in the 1996 statement of operations
and expects these amounts to be disbursed over the next 30 years.
 
     The Company has been notified that it is considered a potentially
responsible party at a number of locations under CERCLA or other environmental
laws. The Company continually reviews its status with respect to each location,
taking into account the alleged connection to the location and the extent of the
contribution to the volume of waste at the location, the available evidence
connecting the entity to that location and the numbers and financial soundness
of other potentially responsible parties at the location. The ultimate amounts
for environmental liabilities at sites regarding which the Company may be a
potentially responsible party cannot be determined and estimates of such
liabilities made by the Company, after consultation with its independent
environmental engineers, require assumptions about future events due to a number
of uncertainties including the extent of the contamination, the appropriate
remedy, the financial viability of other potentially responsible parties and the
final apportionment of responsibility among the potentially responsible parties.
Where the Company has concluded that its estimated share of potential
liabilities is probable, a provision has been made in the consolidated financial
statements. Since the ultimate outcome of these matters may differ from the
estimates used in the Company's assessment to date, the recorded liabilities
will be periodically evaluated as additional information becomes available to
ascertain that the accrued liabilities are adequate. The Company has determined
that the recorded liability for environmental matters as of December 31, 1996 of
approximately $152.5 million (including the $51.5 million provision charged to
the 1996 statement of operations) represents the most probable outcome of these
contingent matters. The Company does not expect that adjustments to estimates,
which are reasonably possible in the near term and that may result in changes to
recorded amounts, will have a material effect on the Company's consolidated
liquidity, financial position or results of operations.
 
     The consolidated federal income tax returns for the fiscal years ended
August 31, 1986, 1987 and 1988 of certain subsidiaries of the Company that were
acquired from Laidlaw in December 1996 have been under audit by the Internal
Revenue Service. In March 1994, the LSW Subsidiaries received a Statutory Notice
of Deficiency proposing that the LSW Subsidiaries pay additional taxes relating
to disallowed deductions in those income tax returns (the "Tax Controversy").
The consolidated tax group of the LSW Subsidiaries has also received notice that
fiscal years 1992, 1993 and 1994 will be examined regarding the Tax Controversy.
The LSW Subsidiaries could be directly liable for a substantial portion of any
tax and interest assessed if the disallowance of the deduction is sustained. In
addition, under Treasury Regulations promulgated under Section 1502 of the
Internal Revenue Code ("IRC"), each member of the consolidated tax group
including each LSW Subsidiary, is or could be severally liable for federal
income tax liabilities of the entire consolidated tax group, including any taxes
due on the deemed sale of assets by the LSW Subsidiaries pursuant to Section 338
of the IRC and all amounts at issue in the Tax Controversy which are ultimately
determined to be owed.
 
     Any amounts at issue in the Tax Controversy and for which any LSW
Subsidiary may ultimately be found liable, are included in and covered by the
indemnification of the Company by Laidlaw set forth in the Stock Purchase
Agreement by and between the Company and Laidlaw, among others, dated September
17, 1996 (the "Purchase Agreement"). Further, the Company and Laidlaw, among
others, have entered into a Setoff Agreement, under which Laidlaw has agreed
that if the Tax Controversy results in any damage, liability or expense to any
LSW Subsidiary, and if Laidlaw fails to indemnify the Company against all such
damages, liabilities or expenses within 30 days of a demand for indemnification,
then the Company may setoff the amount of all such damages, liabilities and
expenses against all amounts then owed by the Company under the certain debt
issued to Laidlaw consisting primarily of the Allied Canada Debentures.
 
     Other than to the extent contemplated in the Setoff Agreement, the
obligation of Laidlaw to indemnify the Company in respect of amounts at issue in
the Tax Controversy is a general, unsecured obligation of
 
                                        9
<PAGE>   10
 
Laidlaw. The ability of Laidlaw to pay and fulfill such indemnification
obligation will depend on the financial condition of Laidlaw at the time of any
required performance of such obligation.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     On December 27, 1996, a special meeting of the stockholders of the Company
was held. The holders of 45,851,275 shares of Common Stock were present or
represented by proxy at the meeting. At the meeting, the stockholders took the
following actions:
 
        a) Approval of the issuance and potential issuances of Common Stock
     pursuant to the Laidlaw Acquisition.
 
             The stockholders approved the issuance and potential issuances of
        Common Stock pursuant to the Purchase Agreement. Votes were cast as
        follows:
 
<TABLE>
<CAPTION>
NUMBER OF        NUMBER OF          NUMBER OF
VOTES FOR      VOTES AGAINST     VOTES ABSTAINING
----------     -------------     ----------------
<S>            <C>               <C>
44,356,363        325,567             939,669
</TABLE>
 
          b) Approval to amend the Certificate of Incorporation of the Company
     which increases the authorized number of shares.
 
             The stockholders approved the proposal to amend the Certificate of
        Incorporation of the Company which increases the authorized number of
        shares of the Common Stock to 200 million. Votes were cast as follows:
 
<TABLE>
<CAPTION>
NUMBER OF        NUMBER OF          NUMBER OF
VOTES FOR      VOTES AGAINST     VOTES ABSTAINING
----------     -------------     ----------------
<S>            <C>               <C>
44,185,145        775,384             890,746
</TABLE>
 
                                       10
<PAGE>   11
 
                                    PART II
 
ITEM 5.  MARKET FOR THE COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
 
                                DIVIDEND POLICY
 
     The Company has not paid dividends on its Common Stock, does not anticipate
paying any dividends thereon in the foreseeable future and is prohibited under
the terms of the Company's long-term indebtedness from paying such dividends.
 
                          PRICE RANGE OF COMMON STOCK
 
     The Common Stock is traded on the Nasdaq National Market tier of The Nasdaq
Stock Market under the symbol "AWIN." The high and low prices per share for the
periods indicated were as follows:
 
<TABLE>
<CAPTION>
                                                                         HIGH     LOW
                                                                         ----     ---
        <S>                                                              <C>      <C>
        Year ended December 31, 1995
        First Quarter..................................................    5       3  3/4
        Second Quarter.................................................    7 1/4   4  3/4
        Third Quarter..................................................   10       6  7/8
        Fourth Quarter.................................................    9 5/8   6  3/8
 
        Year ended December 31, 1996
        First Quarter..................................................    9 1/8   6  1/2
        Second Quarter.................................................   10 1/8   8  1/8
        Third Quarter..................................................    9 1/2   6   /16
        Fourth Quarter.................................................    9 1/2   8  1/8
</TABLE>
 
     All of the foregoing prices reflect interdealer quotations, without retail
markups, markdowns or commissions.
 
     As of March 24, 1997, there were approximately 576 record holders of the
Common Stock.
 
  Recent Sales of Unregistered Securities
 
     The following table reflects sales by the Company of unregistered
securities during the fiscal year ended December 31, 1996. Except as otherwise
disclosed, the issuances by the Company of the securities sold in the
transactions referenced below were not registered under the Securities Act of
1933, as amended, pursuant to the exemptions contemplated in Section 4(2) and
Section 3 (a) (9), thereof, or Regulation D thereunder, for transactions not
involving a public offering. The consideration paid to the Company in respect of
each issuance was cash, unless otherwise indicated.
 
                                       11
<PAGE>   12
 
<TABLE>
<CAPTION>
                            SHARES OR
                            PRINCIPAL
    DESCRIPTION/DATE          AMOUNT      CONSIDERATION          UNDERWRITERS AND OTHER PURCHASERS
-------------------------  ------------   -------------   ------------------------------------------------
<S>                        <C>            <C>             <C>
COMMON STOCK
January 3, 1996..........        50,000   $     150,000   William La Reese (exercise of warrant)
January 6, 1996..........        56,054                   Equus, Inc. (cashless exercise of warrant)
January 8, 1996..........        10,000   $      30,000   Richard D. Polson (exercise of warrant)
January 8, 1996..........        87,600   $     262,800   Sanders, Morris, Mundy, Inc. (exercise of
                                                          warrant)
January 12, 1996.........        35,927                   Mitsui Nevitt Capital Corporation (cashless
                                                          exercise of warrant)
January 19, 1996.........        14,063   $      51,049   Richard Van Hattem (exercise of warrant)
January 23, 1996.........         5,000   $      30,000   Robert G. Rader (exercise of warrant)
February 2, 1996.........       157,073                   Trilon Dominion Partners (cashless exercise of
                                                          warrant)
February 8, 1996.........         5,000                   Jeffery J. Jorgenson (conversion of Series D
                                                          Preferred Stock)
February 28, 1996........        15,000   $      45,000   Richard D. Polson (exercise of warrant)
March 3, 1996............         2,714                   Wanda Bell (conversion of 7% Preferred Stock)
March 5, 1996............         5,000                   Sheldon Stein (conversion of Series D Preferred
                                                          Stock)
March 14, 1996...........        10,000                   David Nagelberg (conversion of Series D
                                                          Preferred Stock)
March 20, 1996...........         4,285                   Ronald Watkins (conversion of 7% Preferred
                                                          Stock)
April 15, 1996...........        44,706                   John M. Cronin (conversion of royalty agreement)
April 15, 1996...........        44,706                   Jennifer D. Cronin (conversion of royalty
                                                          agreement)
April 15, 1996...........        44,706                   Pamela K. Shourd (conversion of royalty
                                                          agreement)
April 15, 1996...........        44,706                   John D. Shourd (conversion of royalty agreement)
April 15, 1996...........        25,882                   Susan K. Roach (conversion of royalty agreement)
April 15, 1996...........         2,353                   Kristin L. Witt (conversion of royalty
                                                          agreement)
April 15, 1996...........         2,353                   Terry L. Witt (conversion of royalty agreement)
May 1, 1996..............        95,274                   St. Andrew Trust PLC (conversion of note)
May 2, 1996..............       320,833                   IPP 92, L.P. (conversion of note)
May 3, 1996..............        23,751                   Equus, Inc. (inducement shares issued for
                                                          accelerated conversion of 9% Preferred Stock)
May 10, 1996.............        19,054                   JO Hambro Investment Management, Ltd.
                                                          (conversion of note)
May 10, 1996.............       190,548                   JO Hambro & Partners Consolidated Venture Trust
                                                          (conversion of note)
May 24, 1996.............        57,164                   Foreign and Colonial (conversion of note)
May 28, 1996.............           723                   Wayne Thompson (employee bonus)
May 30, 1996.............        50,000                   Semper Investments, Ltd. (cashless exercise of
                                                          warrant)
May 30, 1996.............        85,000                   Petrotech International, Ltd. (cashless exercise
                                                          of warrant)
May 30, 1996.............         6,297                   First Hemisphere Corporation (cashless exercise
                                                          of warrant)
June 7, 1996.............        50,000                   Semper Investments, Ltd. (cashless exercise of
                                                          warrant)
June 20, 1996............           190                   Wayne Thompson (employee bonus)
June 21, 1996............       246,154   $   2,000,000   Roger A. Ramsey (employee purchase of common
                                                          stock)
June 21, 1996............       246,154   $   2,000,000   Thomas H. Van Weelden (employee purchase of
                                                          common stock)
August 26, 1996..........         6,211                   Semper Investments, Ltd. (cashless exercise of
                                                          warrant)
</TABLE>
 
                                       12
<PAGE>   13
 
<TABLE>
<CAPTION>
                            SHARES OR
                            PRINCIPAL
    DESCRIPTION/DATE          AMOUNT      CONSIDERATION          UNDERWRITERS AND OTHER PURCHASERS
-------------------------  ------------   -------------   ------------------------------------------------
<S>                        <C>            <C>             <C>
August 26, 1996..........        48,018                   Petrotech International, Ltd. (cashless exercise
                                                          of warrant)
September 10, 1996.......       300,000                   IPP 92, L.P. (conversion of note)
September 24, 1996.......        50,000                   IPP 92, L.P. (conversion of note)
October 9, 1996..........         1,108                   John Miller (cashless exercise of warrant)
November 12, 1996........       733,752                   Merrill Lynch World Income Fund (conversion of
                                                          9% Preferred Stock)
November 12, 1996........       314,465                   Convertible Holdings, Inc. (conversion of 9%
                                                          Preferred Stock)
November 20, 1996........         4,192                   Merrill Lynch World Income Fund (conversion of
                                                          9% Preferred Stock)
November 20, 1996........         1,886                   Convertible Holdings, Inc. (conversion of 9%
                                                          Preferred Stock)
December 16, 1996........         1,000                   Kyle Ray (conversion of 7% Preferred Stock)
December 20, 1996........         4,364                   Eric Cash (employee bonus)
December 30, 1996........    14,600,000                   Laidlaw Transportation, Inc. (acquisition of
                                                          non-hazardous solid waste operations of Laidlaw)
1996 NOTES
December 5, 1996.........  $525,000,000   $ 525,000,000   Various institutional investors(1)
WARRANT
December 30, 1996........    20,400,000                   Laidlaw Transportation, Inc. (acquisition of
                                                          non-hazardous solid waste operations of Laidlaw)
</TABLE>
 
---------------
(1) Goldman, Sachs & Co., CS First Boston and Citicorp Securities, Inc. acted as
    placement agents in this private offering.
 
ITEM 6.  SELECTED FINANCIAL DATA
 
     The selected financial data presented below as of and for the five years
ended December 31, 1996 are derived from the Company's Consolidated Financial
Statements, which have been audited by Arthur Andersen LLP, independent public
accountants. The statement of operations, balance sheet and other data have been
restated to give effect to transactions completed in 1995 and 1996, that were
accounted for using the pooling-of-interests method for business combinations.
See Note 2 to the Company's Consolidated Financial Statements. These selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the notes thereto, included elsewhere
herein. The Company has not paid dividends on its Common Stock, does not
anticipate paying any dividends on its Common Stock in the foreseeable future,
and is prohibited under the terms of the Company's long-term indebtedness from
paying such dividends. All amounts are in thousands except per share amounts,
number of shares and percentages.
 
                                       13
<PAGE>   14
 
<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                       --------------------------------------------------------------
                                          1992         1993         1994         1995         1996
                                       ----------   ----------   ----------   ----------   ----------
<S>                                    <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................  $   77,686   $  108,948   $  158,354   $  217,544   $  246,679
Cost of operations...................      49,661       68,374       98,086      120,738      138,437
Selling, general and administrative
  expenses...........................      13,369       18,278       32,564       36,708       38,602
Depreciation and amortization
  expense............................       7,991       10,637       16,931       25,779       31,470
Acquisition related costs(1).........          --           --           --        1,531       91,693
Unusual items(2).....................          --           --        2,100           --        5,744
                                       ----------   ----------   ----------   ----------   ----------
Operating income (loss)..............       6,665       11,659        8,673       32,788      (59,267)
Interest income......................        (201)        (310)      (1,073)        (716)      (2,110)
Interest expense.....................       4,580        7,633       13,441       11,372        9,257
                                       ----------   ----------   ----------   ----------   ----------
Income (loss) before income taxes....       2,286        4,336       (3,695)      22,132      (66,414)
Income tax expense (benefit).........         717        1,694         (689)       9,751         (399)
                                       ----------   ----------   ----------   ----------   ----------
Income (loss) before extraordinary
  item...............................       1,569        2,642       (3,006)      12,381      (66,015)
Extraordinary loss, net of income tax
  benefit of $1,900 in 1994 and
  $8,940 in 1996.....................          --           --       (3,029)          --      (13,412)
                                       ----------   ----------   ----------   ----------   ----------
Net income (loss)....................       1,569        2,642       (6,035)      12,381      (79,427)
Preferred dividends..................        (310)        (927)      (3,773)      (4,070)      (1,073)
Conversion fee on equity securities
  converted(3).......................          --           --           --       (2,151)          --
                                       ----------   ----------   ----------   ----------   ----------
Net income (loss) to common
  shareholders.......................  $    1,259   $    1,715   $   (9,808)  $    6,160   $  (80,500)
                                       ==========   ==========   ==========   ==========   ==========
Net income (loss) per share:
  Income (loss) before extraordinary
     loss............................  $     0.07   $     0.08   $    (0.27)  $     0.15   $    (1.15)
  Extraordinary loss.................          --           --        (0.12)          --        (0.23)
                                       ----------   ----------   ----------   ----------   ----------
  Income (loss)......................  $     0.07   $     0.08   $    (0.39)  $     0.15   $    (1.38)
                                       ==========   ==========   ==========   ==========   ==========
Weighted average common and common
  equivalent shares..................  19,276,886   22,572,468   25,028,107   40,046,459   58,422,581
                                       ==========   ==========   ==========   ==========   ==========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                             ------------------------------------------------------
                                               1992       1993       1994       1995        1996
                                             --------   --------   --------   --------   ----------
<S>                                          <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................  $  5,887   $  3,812   $  5,223   $  4,016   $   50,094
Working capital (deficit)..................      (428)     3,892    (18,704)   (44,441)       3,256
Property and equipment, net................    75,928     94,208    221,484    309,455      730,572
Goodwill...................................    22,398     34,880     76,059     88,429      856,108
Total assets...............................   135,946    159,926    356,875    458,706    2,317,549
Total long-term debt, net of current
  portion..................................    56,226     61,019    166,252    186,373    1,148,509
Stockholders' equity.......................    51,323     70,277     89,972    136,305      275,558
Long-term debt to total capitalization.....      0.52       0.46       0.65       0.58         0.81
</TABLE>
 
---------------
(1) Acquisition related costs of $84.6 million were incurred in 1996 in
    connection with the Laidlaw Acquisition for environmental related matters,
    asset impairments and abandonments, acquisition related liabilities,
    litigation matters, relocation and transition costs and bonuses, and other
    integration costs
 
                                       14
<PAGE>   15
 
    related to companies acquired. Acquisition related costs of $7.1 million
    were incurred in 1996 for transaction and integration costs related to 5
    small 1996 acquisitions. Acquisition related costs of $1.5 million were
    incurred in 1995 for transaction and integration costs related to 1995
    acquisitions. Acquisition related costs incurred in 1992 through 1994 for
    transaction and integration costs related to acquisitions made in those
    years were immaterial. See Note 2 to the Company's Consolidated Financial
    Statements.
 
(2) In December 1996 the Company recorded $5.7 million in unusual items related
    to ongoing investigation and remediation of the Company's Norfolk landfill
    and other non-recurring valuation adjustments. In December 1994 the Company
    recorded a $2.1 million unusual item related to the Company's Norfolk
    landfill.
 
(3) A non-cash conversion fee of $2.2 million was incurred in the fourth quarter
    1995 as a result of an inducement offered by the Company to holders of
    certain convertible preferred stock and convertible subordinated notes to
    exercise their conversion option to receive Allied common stock. The
    inducement fee consisted of payment of dividends or interest from the
    conversion date through the first call or redemption date of each
    convertible security. Approximately 7.8 million shares of common stock were
    issued for conversion and approximately 285,000 shares were issued for the
    conversion fee.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto, included elsewhere
herein.
 
INTRODUCTION
 
     The Company has experienced significant growth, a substantial portion of
which has resulted from the acquisition of solid waste businesses. Since January
1, 1992, the Company has completed 96 acquisitions including the Laidlaw
Acquisition. In 1996, the Company acquired 22 businesses including the Laidlaw
Acquisition and subsequent to 1996 it has acquired 2 businesses. See Note 2 to
the Company's Consolidated Financial Statements. The Company's Consolidated
Financial Statements have been restated to reflect the acquisition of companies
accounted for using the pooling-of-interests method for business combinations.
The majority of the acquisitions were accounted for under the purchase method
for business combinations and, accordingly, the results of operations for such
acquired businesses are included in the Company's financial statements only from
the applicable date of acquisition. As a result, the Company believes its
historical results of operations for the periods presented are not directly
comparable.
 
     On December 30, 1996, the Company completed the acquisition of
substantially all of the non-hazardous solid waste management business conducted
by Laidlaw in the United States and Canada, for total consideration of
approximately $1.5 billion comprised of $1.2 billion cash, 14.6 million shares
of Common Stock, warrants to acquire 20.4 million shares of Common Stock, and
two junior subordinated debentures with an aggregate face amount of $318
million. The cash consideration was financed from the proceeds of the Senior
Credit Facility and the sale of the 1996 Notes.
 
     On March 16, 1997, pursuant to a Share Purchase Agreement with USA Waste,
the Company sold to USA Waste all of the Canadian non-hazardous solid waste
management operations of the Company for approximately $518 million. The Company
used the proceeds from the Canadian Sale to pay down approximately $517 million
in debt under the Senior Credit Facility. The Company acquired the Canadian
operations in connection with the Laidlaw Acquisition.
 
GENERAL
 
     Revenues.  The Company's revenues are attributable primarily to fees
charged to customers for waste collection, transfer, recycling and disposal
services. The Company's collection services are generally provided under direct
agreements with its customers or pursuant to contracts with municipalities.
Commercial and municipal contract terms, where used, generally range from 1 to 5
years and commonly have automatic renewal options. The Company's landfill
operations include both Company-owned landfills and those operated
 
                                       15
<PAGE>   16
 
for municipalities for a fee. The Company is fully integrated in each geographic
region in which it is located as it provides collection, transfer and disposal
services. The tables below show for the periods indicated the percentage of the
Company's total reported revenues attributable to services provided and to
geographic region:
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                                  -------------------------
                                                                  1994      1995      1996
                                                                  -----     -----     -----
    <S>                                                           <C>       <C>       <C>
    Collection(1)...............................................   69.9%     64.7%     61.9%
    Transfer....................................................    8.4       9.5       8.5
    Landfill(1).................................................   14.5      18.3      22.0
    Other.......................................................    7.2       7.5       7.6
                                                                  -----     -----     -----
              Total Revenues....................................  100.0%    100.0%    100.0%
                                                                  =====     =====     =====
</TABLE>
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                                  -------------------------
                                                                  1994      1995      1996
                                                                  -----     -----     -----
    <S>                                                           <C>       <C>       <C>
    Midwest...................................................     48.7%     52.2%     50.0%
    Southeast.................................................     30.2      28.0      30.6
    Southwest.................................................     21.1      19.8      19.4
                                                                  -----     -----     -----
              Total Revenues..................................    100.0%    100.0%    100.0%
                                                                  =====     =====     =====
</TABLE>
 
---------------
(1) The portion of collection revenues attributable to disposal charges for
    waste collected by the Company and disposed at the Company's landfills have
    been excluded from collection revenues and included in landfill revenues.
 
     The Company's strategy is to develop vertically integrated operations to
ensure internalization of waste it collects and thus realize higher margins from
its operations. By disposing of waste at Company-owned and/or operated
landfills, the Company retains the margin generated through disposal operations
that would otherwise be earned by third-party landfills. Approximately 71% of
Company-collected waste is disposed of at Company-owned and/or operated
landfills as measured using disposal costs in 1996. After taking into account
the Laidlaw Acquisition, this measure is expected to be approximately 60%. In
addition, transfer stations are an integral part of the disposal process. The
Company locates its transfer stations in areas where its landfills are outside
of the population centers in which it collects waste. Such waste is transloaded
and economically transported to its landfills. Transfer and landfill revenues as
a percentage of total revenues increased from 8.4% and 14.5% in 1994 to 8.5% and
22% in 1996, respectively, which reflects the continued implementation of the
Company's strategy.
 
     Expenses.  Cost of operations includes labor, maintenance and repairs,
equipment and facility rent, utilities and taxes, the costs of ongoing
environmental compliance, safety and insurance, disposal costs and costs of
independent haulers transporting Company waste to the disposal site. Disposal
costs include certain landfill taxes, host community fees, payments under
agreements with respect to landfill sites that are not owned, landfill site
maintenance, fuel and other equipment operating expenses and accruals for
estimated closure and post-closure monitoring expenses anticipated to be
incurred in the future.
 
     Selling, general and administrative expenses include management, clerical
and administrative compensation and overhead, sales costs, community relations
expenses and provisions for estimated uncollectible accounts receivable and
potentially unrealizable acquisition costs.
 
     Depreciation and amortization expense includes depreciation of fixed assets
and amortization of landfill airspace, goodwill and other intangible assets.
 
     In connection with potential acquisitions, the Company incurs and
capitalizes certain transaction and integration costs which include stock
registration, legal, accounting, consulting, engineering and other direct costs.
When an acquisition is completed and is accounted for using the
pooling-of-interests method for business combinations, these costs are charged
to the statement of operations as acquisition related costs.
 
                                       16
<PAGE>   17
 
When a completed acquisition is accounted for using the purchase method for
business combinations, these costs are capitalized. The Company routinely
evaluates capitalized transaction and integration costs and expenses those costs
related to acquisitions not likely to occur. Indirect acquisition costs, such as
executive salaries, general corporate overhead and other corporate services, are
expensed as incurred.
 
     Certain direct landfill development costs, such as engineering, upgrading,
construction and permitting costs, are capitalized and amortized based on
consumed airspace. The Company believes that the costs associated with
engineering, owning and operating landfills will increase in the future as a
result of federal, state and local regulation and a growing community awareness
of the landfill permitting process. Although there can be no assurance, the
Company believes that it will be able to implement price increases sufficient to
offset these increased expenses. All indirect landfill development costs, such
as executive salaries, general corporate overhead, public affairs and other
corporate services, are expensed as incurred.
 
     Accrued closure and post-closure costs represent an estimate of the current
value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned and/or
operated by the Company. Site specific closure and post-closure engineering cost
estimates are prepared annually for landfills owned and/or operated by the
Company for which it is responsible for closure and post-closure. The present
value of estimated future costs are accrued based on accepted tonnage as
landfill airspace is consumed. Discounting of future costs is applied where the
Company believes that both the amounts and timing of related payments are
reliably determinable. The Company periodically updates its estimates of future
closure and post-closure costs. The impact of changes which are determined to be
changes in estimates are accounted for on a prospective basis.
 
     The net present value of the closure and post-closure commitment is
calculated assuming inflation of 3.5% and a risk-free capital rate of 7.0%.
Discounted amounts previously recorded are accreted to reflect the effects of
the passage of time. The Company's current estimate of total future payments for
closure and post-closure is $467 million while the present value of such
estimate is $181 million. At December 31, 1995 and 1996, accruals for landfill
closure and post-closure costs (including costs assumed through acquisitions)
were approximately $10.5 million and $107.5 million. The accruals reflect
relatively young landfills with estimated remaining lives, based on current
waste flows, that range from 1 to over 75 years, and an estimated average
remaining life of greater than 30 years.
 
RESULTS OF OPERATIONS
 
     The following table sets forth the percentage relationship that the various
items bear to revenues and the percentage of change in dollar amounts for the
periods indicated. The statement of operations data have been restated to give
effect to acquisitions that were accounted for using the pooling-of-interests
method for business combinations. See Note 2 to the Company's Consolidated
Financial Statements.
 
                                       17
<PAGE>   18
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                              -------------------------------------------------------
                                                                     1995                     1996
                                                                   COMPARED                 COMPARED
                                                                   TO 1994                  TO 1995
                                                                   % CHANGE                 % CHANGE
                                              1994      1995      IN AMOUNTS     1996      IN AMOUNTS
                                              -----     -----     ----------     -----     ----------
<S>                                           <C>       <C>       <C>            <C>       <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................  100.0%    100.0%         37.4%     100.0%         13.4%
Cost of operations..........................   61.9      55.5          23.1       56.1          14.7
Selling, general and administrative
  expenses..................................   20.6      16.9          12.7       15.6           5.2
Depreciation and amortization expense.......   10.7      11.9          52.3       12.8          22.1
Acquisition related costs...................     --       0.7         100.0       37.2       5,889.1
Unusual costs...............................    1.3        --        (100.0)       2.3         100.0
                                              -----     -----                    -----
Operating income............................    5.5      15.0         278.0      (24.0)       (280.8)
Interest expense, net.......................    7.8       4.9         (13.8)       2.9         (32.9)
Income tax expense, (benefit)...............   (0.4)      4.5       1,515.2       (0.2)       (104.1)
Extraordinary loss, net of income tax
  benefit...................................    1.9        --        (100.0)       5.4         100.0
                                              -----     -----                    -----
  Net income (loss).........................   (3.8)%     5.6%        305.2%     (32.1)%      (741.5)%
                                              =====     =====                    =====
</TABLE>
 
YEARS ENDED DECEMBER 31, 1996 AND 1995
 
   
     Revenues.  Revenues in 1996 were $246.7 million compared to $217.5 million
in 1995, an increase of 13.4%. Approximately 4.3% of the increase in revenues is
attributable to acquisitions and 9.1% is attributable to internal growth.
Revenues of $9.4 million for 1996 were generated from companies acquired
subsequent to the end of the same period in the prior year, while increases in
revenue attributable to existing operations amounted to $19.8 million. Average
price increases as a percentage of revenue were approximately 3% of revenue
while the remainder of internal growth was from volume.
    
 
     Cost of Operations.  Cost of operations in 1996 was $138.4 million compared
to $120.7 million in 1995, an increase of 14.7%. This increase in cost of
operations was primarily attributable to the increase in revenues described
above. As a percentage of revenues, cost of operations increased to 56.1% in
1996 from 55.5% in 1995. Operating costs were affected by an increase in the
percentage of waste internalized to 71% in 1996 from 62% in 1995 which resulted
in a decrease in third-party disposal costs as a percent of revenue. Cost of
operations were also effected by a significant increase in municipal solid waste
volumes offset by a decrease in higher priced special waste volumes. This change
in revenue mix had the effect of increasing the cost of disposal relative to
revenues.
 
     Selling, General and Administrative Expenses.  SG&A expenses increased to
$38.6 million in 1996 compared to $36.7 million in 1995, an increase of 5.2%. As
a percentage of revenues, SG&A decreased to 15.6% in 1996 from 16.9% in 1995.
The increase in SG&A expense resulted from expenses associated with acquired
companies and expenses incurred in connection with the Company's increase in
personnel and other expenses related to the anticipated growth of the Company as
it continues to acquire companies. The decrease in SG&A as a percentage of
revenues can be attributed to an increase in revenue producing assets while
corporate level personnel and other related expenses increased moderately.
 
     Depreciation and Amortization Expense.  Depreciation and amortization in
1996 was $31.5 million compared to $25.8 million in 1995, an increase of 22.1%.
The increase in depreciation and amortization expense is due to acquisitions and
capital expenditures. Before the Laidlaw Acquisition, fixed assets increased to
$466.0 million at December 31, 1996 from $373.7 million at December 31, 1995 and
goodwill increased to $110.7 million at December 31, 1996 from $98.1 million at
December 31, 1995. As a percentage of revenues, depreciation and amortization
increased to 12.8% in 1996 from 11.9% in 1995. This increase is primarily
because amortization of landfill airspace as a percentage of revenue increased
to 3.2% in 1996 from 2.7% in 1995 resulting from an increase in the rate of
waste internalization.
 
                                       18
<PAGE>   19
 
     Acquisition Related Costs.  In connection with the Laidlaw Acquisition, the
Company incurred approximately $84.6 million in charges primarily associated
with the acquisition, which include $51.5 million of environmental related
matters, $18.4 million of asset impairments and abandonments, and $14.7 million
of acquisition liabilities, of which $2.0 million relates to litigation matters,
$5.4 million relates to relocation and transition costs and bonuses, $3.8
million relates to taxes, claims and assessments and other integration costs,
and $3.5 million relates to acquired accounts receivable considered
uncollectible.
 
     In connection with the Laidlaw Acquisition, Allied engaged an independent
environmental consulting firm to assist in conducting an environmental
assessment of the real property owned by the acquired subsidiaries or
third-parties, and properties under the management of the acquired companies.
Several contaminated landfills and other properties have been identified, two of
which are owned by subsidiaries of the Company, that would require those
subsidiaries to incur costs for incremental closure and post-closure measures,
remediation activities and litigation in the future. The costs of performing the
investigation, design, remediation and the allocation of responsibility to the
subsidiaries of Allied vary significantly between sites. Based on information
available to the Company, Allied recorded a provision of $51.5 million for
environmental matters, including closure and post-closure costs, in the 1996
statement of operations and expects these amounts to be disbursed over the next
30 years.
 
     As a result of the Laidlaw Acquisition, Allied increased its revenue base
by approximately 400% and entered into 14 new markets where it believes that it
can execute its operating strategy. In connection with the significant increase
in size and the redirection of its strategic operating emphasis, Allied
determined that certain asset values have become impaired as they will provide
no further benefit to Company. Included among the asset impairments are costs of
$10.8 million related to over 50 noncompetition agreements in several markets
where the counterparty no longer poses a significant threat, costs of $4.8
million for discontinued facilities and costs of $2.8 million for market
development activities no longer being pursued.
 
     Costs of $7.1 million were incurred in 1996 compared to $1.5 million in
1995 for transaction and integration costs directly related to acquisitions
accounted for using the pooling-of-interests method for business combinations.
 
     Unusual Items.  In December 1996 the Company recorded $5.7 million in
unusual items including $2.0 million in connection with the ongoing
investigation and remediation of the Company's Norfolk landfill and $3.7 million
of other non-recurring valuation adjustments.
 
     Net Interest Expense.  Net interest expense was $7.1 million in 1996
compared to $10.6 million in 1995, a decrease of 32.9%. The decrease in net
interest expense is partially due to the conversion of subordinated debt into
Common Stock in the fourth quarter of 1995 which resulted in a reduction to
annual interest charges and the refinancing of the 1994 Notes (as defined
herein) on July 31, 1996 resulting in a decrease in the interest rate from 12%
to 7% for the months of August through December 1996. Also, interest capitalized
in 1996 was $13.0 million compared to $11.1 million in 1995.
 
     Conversion Fees.  A non-cash conversion fee of $2.2 million was incurred in
the fourth quarter of 1995 as a result of an inducement offered by the Company
to holders of certain convertible preferred stock and convertible subordinated
notes to exercise their conversion option to receive Common Stock. The
inducement fee consisted of payment of dividends or interest from the conversion
date through the first call or redemption date of each convertible security.
Approximately 7.8 million shares of Common Stock were issued for conversion and
approximately 285,000 were issued for the conversion fee.
 
     Income Taxes.  Income taxes reflect a benefit at a 0.6% effective income
tax rate for 1996 which deviates from the federal statutory rate of 35% due
primarily to the treatment of expenses for book purposes that, when recognized
for tax purposes, may produce tax goodwill in excess of book goodwill. Other
items impacting the Company's effective tax rate for both 1996 and 1995 include
the differences in the treatment of goodwill for book and tax purposes, state
income taxes, and other permanent differences. See Note 10 to the Consolidated
Financial Statements.
 
     Extraordinary Loss.  On July 31, 1996, Allied completed a tender offer (the
"Tender Offer") for substantially all of the 1994 Notes at the redemption price
of $1,157.50 per $1,000 note. An extraordinary
 
                                       19
<PAGE>   20
 
charge related to the Tender Offer of approximately $18.4 million ($11.0 million
net of income tax benefit), was charged to earnings in the third quarter of
1996. In connection with the Laidlaw Acquisition, the Company refinanced its
$300 million senior revolving credit facility and recognized an extraordinary
charge of approximately $4.0 million ($2.4 million net of income tax benefit)
was charged to earnings in the fourth quarter of 1996.
 
YEARS ENDED DECEMBER 31, 1995 AND 1994
 
   
     Revenues.  Revenues in 1995 were $217.5 million compared to $158.4 million
in 1994, an increase of 37.4%. The increase in revenues is due primarily to the
effects of acquisitions as well as price and volume increases attributable to
existing operations. Revenues of $34.4 million in 1995 were generated from
companies acquired subsequent to the end of the same period in the prior year,
while increases in revenues attributable to existing operations amounted to
$24.7 million. Average price increases as a percentage of revenue were
approximately 5.7%.
    
 
     Cost of Operations.  Cost of operations in 1995 was $120.7 million compared
to $98.1 million in 1994, an increase of 23.1%. This increase in costs was
attributable primarily to increase in revenues described above. As a percentage
of revenues, cost of operations decreased to 55.5% in 1995 from 61.9% in 1994.
The resulting increase in margins was due primarily to better internalization of
waste flows in 1995 as compared to 1994 during which Allied collected waste
disposed at Allied-owned and/or operated landfills, as measured using disposal
costs, was 34.8% of revenue compared to 62.0% for 1995. Gross profit also
increased because of increased operating efficiencies resulting from
improvements made to vehicles and equipment through capital expenditures made in
1994 and 1995.
 
     Selling, General and Administrative Expenses.  SG&A expenses increased to
$36.7 million in 1995 compared to $32.6 million in 1994, an increase of 12.7%.
As a percentage of revenues, SG&A decreased to 16.9% in 1995 from 20.6% in 1994.
The increase in SG&A expenses resulted from expenses associated with acquired
companies and expenses incurred in connection with Allied's increase in
personnel and other expenses related to the anticipated growth of Allied as it
continues to acquire companies. The decrease in SG&A as a percentage of revenues
can be attributed to a significant increase in revenue producing assets while
corporate level personnel and other related expenses increased only moderately.
 
     Depreciation and Amortization Expense.  Depreciation and amortization
expense in 1995 was $25.8 million compared to $16.9 million in 1994, an increase
of 52.3%. The increase in depreciation and amortization expense is due to
acquisitions and capital expenditures. Fixed assets increased to $373.7 million
at December 31, 1995 from $266.6 million at December 31, 1994 and goodwill
increased to $98.1 million at December 31, 1995 from $84.1 million at December
31, 1994. As a percentage of revenues, depreciation and amortization increased
to 11.9% in 1995 from 10.7% in 1994. This increase in primarily because
amortization of landfill airspace as a percentage of revenue increased to 2.7%
in 1995 from 1.0% in 1994 resulting from an increase in the rate of waste
internalization.
 
     Acquisition Related Costs.  Costs of $1.5 million were incurred in
September 1995 for transaction and integration costs related to acquisitions
accounted for using the pooling-of-interests method for business combinations.
During 1994, no acquisitions were accounted for using this method.
 
     Unusual Items.  In December 1994 the Company recorded a provision of $2.1
million, in excess of the closure and post-closure reserves recorded in the
normal course of business, to recognize the estimated costs of additional
closure, post-closure and remedial measures related to its Norfolk landfill.
 
     Net Interest Expense.  Net interest expense increased to $10.6 million in
1995 compared to $12.4 million in 1994, a decrease of 13.8%. Interest charges
decreased in 1995 compared to 1994 because of an increase in the amount of
capitalized interest to $11.1 million in the 1995 period compared to $3.5
million in 1994. The amount of interest capitalized increased in 1995 because of
an increase in transfer stations and landfill airspace under development or
under application for development compared to 1994 and the acquisition of
additional landfills subsequent to 1994. The decrease in interest charges was
offset by an increase in the interest rate on the 1994 Notes, from 10.75% in
1994 to 12% in January 1995 and an increase in interest bearing debt to
 
                                       20
<PAGE>   21
 
approximately $223.9 million at December 31, 1995 from approximately $188.0
million at December 31, 1994, due primarily to acquisitions and capital
expenditures.
 
     Conversion Fees.  A non-cash conversion fee of $2.2 million was incurred in
the fourth quarter of 1995 as a result of an inducement offered by Allied to
holders of certain convertible securities to exercise their conversion option to
receive Common Stock. The inducement fee consisted of payment of dividends or
interest from the conversion date through the first call or redemption date of
each convertible security. Approximately 7.8 million shares of Common Stock were
issued for conversion and approximately 285,000 were issued for the conversion
fee.
 
     Income Taxes.  Income taxes reflect a 44.1% effective income tax rate in
1995 compared to a 18.6% effective rate in 1994. Allied's effective tax rate in
1995 and 1994 deviates from the federal statutory rates of 35% and 34%,
respectively, due to the effects of differences in the treatment of goodwill for
book and tax purposes, state income taxes, and other permanent differences.
 
     Extraordinary Items.  In connection with the Securities Purchase Agreement
between the Company and TPG Partners, L.P. ("TPG") dated October 27, 1994, as
amended (the "TPG Agreement"), the Company solicited and obtained consents from
a majority of the holders of the 1994 Notes causing modifications to the
indenture agreement and the execution of a supplemental indenture (the
"Supplemental Indenture"). Among other things, the Supplemental Indenture
increased the Company's restricted borrowing capacity (with certain limitations)
under current and future revolving credit agreements and lease lines from a
total of $35 million to $120 million, deleted certain borrowing restrictions,
changed certain financial ratio covenants and increased the per annum rate of
interest from 10.75% to 12.0%. The execution of the Supplemental Indenture,
which was effective January 1995, was accounted for as an early extinguishment
of debt. Accordingly, capitalized deferred debt issuance costs related to the
original indenture were written off as of December 31, 1994 and an extraordinary
charge of $4.6 million ($2.8 million net of income tax benefit) was recorded.
Additionally, in the first quarter of 1994, an extraordinary charge of $334,000
($206,000 net of income tax benefit) was recognized as result of the early
extinguishment of various debt instruments using the proceeds from the 1994
Notes.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Historically, the Company has satisfied its acquisition, capital
expenditure and working capital needs primarily through bank financing, public
offerings and private placements of debt and equity securities. Between January
1, 1994 and December 31, 1996, the Company completed the $1.275 billion Senior
Credit Facility (of which $517 million was repaid with proceeds from the
Canadian Sale in March 1997), a $525 million private placement of the 1996
Notes, a $100 million public offering of the 1994 Notes (substantially all of
which were repurchased pursuant to the Tender Offer in July 1996), a $50 million
private placement of Common Stock, a $300 million senior revolving credit
facility (all debt under which was repaid in December 1996), and a $48 million
public equity offering. Because of the capital intensive nature of the solid
waste industry, the Company has used, and expects to continue using amounts in
excess of the cash generated from operations to fund acquisitions and capital
expenditures, including landfill development. In connection with acquisitions,
the Company has assumed or incurred indebtedness with relatively short-term
repayment schedules, thereby increasing its current and medium-term liabilities.
Additionally, operating equipment has been acquired using financing leases which
have short and medium-term maturities. As a result, the Company has periodically
had low levels of working capital or working capital deficits.
 
                                       21
<PAGE>   22
 
     During the years ended December 31, 1994, 1995 and 1996, the Company's cash
flows from operating, investing and financing activities were as follows (in
millions):
 
<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                                  ------------------------------
                                                                  1994       1995        1996
                                                                  -----     ------     ---------
<S>                                                               <C>       <C>        <C>
OPERATING ACTIVITIES:
Net income (loss)...............................................  $(6.0)    $ 12.4     $   (79.4)
Extraordinary loss on early extinguishments of debt.............    4.9         --          22.4
Acquisition related costs.......................................     --        1.5          91.7
Unusual items...................................................    2.1         --           5.7
Non-cash operating expenses(1)..................................   16.9       35.9          36.9
Loss on sale of fixed assets....................................    0.7        0.3           1.9
Increase in operating assets and liabilities, net...............    3.5       (5.7)        (20.3)
                                                                  ------    ------     ---------
  Cash provided by operating activities.........................   22.1       44.4          58.9
                                                                  ------    ------     ---------
INVESTING ACTIVITIES:
Cost of acquisitions, net of cash acquired......................  (49.2)     (18.7)     (1,356.6)
Capital expenditures............................................  (51.8)     (62.7)        (67.5)
Proceeds from sale of fixed assets..............................    1.4        1.1           0.6
Other...........................................................    2.0       (0.4)           --
                                                                  ------    ------     ---------
  Cash used for investing activities............................  (97.6)     (80.7)     (1,423.5)
                                                                  ------    ------     ---------
FINANCING ACTIVITIES:
Net proceeds from sale and redemption of preferred stock and
  common stock..................................................   15.0       30.6          48.1
Net proceeds from long-term debt................................  126.3       66.6       1,809.7
Payments of long-term debt......................................  (59.5)     (55.8)       (445.8)
Other...........................................................   (4.9)      (6.3)         (1.3)
                                                                  ------    ------     ---------
  Cash provided by financing activities.........................   76.9       35.1       1,410.7
                                                                  ------    ------     ---------
Increase (decrease) in cash.....................................  $ 1.4     $ (1.2)    $    46.1
                                                                  ======    ======     =========
</TABLE>
 
---------------
(1) Consists principally of provisions for depreciation and amortization,
    landfill closure and post-closure costs, doubtful accounts, potentially
    unrealizable acquisition costs and deferred income taxes.
 
     As of December 31, 1996, the Company had cash and cash equivalents of $50.1
million. The Company's capital expenditure and working capital requirements have
increased significantly, reflecting the Company's rapid growth by acquisition
and development of revenue producing assets, and will increase further as the
Company continues to pursue its business strategy. During 1996 the Company
completed the Laidlaw Acquisition for total consideration of approximately $1.5
billion consisting of $1.2 billion cash, 14.6 million shares of Common Stock,
warrants to acquire 20.4 million shares of Common Stock, and two junior
subordinated debentures with an aggregate face amount of $318 million and
acquired 21 additional businesses for total consideration of approximately
$126.5 million of which approximately $73.9 million of such consideration was
paid in common stock and $3.6 million was paid in seller notes. Total annualized
revenues of the latter businesses are approximately $78.8 million. Subsequent to
December 31, 1996 the Company purchased 2 operating solid waste landfills with
estimated annual revenues of $26.8 million for an aggregate purchase price of
approximately $58.9 million of which approximately $6.5 million of such
consideration was paid in common stock. For the calendar year 1997, the Company
expects to spend approximately $126 million for capital, closure and
post-closure, and remediation expenditures relating to its landfill operations.
As the Company continues to acquire waste operations in 1997, additional capital
amounts will be required during 1997 for the acquisition of businesses and the
capital expenditure requirements related to those acquired businesses.
 
                                       22
<PAGE>   23
 
     On December 31, 1996, the Company's debt structure consisted of $525
million of the 1996 Notes, amounts outstanding under the Senior Credit Facility
of approximately $975 million, and $110.7 million of Allied Canada Debentures.
In connection with the Canadian Sale, Allied repaid approximately $517 million
of the Senior Credit Facility. After giving effect to the Canadian Sale, there
is aggregate availability under the Senior Credit Facility of $300 million
pursuant to a revolving credit facility to be used for working capital, letters
of credit, acquisitions and other general corporate purposes. No more than $200
million of funded loans (excluding amounts outstanding pursuant to drawn letters
of credit) may be outstanding at one time, of which not more than $100 million
may be used for acquisitions. The indenture relating to the 1996 Notes and the
Senior Credit Facility contain financial and operating covenants and significant
restrictions on the ability of the Company to complete acquisitions, pay
dividends, incur indebtedness, make investments and take certain other corporate
actions. A substantial portion of the Company's available cash will be required
to be applied to service indebtedness, including indebtedness incurred to
finance the Laidlaw Acquisition, which is expected to include approximately $0.7
million for preferred stock dividends and approximately $126 million in annual
principal and interest payments (after giving effect to the payment of $517
million on the Senior Credit Facility after the Canadian Sale).
 
     The Company is also required to provide financial assurances to
governmental agencies under applicable environmental regulations relating to its
landfill operations. These financial assurances include performance bonds,
letters-of-credit and trust deposits required principally to secure the
Company's landfill estimated closure and postclosure obligations and collection
contracts. At December 31, 1996, the Company had outstanding approximately $47.0
million of performance bonds, $99.5 million in letters-of-credit and $2.6
million of trust deposits. During calendar year 1997, the Company expects to be
required to provide approximately $227.6 million in financial assurance
obligations relating to its landfill operations. The Company expects that
financial assurance obligations will increase in the future as it acquires and
expands its activities and that a greater percentage of the financial assurances
will be comprised of letters-of-credit.
 
     The Company has lease facilities (the "Lease Facilities") that allow it to
enter into equipment leases at rates ranging from similar term treasury note
rates plus 2.5% to 3.5% for terms of 36 to 84 months. In addition to equipment
leases outstanding at December 31, 1995 and 1996 of $32.7 million and $45.2
million, respectively, the Company had available lease commitments of $8.5
million and $11.9 million, respectively. The Company intends to enter into
master equipment lease facilities relating to the financing of the acquisition
of trucks and containers.
 
     The Company expects that Subtitle D and other regulations that apply to the
non-hazardous waste disposal industry will require the Company, as well as
others in the industry, to alter operations and to modify or replace existing
facilities. Such expenditures have been and will continue to be substantial.
Further regulatory changes could accelerate expenditures for closure and
post-closure monitoring and obligate the Company to spend sums in addition to
those presently reserved for such purposes. These factors, together with the
other factors discussed above, could substantially increase the Company's
operating costs and impair the Company's ability to invest in its facilities.
 
     The Company's ability to meet future capital expenditure and working
capital requirements, to make scheduled payments of principal of, to pay
interest on, or to refinance its indebtedness, and to fund capital amounts
required for the acquisition of businesses and the expansion of existing
businesses depends on its future performance, which, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond its control. One of the primary factors impacting the
Company's future performance will be its ability to integrate the assets
acquired in the Laidlaw Acquisition after the Canadian Sale, and to reduce
redundancies and excess costs. These operations are significantly larger than
the Company's previous operations and represent a substantial increase in the
scope of the Company's business. Based upon the current level of operations and
anticipated growth, management of the Company believes that available cash flow,
together with available borrowing under the Senior Credit Facility, the Lease
Facilities and other sources of liquidity, will be adequate to meet the
Company's anticipated future requirements for working capital,
letters-of-credit, capital expenditures, scheduled payments of principal of and
interest on debt incurred under the Senior Credit Facility, interest on the 1996
Notes and capital amounts required for acquisitions and expansion. However, the
principal payments at maturity on the 1996 Notes may
 
                                       23
<PAGE>   24
 
require refinancing. There can be no assurance that the Company's business will
generate sufficient cash flow from operations or that future financings will be
available in an amount sufficient to enable the Company to service its
indebtedness or to make necessary capital expenditures, or that any refinancing
would be available on commercially reasonable terms if at all. Additionally,
depending on the timing, amount and structure of any future acquisitions and the
availability of funds under the acquisition facility under the Senior Credit
Facility, the Company may need to raise additional capital to fund the
acquisition and integration of additional solid waste businesses. The Company
may raise such funds through additional bank financings or public or private
offerings of its debt and equity securities. There can be no assurance that the
Company will be able to secure such funding, if necessary, on favorable terms,
if at all. If the Company is not successful in securing such funding, the
Company's ability to pursue its business strategy may be impaired and results of
operations for future periods may be negatively affected.
 
SIGNIFICANT FINANCING EVENTS
 
     In connection with the Laidlaw Acquisition, the Company and Allied Waste
North America, Inc., a wholly owned subsidiary of the Company ("Allied NA")
executed a $1.275 billion Credit Agreement (the "Credit Agreement") among
Goldman Sachs Credit Partners L.P., Credit Suisse and Citibank, N.A.
(collectively the "Agents") (the "Senior Credit Facility"). The Senior Credit
Facility was comprised of (i) a $300 million revolving credit facility; (ii) a
$475 million 5.5 year senior term loan; (iii) a $100 million 6.5 year
Amortization Extended Term Loan AXEL(TM)A; (iv) a $200 million 7.5 year
AXEL(TM)B; and (v) a $200 million 8.5 year AXEL(TM)C. Of the $300 million
available under the revolving credit facility, no more than $200 million may be
outstanding at one time, of which no more than $100 million may be used to
finance permitted acquisitions ("Acquisition Loans"), as defined in the Credit
Agreement, and no more than $150 million may be used for the issuance of standby
letters-of-credit. Borrowings under the revolving credit facility may be used
for permitted acquisitions, repay existing indebtedness or indebtedness assumed
through acquisition and for general corporate purposes. Acquisition Loans
outstanding as of September 2000 become payable quarterly, with a final maturity
of June 2002 and may not be re-borrowed after September 2000. Loans, other than
Acquisition Loans, outstanding under the revolving credit facility are payable
in June 2002. Borrowings under the senior term loan and the AXELs were use to
pay a portion of the cash purchase price of the Laidlaw Acquisition. Amounts
outstanding under the senior term loan and AXELs are payable quarterly,
beginning in June 1997, with final maturities ranging from June 2002 to June
2005. The Credit Agreement contains a number of covenants that, among other
things, require Allied NA to maintain certain financial ratios which commence
with the quarter ended March 31, 1997, and limit Allied NA's ability to make
acquisitions, purchase fixed assets above certain amounts, incur additional
indebtedness and liens, pay dividends except on certain preferred stock, make
optional prepayments on certain subordinated indebtedness, including the 1996
Notes, enter into certain transactions with affiliates or enter into a merger,
consolidation or sale of substantially all of Allied NA's assets. The Senior
Credit Facility is secured by a pledge of the stock of substantially all of
Allied NA's subsidiaries, liens on substantially all personal property and a
negative pledge of assets of Allied NA and its subsidiaries. In addition to the
security granted, the Agents reserve the right to file mortgages on all real
property of Allied NA and its subsidiaries at their sole discretion. The Senior
Credit Facility is guaranteed by the Company and all the subsidiaries of Allied
NA. Allied NA intends on using proceeds from the revolving credit facility to
make strategic acquisitions, repay indebtedness assumed through acquisitions,
and for general corporate purposes. As of December 31, 1996, Allied NA had no
funded loans outstanding and had issued approximately $46 million of standby
letters-of-credit, leaving $200 million available for funded loans and $104
million available for letters-of-credit. In connection with the Canadian Sale,
Allied paid approximately $517 million of the Senior Credit Facility. Payments
were made on a pro rata basis between the term loan and each of the AXEL
traunches as provided by the Credit Agreement.
 
     Also in connection with the Laidlaw Acquisition, Allied NA issued $525
million of 10.25% Senior Subordinated Notes due 2006 in a Rule 144A private
offering. Net proceeds from the sale of the 1996 Notes, after the underwriting
discount and other expenses, were approximately $509 million. The net proceeds
were used to pay a portion of the cash purchase price of the Laidlaw
Acquisition, repay amounts outstanding under the Company's previous $300 million
credit facility with Credit Suisse as agent, fund certain acquisitions and for
general corporate purposes. Allied NA has an obligation to offer fully
registered securities, pursuant to an
 
                                       24
<PAGE>   25
 
exchange offer, that are substantially identical to the 1996 Notes. If Allied NA
fails to effect an exchange offer, or if the registration statement relating to
the exchange offer shall be withdrawn by Allied NA before certain dates, Allied
NA will be subject to penalty interest in varying amounts ranging from 0.25% to
1.0% per annum on the principal amount thereof as liquidated damages to the
holders of the 1996 Notes. On February 28, 1997, Allied NA filed a registration
statement relating to the exchange offer with the Securities and Exchange
Commission on Form S-4. The 1996 Notes cannot be redeemed until December 1,
2001, except under certain circumstances. Prior to December 1, 2001, the 1996
Notes are subject to redemption, at the option of Allied NA, at the greater of
(i) 100% of the principal amount of (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to
maturity on a semiannual basis at a comparable treasury yield plus 75 basis
points, plus in each case accrued and unpaid interest to the date of redemption.
At any time prior to December 1, 1999, up to 33% of principal amount of 1996
Notes will be redeemable, at the option of Allied NA, from the proceeds of one
or more public offerings of capital stock by the Company at a redemption price
of 110.25% of principal amount, plus accrued interest. The 1996 Notes are
guaranteed by the Company and substantially all of Allied NA's subsidiaries, the
guarantees of which are expressly subordinated to the guarantees of Allied NA's
Senior Credit Facility. The 1996 Notes contain several covenants, the most
restrictive of which limits Allied NA and its subsidiaries' ability to incur
additional indebtedness without complying with an interest coverage ratio test.
Other covenants contain limitations on payment of dividends except for certain
preferred stock, issuance of redeemable preferred stock, transactions with
affiliates, granting of liens and security interests, sales of assets and the
use of proceeds from sales of assets, mergers and consolidations, and changes of
control. The covenants do permit Allied NA to incur certain indebtedness
including the Senior Credit Facility, indebtedness issued and/or assumed in
permitted acquisitions and other indebtedness which is limited to a certain
percentage of Allied NA's total assets.
 
     In connection with the Laidlaw Acquisition, Allied Waste Finance (Canada)
Ltd. ("Allied Finance") issued to Laidlaw: (i) the Allied Finance 7% Debenture
(the "Allied Finance 7% Debenture") and (ii) the Allied Finance Zero Coupon
Debenture (the "Allied Finance Zero Coupon Debenture", and together with the
Allied Finance 7% Debenture the "Allied Finance Debentures"). The principal of
the Allied Finance Debentures is payable in December 2008, subject to earlier
prepayment as described below. The Allied Finance 7% Debenture will bear
interest at the fixed rate of 7% per annum payable semi-annually, except for the
first three years during which the interest payments will be deferred. Laidlaw
and the Company have entered into a subscription agreement under which, at the
option of the Company, Laidlaw must subscribe to common stock of the Company in
equal dollar amounts of the interest and principal payments due on the Allied
Finance 7% Debenture. Before its maturity, the Allied Finance Zero Coupon
Debenture will not bear interest. For the first five years after issuance, the
Allied Finance 7% Debenture may not be prepaid by Allied Finance, subject to
change of control provisions described below. Following the fifth anniversary
and until maturity, Allied Finance will have the option to prepay the Allied
Finance 7% Debenture, in whole or in part, at a scheduled discount from the face
amount of the Allied Finance 7% Debenture. The Allied Finance Zero Coupon
Debenture is not pre-payable at the option of Allied Finance prior to it stated
maturity, subject to the change of control provision. Upon a change of control
(as defined in the Allied Finance Debentures), Allied Finance will be obligated
to offer to prepay the Allied Finance Debentures at a predetermined discount to
the face amount of each debenture, respectively. Subject to certain
subordination provisions contained in the Allied Finance Debentures, the
maturity of the Allied Finance Debentures may be accelerated if a default (as
defined in the Allied Finance Debentures) occurs. The Allied Finance Debentures
are unsecured obligations and do not contain any restrictive or financial
covenants. The Allied Finance Debentures are guaranteed by the Company on a
subordinated basis to the Senior Credit Facility and the 1996 Notes.
 
     In connection with Laidlaw Acquisition, the Company issued a warrant to
Laidlaw for the purchase of 20.4 million shares of common stock of the Company
at an exercise price of $8.25 per share (the "Warrant"). The Warrant expires in
December 2008. Laidlaw or any Laidlaw subsidiary may exercise the Warrant only
after the occurrence of a change of control of the Company. Laidlaw is permitted
to transfer the Warrant to any subsidiary of Laidlaw, but not to any other
affiliate of Laidlaw unless the transferee receives the Warrant pursuant to a
pro rata distribution of Warrants to all stockholders of all classes of
Laidlaw's outstanding capital stock. Laidlaw is permitted to transfer the
Warrant to anyone other than one of its affiliates, but only if, after
 
                                       25
<PAGE>   26
 
the transfer, the transferee and its affiliates beneficially own 9% or less of
the total number of shares of common stock of the Company then outstanding.
 
     In January 1994, the Company issued $100 million of 10 3/4% senior
subordinated notes (the "1994 Notes"). The net proceeds from the sale of the
1994 Notes after underwriting discount and other expenses, were approximately
$95 million. In July 1996, the Company completed the Tender Offer and purchased
substantially all of its 1994 Notes at the redemption price of $1,157.50 per
$1,000 principal amount. In connection with the Tender Offer, the Company
recognized an extraordinary charge of $18.4 million ($11.0 million net of income
tax benefit), in the third quarter of 1996. The Company also received a consent
from a majority of the holders of the 1994 Notes to eliminate all substantive
financial covenants associated with the remaining 1994 Notes.
 
     Simultaneously with the Tender Offer in July 1996, the Company completed a
new $300 million revolving credit facility which was extinguished on December
30, 1996 in connection with the financing of the Laidlaw Acquisition. The
Company recognized an extraordinary charge of $4.0 million ($2.4 million net of
income tax benefit), in the fourth quarter.
 
     On January 24, 1996, the Company completed a public offering of its Common
Stock. It issued 7.6 million shares for approximately $48 million net of $5.2
million in underwriter discounts, commissions and offering costs. The net
proceeds from the offering were used to repay amounts outstanding under the
Company's outstanding credit agreement and for other general corporate purposes.
 
     During 1995, the Company offered to holders of all of its Series D, 9% and
$90 convertible preferred stock and its 6% Convertible Subordinated notes an
inducement to exercise their conversion option to receive Allied Common Stock.
The inducement consisted of the payment of dividends and interest that the
holders of these securities would have received from the date of conversion
through the first call or redemption date of each security. In total, 7,757,056
shares of Common Stock were issued upon conversion. Substantially all of the
Series D preferred stock and 6% Convertible Subordinated notes were converted,
all but 5,029 shares of the 9% preferred stock was converted and all of the $90
preferred stock was converted. Accordingly, the Company's annual dividend and
interest requirements decreased by approximately $2.7 million and $0.8 million,
respectively. The inducement resulted in a 1995 conversion fee charge of
approximately $2.2 million paid in 285,000 shares of Common Stock.
 
     On January 30, 1995, the Company obtained stockholder approval of the
issuance of 11,709,602 shares of Common Stock to TPG and an affiliate, for $50
million (less approximately $5.0 million of direct offering costs and other
costs related to an amendment to the 1994 Notes).
 
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
 
     This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" includes forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended ("Forward Looking Statements"). All
statements other than statements of historical fact included in this section,
are Forward Looking Statements. Although the Company believes that the
expectations reflected in such Forward Looking Statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Generally, these statements relate to business plans or strategies, projected or
anticipated benefits or other consequences of such plans or strategies, number
of acquisitions and projected or anticipated benefits from acquisitions made by
or to be made by the Company, or projections involving anticipated revenues,
earnings, levels of capital expenditures or other aspects of operating results.
All phases of the Company operations are subject to a number of uncertainties,
risks and other influences, many of which are outside the control of the Company
and any one of which, or a combination of which, could materially affect the
results of the Company's operations and whether Forward Looking Statements made
by the Company ultimately prove to be accurate. Such important factors
("Important Factors") that could cause actual results to differ materially from
the Company's expectations are disclosed in this section and elsewhere in this
report. All subsequent written and oral Forward Looking Statements attributable
to the Company or persons acting on its behalf are expressly
 
                                       26
<PAGE>   27
 
qualified in their entirety by the Important Factors described below that could
cause actual results to differ from the Company's expectations.
 
     Competition.  The solid waste collection and disposal business is highly
competitive. The Company competes with numerous waste management companies, a
number of which have significantly larger operations and greater resources than
the Company. The Company also competes with those counties and municipalities
that maintain their own waste collection and disposal operations. Forward
Looking Statements assume that the Company will be able to effectively compete
with the other waste management companies and municipalities.
 
     Acquisition and Internal Development Targets.  The Company's ongoing
acquisition program is a key element of its expansion strategy. In addition,
obtaining landfill and transfer station permits has become increasingly
difficult, time consuming and expensive. There can be no assurance, however,
that the Company will succeed in obtaining such permits, or in locating
appropriate solid waste businesses at price levels that the Company considers
appropriate and that reflect historical prices. The Forward Looking Statements
assume the Company will be successful in obtaining permits and that a number of
acquisition candidates and landfill properties sufficient to meet the Company's
goals will be available for purchase and that the Company will be able to
complete the acquisition at prices that the Company has experienced in the past
two years.
 
     Integration.  The Company's financial position and results of operations
depend to a large extent on the integration of recently acquired businesses. The
Forward Looking Statements assume that integration of acquired companies,
including the internalization of waste, will require from zero to nine months
from the date the acquisition closes. Failure to achieve effective integration
in the anticipated time period or at all could have an adverse effect on the
Company's future results of operations.
 
     Ongoing Capital Requirements.  To the extent that internally generated cash
and cash available under the Company's existing credit facilities are not
sufficient to provide the cash required for future operations, capital
expenditures, acquisitions, debt repayment obligations and/or financial
assurance obligations, the Company will require additional equity and/or debt
financing in order to provide such cash. The Company has incurred significant
debt obligations in the last two years, which entail substantial debt service
costs. The Forward Looking Statements assume that the Company will be able to
raise the capital necessary to finance such requirements at interest rates that
are as good as or better than those it is currently experiencing. There can be
no assurance, however, that such financing will be available or, if available,
will be available on terms satisfactory to the Company.
 
     Economic Conditions.  The Company's business is affected by general
economic conditions. The Forward Looking Statements assume that the Company will
be able to achieve certain volume and price growth estimates which are not
impacted by an economic downturn or other factors outside of its control. (As
revenue of the Company continues to grow it is likely that the rates of internal
growth will reflect growth rates which are less than those experienced in 1995
and 1996.) There can be no assurance that an economic downturn or other factors
outside of its control will not result in a reduction in the estimated rates of
growth or a decrease in the volume of waste being collected or disposed of by
the Company and/or in the price that the Company charges for its services.
 
     Weather Conditions.  Protracted periods of inclement weather may adversely
affect the Company's operations by interfering with collection and landfill
operations, delaying the development of landfill capacity and/or reducing the
volume of waste generated by the Company's customers. In addition, particularly
harsh weather conditions may result in the temporary suspension of certain of
the Company's operations. The Forward Looking Statements do not assume that such
weather conditions will occur which might require the Company to dispose of
waste at alternate facilities and at higher costs.
 
     Dependence on Senior Management.  The Company is highly dependent upon its
senior management team. In addition, as the Company continues to grow, its
requirements for operations management with waste industry experience will also
increase. The availability of such experienced management is not known. The
Forward Looking Statements assume that experienced management will be available
when needed by the Company at compensation levels that are within industry
norms. The loss of the services of any member of
 
                                       27
<PAGE>   28
 
senior management or the inability to hire experienced operations management
could have a material adverse effect on the Company.
 
     Influence of Government Regulation.  The Company's operations are subject
to and substantially affected by extensive federal, state and local laws,
regulations, orders and permits, which govern environmental protection, health
and safety, zoning and other matters. These regulations may impose restrictions
on operations that could adversely affect the Company's results, such as, but
not limited to, restrictions on the expansion of disposal facilities,
restrictions on or the banning of disposal of out-of-state waste or certain
categories of waste or mandates regarding the disposal of solid waste. Because
of heightened public concern, companies in the waste management business may
become subject to judicial and administrative proceedings involving federal,
state or local agencies. These governmental agencies may seek to impose fines or
to revoke or deny renewal of operating permits or licenses for violations of
environmental laws or regulations or to require remediation of environmental
problems at sites or nearby properties, or resulting from transportation or
predecessors' transpiration and collection operations, all of which could have a
material adverse effect on the Company. Liability may also arise from actions
brought by individuals or community groups in connection with the permitting or
licensing of operations, any alleged violations of such permits and licenses or
other matters. The Forward Looking Statements assume that there will be no
materially negative impact on its operations due to government regulation.
 
     Potential Environmental Liability.  The Company may incur liabilities for
the deterioration of the environment as a result of its operations. Any
substantial liability for environmental damage could materially adversely affect
the operating results and financial condition of the Company. Due to the limited
nature of the Company's insurance coverage of environmental liability, if the
Company were to incur a liability for environmental damage, its business
liquidity, financial position or results of operations could be materially
adversely affected. The Forward Looking Statements assume that the Company will
not incur any material environmental liabilities other than those for which a
provision has been recorded in the consolidated financial statements and
disclosed in the notes thereto.
 
INFLATION AND PREVAILING ECONOMIC CONDITIONS
 
     To date, inflation has not had a significant impact on the Company's
operations. Consistent with industry practice, most of the Company's contracts
provide for a pass through of certain costs, including increases in landfill
tipping fees and, in some cases, fuel costs. The Company therefore, believes it
should be able to implement price increases sufficient to offset most cost
increases resulting from inflation. However, competitive factors may require the
Company to absorb cost increases, resulting from inflation. The Company is
unable to determine the future impact of a sustained economic slowdown.
 
SEASONALITY
 
     The Company believes that its collection and landfill operations can be
adversely affected by protracted periods of inclement weather which could delay
the development of landfill capacity or transfer of waste and/or reduce the
volume of waste generated.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
        Report of Independent Accountants.
 
        Consolidated Balance Sheets -- December 31, 1995 and 1996.
 
        Consolidated Statements of Operations for the Three Years Ended December
31, 1996.
 
        Consolidated Statements of Stockholders' Equity for the Three Years
Ended December 31, 1996.
 
        Consolidated Statements of Cash Flows for the Three Years Ended December
31, 1996.
 
        Notes to Consolidated Financial Statements.
 
                                       28
<PAGE>   29
 
To Allied Waste Industries, Inc.
 
     We have audited the accompanying consolidated balance sheets of Allied
Waste Industries, Inc., (a Delaware corporation) and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the three years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Allied Waste Industries,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
 
                                          ARTHUR ANDERSEN LLP
 
Phoenix, Arizona,
March 26, 1997.
 
                                       29
<PAGE>   30
 
                         ALLIED WASTE INDUSTRIES, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                         ---------------------
                                                                           1995        1996
                                                                         --------   ----------
<S>                                                                      <C>        <C>
ASSETS
Current Assets --
  Cash and cash equivalents............................................  $  4,016   $   50,094
  Accounts receivable, net of allowance of $2,502 and $5,806...........    32,172       88,522
  Prepaid and other current assets.....................................     5,369        9,860
  Inventories..........................................................     1,960        6,941
  Assets held for sale.................................................        --      524,716
  Deferred income taxes................................................     2,669        5,809
                                                                         --------   ----------
          Total current assets.........................................    46,186      685,942
Property and equipment, net............................................   309,455      730,572
Goodwill, net..........................................................    88,429      856,108
Other assets...........................................................    14,636       44,927
                                                                         --------   ----------
          Total assets.................................................  $458,706   $2,317,549
                                                                         ========   ==========
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
  Current portion of long-term debt to related parties.................  $    121   $      136
  Current portion of long-term debt to unrelated parties...............    37,460      532,811
  Accounts payable.....................................................    23,750       56,186
  Accrued interest.....................................................     5,995        4,910
  Other accrued liabilities............................................    14,028       77,458
  Unearned income......................................................     9,273       11,185
                                                                         --------   ----------
          Total current liabilities....................................    90,627      682,686
Long-term debt to related parties, less current portion................     1,862      112,473
Long-term debt to unrelated parties, less current portion..............   176,732    1,034,330
Convertible subordinated debt, net of discount, less current portion...     7,779        1,706
Deferred income taxes..................................................    25,649       53,095
Accrued closure, post-closure and environmental costs..................    10,530      135,604
Deferred royalties and other long-term obligations.....................     9,222       22,097
Commitments and contingencies
Stockholders' Equity --
  Preferred stock, aggregate liquidation preference of $15,052 and
     $9,907............................................................         2            1
  Common stock.........................................................       474          747
  Additional paid-in capital...........................................   134,326      352,589
  Retained earnings (deficit)..........................................     1,503      (77,779)
                                                                         --------   ----------
          Total stockholders' equity...................................   136,305      275,558
                                                                         --------   ----------
          Total liabilities and stockholders' equity...................  $458,706   $2,317,549
                                                                         ========   ==========
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                            of these balance sheets.
 
                                       30
<PAGE>   31
 
                         ALLIED WASTE INDUSTRIES, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
        (IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND NUMBER OF SHARES)
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                             ------------------------------------
                                                                1994         1995         1996
                                                             ----------   ----------   ----------
<S>                                                          <C>          <C>          <C>
Revenues...................................................  $  158,354   $  217,544   $  246,679
Cost of operations.........................................      98,086      120,738      138,437
Selling, general and administrative expenses...............      32,564       36,708       38,602
Depreciation and amortization..............................      16,931       25,779       31,470
Acquisition related costs..................................          --        1,531       91,693
Unusual items..............................................       2,100           --        5,744
                                                             ----------   ----------   ----------
  Operating income (loss)..................................       8,673       32,788      (59,267)
Interest income............................................      (1,073)        (716)      (2,110)
Interest expense...........................................      13,441       11,372        9,257
                                                             ----------   ----------   ----------
  Income (loss) before income taxes........................      (3,695)      22,132      (66,414)
Income tax expense (benefit)...............................        (689)       9,751         (399)
                                                             ----------   ----------   ----------
  Income (loss) before extraordinary loss..................      (3,006)      12,381      (66,015)
Extraordinary loss due to early extinguishment of debt, net
  of income tax benefit....................................      (3,029)          --      (13,412)
                                                             ----------   ----------   ----------
  Net income (loss)........................................      (6,035)      12,381      (79,427)
Dividends on preferred stock...............................      (3,773)      (4,070)      (1,073)
Conversion fee on equity securities converted..............          --       (2,151)          --
                                                             ----------   ----------   ----------
  Net income (loss) to common shareholders.................  $   (9,808)  $    6,160   $  (80,500)
                                                             ==========   ==========   ==========
Net income (loss) per share:
  Net income (loss) before extraordinary loss..............  $    (0.27)  $     0.15   $    (1.15)
  Extraordinary loss.......................................       (0.12)          --        (0.23)
                                                             ----------   ----------   ----------
  Net income (loss)........................................  $    (0.39)  $     0.15   $    (1.38)
                                                             ==========   ==========   ==========
Weighted average common and common equivalent shares
  outstanding..............................................  25,028,107   40,046,459   58,422,581
                                                             ==========   ==========   ==========
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.
 
                                       31
<PAGE>   32
 
                         ALLIED WASTE INDUSTRIES, INC.
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                            ADDITIONAL   RETAINED        TOTAL
                                       PREFERRED   COMMON    PAID-IN     EARNINGS    STOCKHOLDERS'
                                         STOCK     STOCK     CAPITAL     (DEFICIT)      EQUITY
                                       ---------   ------   ----------   ---------   -------------
<S>                                    <C>         <C>      <C>          <C>         <C>
Balance, December 31, 1993...........    $  46      $218     $ 64,019    $  5,995      $  70,278
  Common stock issued, net...........       --        33        8,123          --          8,156
  Stock options exercised............       --        --           87          --             87
  7% Cumulative Convertible preferred
     stock issued, net...............        1        --        3,490          --          3,491
  Series E Cumulative Convertible
     preferred stock issued, net.....       --        --       15,000          --         15,000
  Series D and $90 Cumulative
     Convertible preferred stock and
     convertible notes converted.....       (3)        1        5,930          --          5,928
  Dividends declared on preferred
     stock...........................       --        --       (3,773)         --         (3,773)
  Equity transactions pooled
     companies.......................       --        --         (141)     (3,019)        (3,160)
  Net loss...........................       --        --           --      (6,035)        (6,035)
                                          ----      ----     --------    ---------      --------
Balance December 31, 1994............    $  44      $252     $ 92,735    $ (3,059)     $  89,972
  Common stock issued, net...........       --        90       33,006          --         33,096
  Stock options and warrants
     exercised.......................       --         8        2,048          --          2,056
  Series C, Series D, 9% Cumulative
     Convertible, and $90 Cumulative
     Convertible preferred stock and
     convertible notes converted.....      (42)      124        6,523          --          6,605
  Dividends declared on preferred
     stock...........................       --        --           --      (4,070)        (4,070)
  Conversion fee on equity securities
     converted.......................       --        --           --      (2,151)        (2,151)
  Equity transactions of pooled
     companies.......................       --        --           14      (1,598)        (1,584)
  Net income.........................       --        --           --      12,381         12,381
                                          ----      ----     --------    ---------      --------
Balance December 31, 1995............        2       474      134,326       1,503        136,305
  Common stock issued, net...........       --       242      162,535          --        162,777
  Warrants issued....................       --        --       49,000          --         49,000
  Stock options and warrants
     exercised.......................       --        10        2,336          --          2,346
  9% Cumulative Convertible preferred
     stock and convertible notes
     converted ......................       (1)       21        5,465          --          5,485
  Dividends declared on preferred
     stock...........................       --        --       (1,073)         --         (1,073)
  Equity transactions pooled
     companies.......................       --        --           --         145            145
  Net loss...........................       --        --           --     (79,427)       (79,427)
                                          ----      ----     --------    ---------      --------
Balance December 31, 1996............    $   1      $747     $352,589    $(77,779)     $ 275,558
                                          ====      ====     ========    =========      ========
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.
 
                                       32
<PAGE>   33
 
                         ALLIED WASTE INDUSTRIES, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                               ---------------------------------
                                                                 1994       1995        1996
                                                               --------   --------   -----------
<S>                                                            <C>        <C>        <C>
Operating Activities --
  Net income (loss)..........................................  $ (6,035)  $ 12,381   $   (79,427)
  Adjustments to reconcile net income (loss) to cash provided
     by operating activities --
  Extraordinary loss on early extinguishment of debt.........     4,929         --        22,352
  Provisions for:
     Depreciation and amortization...........................    16,931     25,779        31,470
     Closure and post-closure costs..........................       850        711         1,300
     Acquisition related costs...............................        --      1,531        91,693
     Unusual items...........................................     2,100         --         5,744
     Doubtful accounts.......................................     1,768      1,994         2,388
     Deferred income taxes...................................    (2,679)     5,683         1,700
     Loss on sale of fixed assets............................       762        291         1,941
     Write-off intangible assets.............................        --        237            --
  Change in operating assets and liabilities, excluding the
     effects of purchase acquisitions --
     Accounts receivable, prepaid expenses, inventories and
       other.................................................   (14,816)    (2,123)        7,032
     Accounts payable, accrued liabilities, unearned income,
       closure and post-closure costs and other..............    18,305     (2,047)      (27,283)
                                                               --------   --------   -----------
Cash provided by operating activities........................    22,115     44,437        58,910
                                                               --------   --------   -----------
Investing Activities --
  Cost of acquisitions, net of cash acquired.................   (49,160)   (18,715)   (1,356,639)
  Capital expenditures.......................................   (51,773)   (62,736)      (67,515)
  Proceeds from sale of fixed assets.........................     1,386      1,057           650
  Increase in cash value of life insurance policies..........      (243)      (272)           --
  Change in deferred acquisition costs and notes
     receivable..............................................     2,150        (85)           (9)
                                                               --------   --------   -----------
Cash used for investing activities...........................   (97,640)   (80,751)   (1,423,513)
                                                               --------   --------   -----------
Financing activities --
  Net proceeds from sale and redemption of preferred stock...    14,926       (316)           --
  Net proceeds from sale of common stock, stock options and
     warrants................................................        83     30,911        48,119
  Proceeds from long-term debt, net of issuance costs........   126,260     66,573     1,809,737
  Repayments of long-term debt...............................   (59,472)   (55,839)     (445,767)
  Other long-term obligations................................     1,390     (1,040)         (365)
  Dividends paid.............................................    (3,091)    (3,598)       (1,188)
  Equity transactions of pooled companies....................    (3,160)    (1,584)          145
                                                               --------   --------   -----------
Cash provided by financing activities........................    76,936     35,107     1,410,681
                                                               --------   --------   -----------
Increase (decrease) in cash and cash equivalents.............     1,411     (1,207)       46,078
Cash and cash equivalents, beginning of period...............     3,812      5,223         4,016
                                                               --------   --------   -----------
Cash and cash equivalents, end of period.....................  $  5,223   $  4,016   $    50,094
                                                               ========   ========   ===========
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.
 
                                       33
<PAGE>   34
 
                         ALLIED WASTE INDUSTRIES, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Allied Waste Industries, Inc. ("Allied" or the "Company") is incorporated
under the laws of the State of Delaware. Allied is a solid waste management
company providing non-hazardous waste collection, transfer, recycling and
disposal services in selected markets.
 
  Principles of consolidation and presentation --
 
     The consolidated financial statements include the accounts of Allied and
its subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. The consolidated financial statements and
accompanying notes have also been restated to reflect acquisitions accounted for
as poolings-of-interests (See Note 2).
 
     Certain reclassifications have been made in prior period financial
statements to conform to the current presentation.
 
  Cash and cash equivalents --
 
     Cash equivalents are investments with original maturities less than ninety
days. Such instruments are stated at quoted market prices.
 
  Concentration of credit risk --
 
     Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and trade
receivables. The Company places its cash and cash equivalents with high quality
financial institutions and limits the amount of credit exposure to any one
financial institution.
 
     The Company provides services to commercial and residential customers in
the United States. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base. The Company performs ongoing credit evaluations of its
customers, but does not require collateral to support customer receivables. The
Company establishes an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends and other
information.
 
  Inventory --
 
     Inventory is stated at the lower of cost (first-in, first-out method) or
market and consists principally of equipment parts, materials and supplies.
 
  Property and equipment --
 
     Property and equipment are recorded at cost, which includes interest to
finance the acquisition and construction of major capital additions during the
development phase, primarily landfills and transfer stations. Interest
capitalized in the three years ended December 31, 1996 was $3,517,000,
$11,088,000 and $12,970,000, respectively. Depreciation is provided on the
straight-line method over the estimated useful lives of buildings (30-40 years),
vehicles and equipment (3-15 years), containers and compactors (5-10 years) and
furniture and office equipment (3-8 years). The cost of landfill airspace,
including original acquisition cost and incurred and projected landfill
preparation costs, is amortized based on tonnage as landfill airspace is
consumed. Management periodically reviews the realizability of its investment in
operating landfills. Should events and circumstances indicate that any of the
Company's landfills be reviewed for possible impairment, such review for
recoverability will be made in accordance with Emerging Issues Task Force
Discussion Issue ("EITF") 95-23. The EITF outlines how cash flows for
environmental exit costs should be determined and measured.
 
                                       34
<PAGE>   35
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs which do not improve assets or extend
their useful lives are charged to expense as incurred. For the three years ended
December 31, 1996, maintenance and repair expenses charged to cost of operations
were $12,917,000, $14,741,000 and $14,750,000, respectively. When property is
retired, the related cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized.
 
  Goodwill --
 
     Goodwill is the cost in excess of fair value of identifiable assets of
acquired businesses and has been amortized on a straight-line basis over 40
years. The Company continually evaluates whether events and circumstances have
occurred subsequent to its acquisition, that indicate the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the related
business segment's discounted future cash flows over the remaining life of the
goodwill in measuring whether the goodwill is recoverable. Goodwill amortization
of $2,203,000, $3,679,000 and $2,247,000 is included in depreciation and
amortization for the three years in the period ended December 31, 1996,
respectively. Accumulated goodwill amortization was $9,631,000 and $11,878,000
at December 31, 1995 and 1996, respectively.
 
  Other assets --
 
     Other assets includes notes receivable, landfill closure deposits, deferred
charges and miscellaneous non-current assets. Deferred charges include costs
incurred to acquire businesses and to obtain equity and debt financing. Upon
consummation of an acquisition, deferred costs relating to acquired businesses
accounted for as purchases are allocated to goodwill or landfill airspace while
costs relating to acquired businesses accounted for as poolings-of-interests are
expensed. Direct costs related to acquisitions under evaluation are capitalized
and reviewed for realization on a periodic basis. These costs are expensed when
management determines that the capitalized costs provide no future benefit. Upon
funding of equity and debt offerings, deferred costs are charged to additional
paid-in capital or are capitalized as debt issuance costs and amortized using
the interest method over the life of the related debt. Miscellaneous assets
include consulting and non-competition agreements which are being amortized in
accordance with the terms of the respective agreements and contracts.
 
  Accrued closure and post-closure costs --
 
     Accrued closure and post-closure costs represent an estimate of the current
value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned and/or
operated by the Company. Site specific closure and post-closure engineering cost
estimates are prepared annually for landfills owned and/or operated by the
Company for which it is responsible for closure and post-closure. The present
value of estimated future costs are accrued based on accepted tonnage as
landfill airspace is consumed. Discounting of future costs is applied where the
Company believes that both the amounts and timing of related payments are
reliably determinable. The Company periodically updates its estimates of future
closure and post-closure costs. The impact of changes which are determined to be
changes in estimates are accounted for on a prospective basis.
 
  Environmental costs --
 
     Allied accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study. Such
accruals are adjusted as further information develops or circumstances change.
Costs of future expenditures for environmental
 
                                       35
<PAGE>   36
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
remediation obligations are not discounted to their present value. Recoveries of
environmental remediation costs from other parties are recorded as assets when
their receipts are deemed probable.
 
  Deferred royalties and other long-term obligations --
 
     Other long-term obligations include non-competition agreements with former
owners of acquired companies and deferred royalty obligations. Guaranteed
minimum royalty obligations are recorded upon acquisition of the related asset
whereas royalty obligations dependent upon future waste accepted at landfills
are expensed as earned.
 
  Revenue --
 
     Advance billings are recorded as unearned income, and revenue is recognized
as income when services are provided.
 
  Acquisition related costs --
 
     In connection with the Laidlaw Acquisition, the Company incurred
approximately $84.6 million in charges primarily associated with the
acquisition, which include approximately $51.5 million of environmental related
matters, $18.4 million of asset impairments and abandonments, and $14.7 million
of acquisition liabilities, of which $2.0 million relates to litigation matters,
$5.4 million relates to relocation and transition costs and bonuses, $3.8
million relates to taxes, claims and assessments and other integration costs,
and $3.5 million relates to acquired accounts receivable considered
uncollectible.
 
     In connection with the Laidlaw Acquisition, Allied engaged an independent
environmental consulting firm to assist in conducting an environmental
assessment of the real property owned by the acquired subsidiaries or
third-parties, and properties under the management of the acquired companies.
Several contaminated landfills and other properties have been identified, two of
which are owned by subsidiaries of the Company, that would require those
subsidiaries to incur costs for incremental closure and post-closure measures,
remediation activities and litigation costs. The costs of performing the
investigation, design, remediation and the allocation of responsibility to the
subsidiaries of Allied vary significantly between sites. Based on information
available to the Company, Allied recorded a provision of $51.5 million for
environmental matters, including closure and post-closure costs, in the 1996
statement of operations and expects these amounts to be disbursed over the next
30 years.
 
     As a result of the Laidlaw Acquisition, Allied increased its revenue base
by approximately 400% and entered into 14 new markets where it believes that it
can execute its operating strategy. In connection with the significant increase
in size and the redirection of its strategic operating emphasis, Allied
determined that certain asset values have become impaired as they will provide
no further benefit to Company. Included among the asset impairments are costs of
$10.8 million related to over 50 noncompetition agreements in several markets
where the counter party no longer poses a significant threat due to Allied's
increased size, costs of $4.8 million for discontinued facilities and costs of
$2.8 million for market development activities no longer being pursued.
 
     Costs of $7.1 million were incurred in 1996 compared to $1.5 million in
1995 for transaction and integration costs directly related to acquisitions
accounted for using the pooling-of-interests method for business combinations.
 
  Unusual items --
 
     In December 1996 the Company recorded $5.7 million in unusual charges
including $2.0 million in connection with the ongoing investigation and
remediation of the Company's Norfolk landfill and $3.7 million of other
non-recurring valuation adjustments.
 
                                       36
<PAGE>   37
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Extraordinary loss --
 
     On July 31, 1996, the Company completed a tender offer (the "Tender Offer")
and purchased, substantially all of its $100 million 12% Senior Subordinated
Notes due 2004 (the "1994 Notes") at the redemption price of $1,157.50 per
$1,000 note. An extraordinary charge to earnings related to the Tender Offer of
approximately $18.4 million ($11.0 million net of income tax benefit) was
charged to earnings in the third quarter of 1996. The Company also received a
consent from a majority of the holders of the 1994 Notes to eliminate all
substantive financial covenants associated with the remaining 1994 Notes.
 
     In addition, in December of 1996, the Company refinanced its $300 million
senior revolving credit facility with the proceeds from the Senior Credit
Facility related to the Laidlaw Acquisition and recognized an extraordinary
charge of approximately $4.0 million ($2.4 million net of income tax benefit).
 
     In connection with the Securities Purchase Agreement between the Company
and TPG dated October 27, 1994, as amended, the Company solicited and obtained
consents from a majority of the holders of its 10.75% 1994 Notes causing
modifications to the indenture agreement and the execution of a supplemental
indenture (the "Supplemental Indenture"). Among other things the Supplemental
Indenture increased the Company's restricted borrowing capacity (with certain
limitations) under current and future revolving credit agreements and lease
lines from a total of $35 million to $120 million, deleted certain borrowing
restrictions, changed certain financial ratio covenants and increased the per
annum rate of interest from 10.75% to 12.0%. The execution of the Supplemental
Indenture, which was effective January 30, 1995, was accounted for as an early
extinguishment of debt. Accordingly, capitalized deferred debt issuance costs
related to the original indenture were written off as of December 31, 1994 and
an extraordinary charge of $4,595,000, ($2,823,000 net of income tax benefit),
was recorded. Additionally, in the first quarter of 1994, an extraordinary
charge of $334,000, ($206,000 net of income tax benefit) was recognized as a
result of the early extinguishment of various debt instruments using the
proceeds from the $100 million 1994 Notes.
 
  Use of estimates --
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Final settlement amounts could differ from those estimates.
 
  Fair value of financial instruments --
 
     The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value
of Financial Instruments". The Company's Financial Instruments as defined by
SFAS No. 107 include cash, money market funds, accounts receivable, accounts
payable, long-term debt and convertible subordinated debt. The estimated fair
value amounts have been determined by the Company at December 31, 1996 using
available market information and valuation methodologies described below.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates may not be indicative of the
amounts that could be realized in a current market exchange. The use of
different market assumptions or valuation methodologies could have a material
effect on the estimated fair value amounts.
 
     The carrying value of cash, money market funds, accounts receivable and
accounts payable approximate fair values due to the short-term maturities of
these instruments.
 
     The Company's 1996 Notes (see Note 5) had a fair value of $548.6 million at
December 31, 1996 based upon quoted market prices. The convertible subordinated
debt has a fair value of approximately $2.4 million
 
                                       37
<PAGE>   38
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
based upon the conversion features of the related instruments and market price
of the Company's common stock at December 31, 1996. The fair value of the Zero
Coupon Debenture and 7% Debenture (see Note 5) approximates book value at
December 31, 1996 due to the short passage of time since their origination.
Management believes the carrying value of all remaining long-term debt
approximates fair value.
 
  Stock-based compensation plans --
 
     The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, ("APB No. 25"). Effective in January
1, 1996, the Company adopted the disclosure option of SFAS No. 123, "Accounting
for Stock-based Compensation." SFAS No. 123 requires that companies which do not
elect to account for stock-based compensation as prescribed by the statement,
shall disclose the pro forma effects on earnings and earnings per share as if
SFAS No. 123 had been adopted. Additionally, certain other disclosures with
respect to stock compensation and the related assumptions are used to determine
the pro forma effects of SFAS No. 123.
 
  Accounting pronouncements not yet required to be adopted --
 
     In March 1997 the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 128 "Earnings Per Share". The new statement is effective for
fiscal years ending after December 15, 1997 and will require restatement of
prior years' earnings per share. The Company has not quantified the effect of
applying the new statement.
 
  Statements of cash flows --
 
     The supplemental cash flow disclosures and non-cash transactions for the
three years ended December 31, 1996 are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                               --------------------------------
                                                                1994        1995         1996
                                                               -------     -------     --------
<S>                                                            <C>         <C>         <C>
Supplemental Disclosures --
  Interest paid..............................................  $12,229     $20,922     $ 26,667
  Income taxes paid..........................................      980       2,942        6,271
Non-Cash Transactions --
  Common stock, preferred stock or warrants issued in
     acquisitions or contributed to 401(k) plan..............  $11,426     $   754     $164,764
  Capital leases and debt obligations for the purchase of
     property and equipment..................................   13,311      21,659       19,094
  Debt and liabilities incurred or assumed in acquisitions...   23,344      14,434      213,082
  Debt converted to common stock or preferred stock..........    5,928       6,802        5,485
  Capitalized interest.......................................    3,517      11,088       12,970
  Dividends and interest paid, and conversion fee on debt and
     equity securities converted paid in common stock........       --       3,490           --
</TABLE>
 
2.  BUSINESS COMBINATIONS
 
     Acquisitions accounted for as purchases are reflected in the results of
operations since the date of purchase in Allied's consolidated financial
statements. The results of operations for acquisitions accounted for as
poolings-of-interests are included in Allied's consolidated financial statements
for all periods presented. Often the final determination of the cost, and the
allocation thereof, of certain of the Company's acquisitions is subject to
resolution of certain contingencies. Once such contingencies are achieved, the
purchase price is
 
                                       38
<PAGE>   39
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
adjusted. Shares issued in connection with business acquisitions have been
valued taking into consideration certain restrictions placed on the stock.
 
     On December 30, 1996, the Company completed the acquisition of
substantially all of the non-hazardous solid waste management business conducted
by Laidlaw in the United States and Canada, for total consideration of
approximately $1.5 billion comprised of $1.2 billion cash, 14.6 million shares
of Common Stock, a warrant to acquire 20.4 million shares of Common Stock
(valued based on an appraisal by an independent investment banking firm), and a
zero percent and a 7% junior subordinated debenture. The cash consideration was
financed from the proceeds of the Senior Credit Facility and the sale of the
1996 Notes (see Note 5).
 
     On March 16, 1997, pursuant to a share purchase agreement with USA Waste
Services, Inc. ("USA Waste"), the Company sold to USA Waste (the "Canadian
Sale") all of the Canadian non-hazardous solid waste management operations of
the Company acquired from Laidlaw for approximately $518 million. The Company
used the proceeds from the Canadian Sale to pay down approximately $517 million
in debt under the Senior Credit Facility.
 
     The following table reflects the allocation of purchase price for the
Laidlaw Acquisition, giving effect to the Canadian Sale, (in thousands):
 
<TABLE>
        <S>                                                                <C>
        Current assets.................................................    $  70,137
        Property and equipment.........................................      353,793
        Goodwill.......................................................      757,200
        Non-current assets.............................................        2,550
        Current liabilities............................................      (88,759)
        Long-term debt.................................................       (4,019)
        Other long-term obligations....................................     (106,648)
                                                                           ----------
          Total net assets.............................................    $ 984,254
                                                                           ==========
</TABLE>
 
     The following table summarizes acquisitions for the three years ended
December 31, 1996, excluding the Laidlaw Acquisition:
 
<TABLE>
<CAPTION>
                                                      1994            1995            1996
                                                    ---------       ---------       ---------
    <S>                                             <C>             <C>             <C>
    Number of businesses acquired accounted
      for as:
      Poolings-of-interests...................             --               5               5
      Purchases...............................             21              13              16
    Total consideration (in millions).........      $    99.5(1)    $    45.3(2)    $   126.5
    Shares of stock issued:
      Common stock............................      2,897,858       4,000,040(3)    8,924,374(4)
      Preferred stock.........................          9,982              --              --
</TABLE>
 
---------------
(1) Includes $11.7 million paid for two landfills under development.
 
(2) Includes $9.9 million paid for the acquisition of an operating landfill.
 
(3) Includes 23,244 shares of contingently issuable common stock.
 
(4) Includes 774,794 shares of contingently issuable common stock.
 
                                       39
<PAGE>   40
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Revenues and net income have been restated for acquisitions accounted for
as poolings-of-interests as presented in the following table (in thousands):
 
<TABLE>
<CAPTION>
                                                            ALLIED
                                                            BEFORE
                                                           POOLING          1996       ALLIED, AS
                                                         ACQUISITIONS     POOLINGS      RESTATED
                                                         ------------     --------     ----------
    <S>                                                  <C>              <C>          <C>
    Year ended December 31, 1996
      Revenues.........................................    $221,265       $ 25,414      $ 246,679
      Net loss.........................................     (77,132)        (2,295)       (79,427)
    Year ended December 31, 1995
      Revenues.........................................     169,865         47,679        217,544
      Net income.......................................      11,584            797         12,381
    Year ended December 31, 1994
      Revenues.........................................     114,814         43,540        158,354
      Net loss.........................................      (6,731)           696         (6,035)
</TABLE>
 
  Unaudited pro forma statement of operations data --
 
     The following table compares, for the year ended December 31, 1996,
reported consolidated results of operations to unaudited pro forma consolidated
data as if all of the companies acquired in 1996 (including the Laidlaw
Acquisition, giving effect to the Canadian Sale) and accounted for using the
purchase method for business combinations were acquired as of January 1, 1996
(in thousands, except per share data):
 
<TABLE>
<CAPTION>
                                                                      1996         1996
                                                                    REPORTED     PRO FORMA
                                                                    --------     ---------
    <S>                                                             <C>          <C>
    Revenues......................................................  $246,679     $ 750,396
    Operating loss................................................   (59,267)       (4,079)
    Net loss......................................................   (79,427)     (105,760)
    Net loss to common shareholders...............................   (80,500)     (106,833)
    Net loss per common share.....................................     (1.38)        (1.46)
</TABLE>
 
     This data does not purport to be indicative of the results of operations of
Allied that might have occurred nor which might occur in the future.
 
3.  ASSETS HELD FOR SALE
 
     In March 1997, the Company completed the Canadian Sale for approximately
$518 million in cash. No gain or loss was recorded on this sale. In addition,
the Company has entered into a definitive agreement to sell certain non-core
medical waste assets for approximately $6.7 million. No gain or loss is expected
to be recorded in connection with this sale. These transactions were accounted
for in accordance with Emerging Issues Task Force Issue 87-11 "Allocation of
Purchase Price to Assets to be Sold." Accordingly, excluded from consolidated
statements of operations and included in total net assets held for sale is $5.8
million of income from operations and $9.6 million of interest expense
attributable to the Canadian operations as reported for the period January 1,
1997 through March 16, 1997, the date on which the Canadian operations were
sold.
 
                                       40
<PAGE>   41
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     At December 31, 1996, the net assets held for sale are classified as
current assets in the consolidated balance sheet and are summarized as follows
(in thousands):
 
<TABLE>
        <S>                                                                 <C>
        Cash..............................................................  $    628
        Accounts receivable, net..........................................    43,104
        Other current assets..............................................     6,402
        Property and equipment, net.......................................   165,622
        Goodwill..........................................................   349,192
        Other long-term assets............................................    13,099
        Current liabilities...............................................   (31,338)
        Long-term liabilities.............................................   (21,993)
                                                                            --------
                  Total net assets held for sale..........................  $524,716
                                                                            ========
</TABLE>
 
4.  PROPERTY AND EQUIPMENT
 
     Property and equipment at December 31, 1995 and 1996 was as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                                                   1995         1996
                                                                 --------     --------
        <S>                                                      <C>          <C>
        Land and improvements..................................  $ 16,449     $ 39,858
        Land held for permitting as landfills(1)...............     5,640       66,070
        Landfills..............................................   186,566      320,763
        Buildings and improvements.............................    24,525       59,359
        Vehicles and equipment.................................    88,410      266,494
        Containers and compactors..............................    46,412       59,931
        Furniture and office equipment.........................     5,735        7,312
                                                                 --------     --------
                                                                  373,737      819,787
        Accumulated depreciation and amortization..............   (64,282)     (89,215)
                                                                 --------     --------
                                                                 $309,455     $730,572
                                                                 ========     ========
</TABLE>
 
---------------
(1) These properties have been approved for use as landfills, and the Company is
    currently in the process of obtaining the necessary permits.
 
5.  LONG-TERM DEBT
 
     Long-term debt at December 31, 1995 and 1996 consists of the following (in
thousands):
 
  To related parties --
 
<TABLE>
<CAPTION>
                                                                    1995        1996
                                                                   ------     --------
        <S>                                                        <C>        <C>
        Unsecured notes payable to stockholders, net of discount,
          interest at an effective rate of 14%...................  $   --     $110,747
        Unsecured notes payable to stockholders, interest at
          12%....................................................   1,983        1,862
                                                                   ------     --------
                                                                    1,983      112,609
          Current portion........................................     121          136
                                                                   ------     --------
                                                                   $1,862     $112,473
                                                                   ======     ========
</TABLE>
 
     In connection with the Laidlaw Acquisition, a subsidiary of the Company
issued a $150 million 7% Junior Subordinated Debenture (the "7% Debenture") and
a $168.3 million Zero Coupon Debenture (the "Zero
 
                                       41
<PAGE>   42
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Coupon Debenture" and together with the 7% Debenture, the "Allied Debentures").
The 7% Debenture bears interest at a fixed rate of 7% per annum payable
semi-annually, except for the first three years during which the interest
payments are deferred. The 7% Debenture and the Zero Coupon Debenture have an
effective interest rate of 14% and have been recorded at a net discounted amount
of $77.5 million and $33.2 million, respectively, at December 31, 1996. The
Allied Debentures are due December 2008. Upon a change in control, the Company
is obligated to offer to prepay the Allied Debentures at a predetermined
discount to the face amount of each debenture. The Allied Debentures are
guaranteed by the Company and do not contain any restrictive or financial
covenants.
 
     The $2.0 million notes payable to related parties were issued in April 1995
in accordance with an agreement to acquire certain real estate. This agreement
was executed by one of the Company's subsidiaries prior to the Company's
acquisition of the subsidiary. The agreement required the payment of an
aggregate of $5.6 million to the previous owners upon issuance of a permit to
operate a landfill. Subsequent to execution of this agreement, the previous
owners became stockholders of the Company. These notes bear interest at 12% per
annum with monthly principal and interest payments through maturity in May 1999
and are guaranteed by the Company.
 
  To unrelated parties --
 
<TABLE>
<CAPTION>
                                                                     1995          1996
                                                                   --------     ----------
    <S>                                                            <C>          <C>
    Senior credit facilities, weighted average interest at 9.25%
      and 10.03% at December 31, 1995 and 1996, respectively.....  $ 37,401     $  975,000
    Senior subordinated notes, interest at 12% and 10.25%-12% at
      December 31, 1995 and 1996, respectively, unsecured........   100,000        525,010
    Notes payable to banks, finance companies and individuals,
      weighted average interest rate of 8.0% and 10.35% at
      December 31, 1995 and 1996, respectively and principal
      payable through 2014, secured by vehicles, equipment, real
      estate, accounts receivable or stock of certain
      subsidiaries...............................................    33,083          9,475
    Notes payable to individuals and a commercial company,
      interest at 5%-12%, principal and interest payable through
      2006, unsecured............................................    11,039         12,383
    Obligations under capital leases of vehicles and equipment,
      weighted average interest at 9.9% and 9.6% at December 31,
      1995, and 1996, respectively, payable monthly..............    32,656         45,217
                                                                   --------     ----------
                                                                    214,179      1,567,085
      Current portion............................................    37,447        532,755
                                                                   --------     ----------
                                                                   $176,732     $1,034,330
                                                                   ========     ==========
</TABLE>
 
     In connection with the Laidlaw Acquisition, the Company and Allied Waste
North America, Inc., a wholly owned subsidiary of the Company ("Allied NA")
executed a $1.275 billion Credit Agreement (the "Senior Credit Facility"). The
Senior Credit Facility was comprised of (i) a $300 million revolving credit
facility; (ii) a $475 million 5.5 year senior term loan; (iii) a $100 million
6.5 year Amortization Extended Term Loan AXEL(TM)A; (iv) a $200 million 7.5 year
AXEL(TM)B; and (v) a $200 million 8.5 year AXEL(TM)C. Of the $300 million
available under the revolving credit facility, no more than $200 million may be
outstanding at one time, of which no more than $100 million may be used to
finance permitted acquisitions ("Acquisition Loans"), as defined in the Credit
Agreement, and no more than $150 million may be used for the issuance of standby
letters-of-credit. Amounts outstanding under the Senior Credit Facility are
payable quarterly, beginning in June 1997, with final maturities in June 2005.
The Senior Credit Facility is secured by a pledge of the stock of substantially
all of Allied NA's assets and is guaranteed by the Company and all the
 
                                       42
<PAGE>   43
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
subsidiaries of Allied NA. As of December 31, 1996, Allied NA had no funded
loans outstanding and had issued approximately $46 million of standby
letters-of-credit, leaving $200 million available for funded loans and $104
million available for letters-of-credit. In connection with the Canadian Sale,
Allied paid approximately $517 million of the Senior Credit Facility. Payments
were made on a pro rata basis between the term loan and each of the AXEL
traunches as provided by the Senior Credit Facility.
 
   
     In connection with the Laidlaw Acquisition, Allied NA issued $525 million
of 10.25% Senior Subordinated Notes due 2006 (the "1996 Notes") in a Rule 144A
offering. Net proceeds from the sale of the 1996 Notes, after the underwriting
discount and other expenses, were approximately $509 million. The net proceeds
were used to pay a portion of the cash purchase price of the Laidlaw
Acquisition, repay amounts outstanding under the Company's previous $300 million
credit facility, fund certain acquisitions and for general corporate purposes.
The 1996 Notes cannot be redeemed until December 1, 2001, except under certain
circumstances. Prior to December 1, 2001, the 1996 Notes are subject to
redemption, at the option of Allied NA, at prices specified in the indenture. At
any time prior to December 1, 1999, up to 33% of principal amount of the 1996
Notes will be redeemable, at the option of Allied NA, from the proceeds of one
or more public offerings of capital stock by the Company at a redemption price
of 110.25% of principal amount, plus accrued interest. The 1996 Notes are
guaranteed by the Company and substantially all of Allied NA's subsidiaries, the
guarantees of which are expressly subordinated to the guarantees of Allied NA's
Senior Credit Facility. Additionally, substantially all of the consolidated
subsidiaries of Allied NA have issued guarantees for certain existing debt of
Allied NA. The consolidated subsidiaries may guarantee future indebtedness of
Allied NA. The financial statements of the subsidiary guarantors have not been
presented because management has determined that such information is not
material to a holder of the Allied NA debt.
    
 
  Convertible subordinated debt --
 
<TABLE>
<CAPTION>
                                                                      1995       1996
                                                                     ------     ------
        <S>                                                          <C>        <C>
        Senior Convertible Subordinated Debentures, unsecured......  $5,000     $  975
        Convertible subordinated notes,unsecured...................   1,992         --
        Convertible note payable to an individual, unsecured.......     800        787
                                                                     ------     ------
                                                                      7,792      1,762
          Current portion..........................................      13         56
                                                                     ------     ------
                                                                     $7,779     $1,706
                                                                     ======     ======
</TABLE>
 
     During the fourth quarter of 1995, the $5.0 million Convertible
Subordinated Debentures were converted into 1,483,000 shares of Allied common
shares.
 
     The $5.0 million Senior Convertible Subordinated Debentures bear interest
at 8.5% per annum payable semi-annually, with principal payable in 2002. The
debentures are convertible into Allied common shares at $6.00 per share.
Warrants to purchase 195,000 common shares at $6.00 per share were issued in
connection with the sale of the debentures.
 
     In 1996, the remainder of the 6% Convertible Subordinated Notes were
converted into 362,040 shares of Allied common stock.
 
     The 8% Convertible note payable to an individual is payable quarterly
through September 1996. Beginning October 1996, principal and interest is
payable in equal monthly installments through October 2006. The note is
convertible into Allied common stock at $10.00 per share during the period of
January 1997 to December 1998.
 
                                       43
<PAGE>   44
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Debt covenants --
 
     The Company's Senior Credit Facility, the indenture relating to the 1996
Notes and certain subordinated convertible debt, contain warranties and
covenants, requiring the maintenance of certain tangible net worth, debt to
equity, and cash flow to debt ratios. Additionally, these covenants limit among
other things, the ability of the Company to incur additional secured
indebtedness, make acquisitions and purchase fixed assets above certain amounts,
transfer or sell assets, pay dividends except on certain preferred stock, make
optional payments on certain subordinated indebtedness including the 1996 Notes
or make certain other restricted payments, create liens, enter into certain
transactions with affiliates or consummate a merger, consolidation or sale of
all or substantially all of its assets. At December 31, 1996, Allied was in
compliance with all applicable covenants.
 
     Substantially all subsidiaries of the Company are jointly and severally
liable for the obligations under the 1996 Notes and the Senior Credit Facility
through unconditional guarantees issued by the subsidiaries which are all,
except in one minor case, wholly-owned by the Company. No significant
restrictions exist regarding the ability of the subsidiary companies to pay
dividends or make loans or advances to Allied.
 
  Future maturities of long-term debt --
 
     Aggregate future maturities of long-term debt (including a $517 million
repayment on the Senior Credit Facility from the proceeds of the Canadian Sale)
outstanding at December 31, 1996 (in thousands):
 
<TABLE>
<CAPTION>
                                    MATURITY                              1996
            ---------------------------------------------------------  ----------
            <S>                                                        <C>
            1997.....................................................  $  532,947
            1998.....................................................      14,778
            1999.....................................................      12,830
            2000.....................................................       7,202
            2001.....................................................       7,777
            Thereafter...............................................   1,105,922
                                                                       ----------
                                                                       $1,681,456
                                                                       ==========
</TABLE>
 
     Future payments under capital leases, the principal amounts of which are
included above in future maturities of long-term debt, are as follows at
December 31, 1996 (in thousands):
 
<TABLE>
<CAPTION>
                                                                       1996
                                                        ----------------------------------
                           MATURITY                     PRINCIPAL     INTEREST      TOTAL
        ----------------------------------------------  ---------     --------     -------
        <S>                                             <C>           <C>          <C>
        1997..........................................   $ 10,950     $  3,804     $14,754
        1998..........................................      9,737        2,806      12,543
        1999..........................................      8,175        1,928      10,103
        2000..........................................      6,260        1,230       7,490
        2001..........................................      7,246          700       7,946
        Thereafter....................................      2,849          563       3,412
                                                          -------      -------     -------
                                                         $ 45,217     $ 11,031     $56,248
                                                          =======      =======     =======
</TABLE>
 
6.  CLOSURE, POST-CLOSURE AND ENVIRONMENTAL COSTS
 
     The net present value of the closure and post-closure commitment is
calculated assuming inflation of 3.5% and a risk-free capital rate of 7.0%.
Discounted amounts previously recorded are accreted to reflect the effects of
the passage of time. The Company's current estimate of total future payments for
closure and post-closure is $467 million, as shown below, while the present
value of such estimate is $181 million. At
 
                                       44
<PAGE>   45
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
December 31, 1995 and 1996, respectively, accruals for landfill closure,
post-closure and environmental costs (including costs assumed through
acquisitions) were approximately $10.5 million and $152.5 million. The accruals
reflect relatively young landfills whose estimated remaining lives, based on
current waste flows, range from 1 to over 75 years, with an estimated average
remaining life of greater than 30 years.
 
     The Company's estimate of total future payments for closure and
post-closure liabilities for currently owned and operated landfills is as
follows (in thousands):
 
<TABLE>
            <S>                                                         <C>
            1997......................................................  $ 18,122
            1998......................................................    16,581
            1999......................................................     5,741
            2000......................................................     8,331
            2001......................................................     6,331
            Thereafter................................................   412,211
                                                                        --------
                                                                        $467,317
                                                                        ========
</TABLE>
 
     During 1994, the Company's landfills became subject to the closure and
post-closure requirements of Subtitle D. Previously, the Company's landfills
were subject to local requirements. The principal changes under Subtitle D are
an extension of the post-closure monitoring period to 30 years, more rigorous
groundwater monitoring, and a requirement to use clay or synthetic liners as
capping materials. The Company updated its estimates of future closure and
post-closure costs in accordance with its interpretations of Subtitle D.
 
     In connection with the Laidlaw Acquisition, Allied engaged an independent
environmental consulting firm to assist in conducting an environmental
assessment of the real property owned by the acquired subsidiaries or
third-parties, and properties under the management of the acquired companies.
Several contaminated landfills and other properties have been identified, two of
which are owned by subsidiaries of the Company, that would require those
subsidiaries to incur costs for incremental closure and post-closure measures,
remediation activities and litigation costs. The costs of performing the
investigation, design, remediation and the allocation of responsibility to the
subsidiaries of Allied vary significantly between sites. Based on information
available to the Company, Allied recorded a provision of $51.5 million for
environmental matters, including closure and post-closure costs, in the 1996
statement of operations and expects these amounts to be disbursed over the next
30 years.
 
     Prior to the Company's acquisition of CRX, an investigation of an unrelated
manufacturing facility led to allegations that hazardous wastes were transported
to and disposed of in CRX's Norfolk, Nebraska landfill. A provision of $2.1
million, in excess of the closure and post-closure reserves recorded in the
normal course of business, was made in the Company's 1994 consolidated financial
statements to recognize the estimated costs of additional closure, post-closure
and remedial measures. Since 1994 the Company has engaged an independent
environmental consultant to assist it in conducting the groundwater
contamination investigation program. Based on a report from the Company's
independent environmental consultant an additional provision of $2.0 million has
been recorded in the 1996 statements of operations. The groundwater
investigation is ongoing and remediation efforts have commenced.
 
     The ultimate amounts for environmental liabilities cannot be determined and
estimates of such liabilities made by the Company, after consultation with its
independent environmental engineers, require assumptions about future events due
to a number of uncertainties including the extent of the contamination, the
appropriate remedy, the financial viability of other potentially responsible
parties and the final apportionment of responsibility among the potentially
responsible parties. Where the Company has concluded that its estimated share of
potential liabilities is probable, a provision has been made in the consolidated
financial statements. Since the ultimate outcome of these matters may differ
from the estimates used in the Company's
 
                                       45
<PAGE>   46
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
assessment to date, the recorded liabilities will be periodically evaluated as
additional information becomes available to ascertain that the accrued
liabilities are adequate. The Company has determined that the recorded liability
for environmental matters as of December 31, 1996 of approximately $152.5
million represents the most probable outcome of these contingent matters. The
Company does not expect that adjustments to estimates, which are reasonably
possible in the near term and that may result in changes to recorded amounts,
will have a material effect on the Company's consolidated liquidity, financial
positions or results of operations.
 
7.  STOCKHOLDERS' EQUITY
 
     The authorized, issued and outstanding shares of the Company's classes of
capital stock were as follows:
 
<TABLE>
<CAPTION>
                                                                          ISSUED AND OUTSTANDING
                                              LIQUIDATION                     AT DECEMBER 31,
                                              PREFERENCE    AUTHORIZED    -----------------------
                                               PER SHARE      SHARES         1995         1996
                                              -----------   -----------   ----------   ----------
    <S>                                       <C>           <C>           <C>          <C>
    Preferred stock, $.10 par --
      Series C Convertible..................    $    10         800,000           --           --
      Series D Convertible..................         15         267,000        4,000           --
      9% Cumulative Convertible.............      1,000          30,000        5,029           --
      $90 Cumulative Convertible............      1,000          20,000           --           --
      7% Cumulative Convertible.............      1,000         100,000        9,963        9,907
    Common stock, $.01 par, net of 570,048
      treasury shares.......................         --     200,000,000   48,031,528   75,478,867
</TABLE>
 
     Dividends declared and accrued on the Company's classes of preferred stock
were as follows:
 
<TABLE>
<CAPTION>
                                                    DIVIDENDS DECLARED             ACCRUED
                                               FOR THE YEARS ENDED DECEMBER     DIVIDENDS AT
                                                           31,                  DECEMBER 31,
                                               ----------------------------     -------------
                                                1994       1995       1996      1995     1996
                                               ------     ------     ------     ----     ----
    <S>                                        <C>        <C>        <C>        <C>      <C>
    Series D Convertible.....................  $  202     $  184     $    1     $ 41     $ --
    9% Cumulative Convertible................   2,464      2,466        377       75       --
    $90 Cumulative Convertible...............     526        560         --       --       --
    7% Cumulative Convertible................     472        698        695      145      144
    Series E Cumulative Convertible..........     109        162         --       --       --
                                               ------     ------     ------     ----     ----
                                               $3,773     $4,070     $1,073     $261     $144
                                               ======     ======     ======     ====     ====
</TABLE>
 
     On January 30, 1995, all Series E preferred was converted into common
stock. In December 1995, all of the Series C preferred stock and $90 preferred
stock was converted into common stock. During 1996, all of the Series D
preferred stock and 9% preferred stock was converted into Common Stock.
 
  7% cumulative convertible preferred stock --
 
     In April 1994, Allied issued 9,982 shares of 7% cumulative convertible
stock ("7% preferred") in connection with the acquisition of Southern States
Environmental Services. The stock has no voting rights and is redeemable at the
option of the Company under certain conditions. The stock is convertible into
common stock at a rate equal to $7.00 per common share subject to anti-dilution
provisions. Dividends are $70.00 per share per annum, cumulative and payable
quarterly in common stock through April 15, 1995 and in cash thereafter.
 
                                       46
<PAGE>   47
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Warrants to purchase common stock --
 
     Warrants to purchase common shares at December 31, 1995 and 1996 are
summarized as follows:
 
<TABLE>
<CAPTION>
                                                                1995                1996
                                                          ----------------    ----------------
    <S>                                                   <C>                 <C>
    Number of shares....................................     3,488,010           22,645,166
    Purchase price per share............................   $3.00 - $13.50      $3.37 - $13.50
    Expiration dates....................................    1996 - 2005         1997 - 2008
</TABLE>
 
     In connection with the Laidlaw Acquisition, the Company issued a warrant to
Laidlaw for the purchase of 20,400,000 shares of Common Stock at an exercise
price of $8.25 per share. Both the number of shares purchasable upon exercise of
the warrant and the exercise price are subject to adjustment under certain
circumstances described in the warrant. Among other restrictions, Laidlaw and
its affiliates are precluded from exercising the warrant unless there is a
change of control of Allied. Laidlaw may sell the warrant to third-parties,
provided that any such third-party and its affiliates do not beneficially own
more than 9% of the Company's then outstanding Common Stock. The warrant expires
December 2008.
 
8.  STOCK OPTION PLANS
 
     The 1991 Incentive Stock Plan ("1991 Plan"), the 1993 Incentive Stock Plan
("1993 Plan") and the 1994 Incentive Stock Plan ("1994 Plan") provide for the
grant of non-qualified stock options, incentive stock options, shares of
restricted stock, shares of phantom stock and stock bonuses. The maximum number
of shares which may be granted under the 1991 Plan may not exceed the greater of
750,000 common shares or 7.5% of the number of common shares outstanding at the
end of a preceding fiscal quarter (4,463,778 shares at December 31, 1996). An
additional 500,000 and 1,000,000 common shares may be granted under the 1993
Plan and the 1994 Plan, respectively. The exercise price, term and other
conditions applicable to each option granted are generally determined by the
Compensation Committee of the Board of Directors.
 
     The 1994 Amended and Restated Non-Employee Director Stock Option Plan
provides for the grant of non-qualified options to each member of the Board of
Directors, who is not also an employee of the Company, at a price equal to the
fair market value of a common share on the date of grant. The maximum number of
shares which may be granted under the plan is 750,000 common shares. All options
granted under the plan are fully vested and exercisable on the date of grant and
expire ten years from the grant date.
 
     The Company accounts for its stock-based compensation plans under APB No.
25, under which no compensation expense has been recognized, as all options have
been granted with an exercise price equal to the fair value of the Company's
common stock upon the date of grant. In 1996, the Company adopted SFAS No. 123
for disclosure purposes and accordingly, the fair value of each option grant has
been estimated as of the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions: risk-free interest rate
of 5.18% to 7.64%, expected life of 5-8 years, dividend rate of zero percent,
and expected volatility of 49.09% to 52.04%. Using these assumptions, the
Company's net income (loss) and net income (loss) per share would have been as
follows (amounts in thousands except per share data):
 
<TABLE>
<CAPTION>
                                                                       FOR THE YEAR ENDED
                                                                          DECEMBER 31,
                                                                       -------------------
                                                                        1995        1996
                                                                       ------     --------
    <S>                                                                <C>        <C>
    Net income (loss):
      As reported....................................................  $6,160     $(80,500)
      Pro forma......................................................   5,419      (82,457)
    Net income (loss) per share:
      As reported....................................................  $ 0.15     $  (1.38)
      Pro forma......................................................    0.14        (1.41)
</TABLE>
 
                                       47
<PAGE>   48
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     A summary of the status of the Company's stock option plans at December 31,
1995 and 1996 and for the years then ended is presented in the table and
narrative below:
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                                    -----------------------
                                                                      1995          1996
                                                                    ---------     ---------
    <S>                                                             <C>           <C>
    Options outstanding, beginning of period......................  1,575,739     2,849,568
      Options granted.............................................  1,493,469     1,747,550
      Options exercised...........................................   (183,606)     (277,016)
      Options terminated..........................................    (36,034)      (11,408)
                                                                    ---------     ---------
    Options outstanding, end of period............................  2,849,568     4,308,694
                                                                    =========     =========
    Options exercisable, end of period............................  1,774,456     2,170,086
    Weighted average fair value of options granted................      $4.66         $8.64
</TABLE>
 
     Of the 4,308,694 employee and director options outstanding at December 31,
1996, (i) 1,473,382 options have exercise prices between $3.00 and $11.50, with
a weighted average exercise price of $5.30 and a weighted average remaining
contractual life of 5.5 years, of which all are exercisable, (ii) 932,552
options have exercise prices between $4.27 and $4.88, with a weighted average
exercise price of $4.44 and a weighted average remaining contractual life of 8.1
years, of which 613,456 are exercisable (iii) 249,743 options have exercise
prices between $4.50 and $9.50, with a weighted average exercise price of $8.81
and a weighted average remaining contractual life of 9.3 years, of which, 83,248
are exercisable (iv) 1,653,017 options have exercise prices between $4.27 and
$9.50 and a weighted average remaining contractual life of 8.9 years, of which
none are exercisable.
 
9.  NET INCOME (LOSS) PER COMMON SHARE
 
     Net income (loss) per common share is calculated by dividing net income
(loss), less dividend requirements on preferred stock, by the weighted average
number of common shares and common share equivalents outstanding during each
period as restated to reflect acquisitions accounted for as poolings-of-
interests. The computation of weighted average common and common equivalent
shares used in the calculation of net income (loss) per common share is as
follows:
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------
                                                      1994           1995            1996
                                                   ----------     -----------     -----------
    <S>                                            <C>            <C>             <C>
    Common shares outstanding....................  25,805,179      48,031,528      75,478,867
    Effect of using weighted average common
      shares outstanding during the period.......    (876,091)    (10,428,172)    (17,097,236)
    Effect of stock options and warrants, assumed
      exercisable................................          --       1,989,556              --
    Effect of Series C preferred stock, assumed
      converted..................................          --         233,533              --
    Effect of shares assumed issued pursuant to
      earn-out...................................      99,019         220,014          40,950
                                                   ----------      ----------      ----------
                                                   25,028,107      40,046,459      58,422,581
                                                   ==========      ==========      ==========
</TABLE>
 
     Conversion has not been assumed for Series D preferred stock, 9% preferred
stock, 7% preferred stock and convertible subordinated notes in 1994, 1995 or
1996, as the effect would not be dilutive. Additionally, conversion has not been
assumed for stock options and warrants in 1994 and 1996, nor has conversion been
assumed for Series C preferred stock, $90 preferred stock and Series E preferred
stock in 1994, as the effects would not be dilutive. Fully diluted earnings per
common share have not been presented as the effect would not be dilutive.
 
                                       48
<PAGE>   49
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10.  INCOME TAXES
 
     The Company accounts for income taxes using a balance sheet approach
whereby deferred tax assets and liabilities are determined based on the
differences in financial reporting and income tax basis of assets, other than
goodwill, and liabilities, and the differences are measured using the income tax
rate in effect in the year of measurement.
 
     The Company and its subsidiaries file a consolidated federal income tax
return. As of December 31, 1996, Allied had a net operating loss carryforward
("NOLC") for federal income tax purposes and state income tax purposes of
approximately $15.2 and $7.0 million, respectively. The NOLCs, which expire
beginning in 2004, are available to offset future taxable income subject to
potential limitations. Included in the NOLCs are losses of acquired companies
which the Company believes are realizable after application of change of
ownership and separate return loss year limitation rules. The Company has placed
a valuation reserve on "other" NOLCs to reflect limitations from separate
Company filing rules. These "other" NOLCs are not included in the amounts above.
 
     The components of the income tax provision (benefit) consist of the
following (in thousands):
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                             ------------------------------
                                                              1994        1995       1996
                                                             -------     ------     -------
    <S>                                                      <C>         <C>        <C>
    Current tax provision..................................  $ 1,011     $4,724     $   947
    Deferred provision (benefit)...........................   (1,700)     5,027      (1,346)
                                                             -------     ------     -------
              Total........................................  $  (689)    $9,751     $  (399)
                                                             =======     ======     =======
</TABLE>
 
     Reconciliation of the federal statutory tax rate to the Company's effective
rate is as follows:
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                               ----------------------------
                                                               1994        1995       1996
                                                               -----       ----       -----
    <S>                                                        <C>         <C>        <C>
    Federal statutory tax rate...............................  (34.0)%     35.0%      (35.0)%
    Consolidated state taxes, net of federal benefit.........    4.5        5.0        (5.0)
    Taxes of pooled companies................................   (4.2)      (2.1)        0.7
    Amortization of goodwill.................................    9.3        3.8         2.3
    Potential tax goodwill greater than book goodwill........     --         --        34.7
    Other permanent differences..............................    5.8        2.4         1.7
                                                               -----       ----       -----
              Effective tax rate.............................  (18.6)%     44.1%       (0.6)%
                                                               =====       ====       =====
</TABLE>
 
     Tax benefits on the extraordinary items in 1994 and 1996 were based on the
Company's then ordinary combined federal and state rate of 38.5% and 40%,
respectively.
 
     The net current deferred tax asset of $2.7 million and $5.8 million, as of
December 31, 1995 and 1996, respectively, consists of the current benefit
expected to be obtained from the utilization of the Company's NOLCs and its
alternative minimum tax credits. These amounts include a valuation allowance of
$1.2 million and $1.3 million, as of December 31, 1995 and 1996, respectively,
to reflect possible limitations on the ability to use NOLCs for separate company
federal and state filing purposes.
 
                                       49
<PAGE>   50
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The components of the net long-term deferred tax liability are as follows
(in thousands):
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER
                                                                              31,
                                                                     ---------------------
                                                                      1995          1996
                                                                     -------       -------
    <S>                                                              <C>           <C>
    Deferred tax liability relating to property primarily
      consisting of landfill assets and debt basis differences.....  $28,606       $78,700
                                                                     -------       -------
    Deferred tax assets relating to:
      Closure and post-closure reserves............................       99         1,883
      Other reserves and estimated expenses........................    2,858        23,722
                                                                     -------       -------
      Deferred tax assets, net.....................................    2,957        25,605
                                                                     -------       -------
    Net long-term deferred tax liability...........................  $25,649       $53,095
                                                                     =======       =======
</TABLE>
 
     The increase in the long-term deferred tax liability includes deferred
taxes related to 1996 acquisitions where the financial basis of assets acquired
exceeded the tax basis of those assets.
 
11.  COMMITMENTS AND CONTINGENCIES
 
     The Company is subject to extensive and evolving laws and regulations and
has implemented its own environmental safeguards to respond to regulatory
requirements. In the normal course of conducting its operations, Allied may
become involved in certain legal and administrative proceedings. Some of these
actions may result in fines, penalties or judgements against the Company which
may have an impact on earnings for a particular period. Management expects that
such matters in process at December 31, 1996 which have not been accrued in the
consolidated balance sheet will not have a material adverse effect on the
Company's consolidated liquidity, financial position or results from operations.
 
     The consolidated federal income tax returns for the fiscal years ended
August 31, 1986, 1987 and 1988 of certain subsidiaries of the Company that were
acquired from Laidlaw in December 1996 (the "LSW Subsidiaries") have been under
audit by the Internal Revenue Service. In March 1994, the LSW Subsidiaries
received a Statutory Notice of Deficiency proposing that the LSW Subsidiaries
pay additional taxes relating to disallowed deductions in those income tax
returns (the "Tax Controversy"). The consolidated tax group of the LSW
Subsidiaries has also received notice that fiscal years 1992, 1993 and 1994 will
be examined regarding the Tax Controversy. The LSW Subsidiaries could be
directly liable for a substantial portion of any tax and interest assessed if
the disallowance of the deduction is sustained. In addition, under Treasury
Regulations promulgated under Section 1502 of the Internal Revenue Code ("IRC"),
each member of the consolidated tax group including each LSW Subsidiary, is or
could be severally liable for federal income tax liabilities of the entire
consolidated tax group, including any taxes due on the deemed sale of assets by
the LSW Subsidiaries pursuant to Section 338 of the IRC and all amounts at issue
in the Tax Controversy which are ultimately determined to be owed.
 
     Any amounts at issue in the Tax Controversy and for which any LSW
Subsidiary may ultimately be found liable, are included in and covered by the
indemnification of the Company by Laidlaw set forth in the Stock Purchase
Agreement by and between the Company and Laidlaw, among others, dated September
17, 1996 (the "Purchase Agreement"). Further, the Company and Laidlaw, among
others, have entered into a Setoff Agreement, under which Laidlaw has agreed
that if the Tax Controversy results in any damage, liability or expense to any
LSW Subsidiary, and if Laidlaw fails to indemnify the Company against all such
damages, liabilities or expenses within 30 days of a demand for indemnification,
then the Company may set off the amount of all such damages, liabilities and
expenses against all amounts then owed by the Company under the certain debt
issued to Laidlaw consisting primarily of the Allied Canada Debentures.
 
     Other than to the extent contemplated in the Setoff Agreement, the
obligation of Laidlaw to indemnify the Company in respect of amounts at issue in
the Tax Controversy is a general, unsecured obligation of
 
                                       50
<PAGE>   51
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Laidlaw. The ability of Laidlaw to pay and fulfill such indemnification
obligation will depend on the financial condition of Laidlaw at the time of any
required performance of such obligation.
 
     In connection with certain acquisitions, the Company has entered into
agreements to pay royalties based on waste tonnage disposed at specified
landfills. The royalties are payable quarterly and the current amounts due are
included in the accompanying consolidated balance sheets. Additionally, the
Company has entered into a deferred royalty agreement of which the liability may
be converted into an interest bearing note or common shares.
 
     Allied has operating lease agreements for service facilities, office space
and equipment. Future minimum payments under non-cancelable operating leases
with terms in excess of one year are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31, 1996
                                                                   -----------------
            <S>                                                    <C>
            1997.................................................       $12,613
            1998.................................................         9,566
            1999.................................................         7,879
            2000.................................................         5,489
            2001.................................................         4,184
            Thereafter...........................................        87,084
</TABLE>
 
     Rental expense under such operating leases was $1,307,000, $2,775,000 and
$6,476,047 for the three years ended December 31, 1996, respectively.
 
     The Company has entered into employment agreements with certain of its
executive officers for periods up to five years. The Company has agreed to
severance pay amounts equal to a multiple of defined compensation under certain
circumstances. In the event of a material change in control or termination of
all executive officers under such agreements, Allied would be required to make
payments of approximately $5.5 million.
 
     Allied carries a broad range of insurance coverage for protection of its
assets and operations from certain risks including environmental impairment
liability insurance for certain landfills.
 
     The Company has issued bank letters-of-credit, performance bonds and other
guarantees in the aggregate amount of approximately $53.7 million. These
financial instruments are issued in the normal course of business and are not
reflected in the accompanying balance sheets. Such financial instruments are to
be valued based on the amount of exposure under the instrument and the
likelihood of performance being required. Management does not expect any
material losses to result from these off balance sheet instruments based on
historical results, and therefore, is of the opinion that the fair value of
these instruments is zero.
 
12.  RELATED PARTY TRANSACTIONS
 
     Transactions with related parties are entered into only upon approval by a
majority of the independent directors of the Company and only upon terms
comparable to those that would be available from unaffiliated parties.
 
     The Company leases certain properties and equipment in Illinois from
related parties resulting from prior year acquisitions. In connection with these
leases, payments of $89,000, $69,000 and $45,000 for the three years ended
December 31, 1996, respectively, were made to officers of the Company.
 
     In connection with certain acquisitions, previous owners are paid an agreed
upon amount not to compete with the Company. Annual payments of $88,000, were
made to officers of the Company for each of the three years ended December 31,
1996 related to these non-compete agreements.
 
                                       51
<PAGE>   52
 
                         ALLIED WASTE INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In connection with certain acquisitions, previous owners agreed to continue
their existing personal guarantees on assumed indebtedness for a fee. Payments
of $20,000 were made to an officer of the Company for the year ended December
31, 1994.
 
     A Director is a partner in the firm which serves as the Company's principal
legal counsel.
 
     During 1994, the Company purchased real property from an officer for
approximately $1 million. The real property was subsequently exchanged for a
transfer station and a materials recovery facility in the Chicago area
previously owned by an unrelated party. No gain or loss was recognized on the
exchange.
 
     The Company made payments of $191,000 and $254,000 in 1994 and 1995,
respectively, on a life insurance policy for a related party assumed in a 1994
acquisition. A trust of the related party is the beneficiary of the policy.
 
     In connection with the receipt in April 1995 of all permits necessary to
develop a landfill on certain real estate acquired in July 1992, the Company was
obligated to pay $5.6 million to the previous owners of the real estate,
including current stockholders of the Company. During the years ended December
31, 1995 and 1996, the Company paid $924,000 and $121,000, respectively, to
these stockholders. The Company has $1.9 million in promissory notes payable to
these stockholders outstanding at December 31, 1996.
 
13.  SUMMARIZED FINANCIAL INFORMATION OF ALLIED WASTE NORTH AMERICA, INC.
 
     As discussed in Note 5, the 1996 Notes issued by Allied NA (a consolidated
subsidiary of the Company) are guaranteed by Allied. The separate complete
financial statements of Allied NA have not been included herein as management
has determined that such disclosure is not considered to be material to the
holders of the 1996 Notes. However, summarized balance sheet information for
Allied NA and subsidiaries as of December 31, 1996 is as follows (in thousands):
 
               SUMMARIZED CONSOLIDATED BALANCE SHEET INFORMATION
 
<TABLE>
<CAPTION>
                                                                       DECEMBER 31, 1996
                                                                       -----------------
        <S>                                                            <C>
        Current assets...............................................     $   685,942
        Property and equipment, net..................................         730,572
        Goodwill.....................................................         856,108
        Other non-current assets.....................................          44,927
        Current liabilities..........................................         682,686
        Long-term debt, net of current portion.......................       1,037,762
        Due to parent................................................         275,558
        Due to Allied Canada Finance, Ltd............................         110,747
        Other long-term obligations..................................         210,796
</TABLE>
 
     On November 25, 1996, substantially all of the operating assets and
liabilities of Allied were contributed from Allied to Allied NA. The results of
operations since inception were not material except for the acquisition related
costs and unusual items (see Note 1).
 
14.  SUBSEQUENT EVENTS
 
   
     Subsequent to December 31, 1996, the Company purchased 2 operating solid
waste businesses for a total of approximately $58.9 million of which
approximately $6.5 million was paid for with approximately 750,000 shares of the
Company's common stock.
    
 
                                       52
<PAGE>   53
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     All of the Company's directors and executive officers are set forth in the
following table:
 
<TABLE>
<CAPTION>
                                                                                 DIRECTOR
             NAME                            POSITION HELD                AGE     SINCE
------------------------------  ----------------------------------------  ----   --------
<S>                             <C>                                       <C>    <C>
Roger A. Ramsey...............  Chairman of the Board of Directors,         58     1989
                                Chief Executive Officer, Director
Thomas H. Van Weelden.........  President, Chief Operating Officer,         42     1992
                                Director
Daniel J. Ivan................  Vice President, Director                    56     1990
Henry L. Hirvela..............  Vice President, Chief Financial Officer     45
Michael G. Hannon.............  Vice President of Corporate Development     42
Peter S. Hathaway.............  Vice President, Treasurer and Chief         41
                                  Accounting Officer
Steven M. Helm................  Vice President -- Legal and Secretary       49
Larry D. Henk.................  Vice President of Operations                37
H. Steven Uthoff..............  Vice President, Controller                  48
Nolan Lehmann.................  Director                                    52     1990
Robert G. Reedy...............  Director                                    43     1992
Alan B. Shepard...............  Director                                    73     1994
James G. Coulter..............  Director                                    37     1995
John M. Lewis.................  Director                                    66     1995
William K. Reilly.............  Director                                    57     1995
Jeffrey A. Shaw...............  Director                                    32     1995
Ivan Cairns...................  Director                                    51     1997
James Bullock.................  Director                                    52     1997
Brian A. O'Leary..............  Director                                    58     1997
</TABLE>
 
     For certain information regarding the beneficial ownership of the Common
Stock by each of the directors and officers, see Item 12.
 
     Roger A. Ramsey has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since October 1989. He also served as President
of the Company from May 1992 to December 1992. Mr. Ramsey devotes substantially
all of his time to the Company's business. Since August 1986, Mr. Ramsey has
served as a general partner of Houston Partners ("HP"), a venture capital firm
located in Houston, Texas, which through its affiliates is a stockholder of the
Company. In 1968, Mr. Ramsey co-founded Browning-Ferris Industries, Inc. ("BFI")
and served as its Vice President and Chief Financial Officer until 1976. Mr.
Ramsey is also a member of the Board of Trustees of Texas Christian University.
 
     Thomas H. Van Weelden joined the Company in January 1992 as its Vice
President -- Development, and was promoted to President and Chief Operating
Officer in December 1992. He was also elected as a Director in March 1992. Mr
Van Weelden served as President and Chief Executive Officer of R.18, Inc.
("R.18"), a solid waste disposal company in East Moline, Illinois, from 1991
until its acquisition by the Company in January 1992 and as President of Van
Weelden Brothers Waste and Vermillion Waste from 1975 until their acquisition by
the Company in July 1992.
 
     Daniel J. Ivan has served as a Director of the Company since October 1990,
and was named Executive Vice President in December 1992. Mr. Ivan joined the
Company in July 1990 as a marketing and development executive and served in that
capacity until his promotion to President in October 1990, in which capacity he
 
                                       53
<PAGE>   54
 
served until May 1992. He served as Vice President -- Administration and
Controller from May 1992 to November 1992. From 1987 to 1990, he served as the
General Manager of the combined Houston and Beaumont operations for WMX
Technologies, Inc. ("Waste Management"). Prior to that, Mr. Ivan served for a
brief period as General Manager of Waste Management's Fort Worth operations.
From 1964 to 1987, he was employed by The Dow Chemical Company and rose, through
various management positions, to become a Vice President of Operations at
Dowell, Inc., Dow Chemical's oil field services division.
 
     Henry L. Hirvela has served as Vice President and Chief Financial Officer
of the Company since May 1996. From September 1995 through February 1996 he
served as Chief Financial Officer for Power Computing Corporation ("Power
Computing"), a privately owned manufacturer of Macintosh operating system
personal computers. Prior to joining Power Computing, Mr. Hirvela was employed
by BFI since 1988 as Vice President -- Treasurer with responsibility for the
company's global finance and cash management functions. From 1981 until 1988 Mr.
Hirvela worked for Texas Eastern Corporation, a diversified international energy
company, in a number of management positions including Assistant Treasurer and
Manager -- Corporate Development. Prior to joining Texas Eastern Corporation Mr.
Hirvela worked for Bank of America as an operations officer in San Diego,
California.
 
     Michael G. Hannon has served as Vice President of Corporate Development of
the Company since April 1994. From 1975 to 1993, Mr. Hannon was employed by
Laidlaw where he held a variety of management positions. His most recent
position at Laidlaw was that of Regional Vice President, with overall
responsibility for Laidlaw's 24 midwestern waste service operations having
annual revenues in excess of $100 million. Prior to holding that position, Mr.
Hannon held positions in Mergers & Acquisitions and served as Controller.
 
     Peter S. Hathaway has served as Vice President and Chief Accounting Officer
of the Company since February 1995. From September 1991 through 1994 he was
employed by BFI as Controller and Finance Director for certain Italian
operations holding responsibilities for the acquisitions, reorganization and
integration, controllership, and financing functions of a $100 million joint
venture. From 1979 through September 1991, Mr. Hathaway served in the audit
division of Arthur Andersen LLP in Colorado, Italy and Connecticut, most
recently in the position of Senior Manager.
 
     Steven M. Helm has served as Vice President -- Legal and Secretary of the
Company since May 1996. Prior to joining the Company, Mr. Helm was an attorney
in private practice in Danville, Illinois.
 
     Larry D. Henk has served as Vice President of Operations of the Company
since June 1994. Mr. Henk joined the Company in January 1992, as General Manager
of R.18, when it was acquired by the Company. Prior to joining the Company, Mr.
Henk served as General Manager of R.18 since 1991 and General Manager of
Environmental Development Corporation from 1987 until its acquisition by the
Company in July 1992.
 
     H. Steven Uthoff has served as Vice President and Controller of the Company
since November 1996. Mr. Uthoff has also served as Vice President and Controller
of the Company since January 1995. Between 1989 and 1994, Mr. Uthoff served as
Vice President and Controller of Loroff Enterprises, Inc., a Houston, Texas
management consulting firm, specializing in contract acquisition, business
turnaround, accounting and tax services. From 1987 to 1989, Mr. Uthoff served as
Financial Controller, North America, for Mannai Investment Co., Inc., an
investment banking firm based in London, England.
 
     Nolan Lehmann has served as a Director of the Company since October 1990.
Since 1983, Mr. Lehmann has served as President and a Director of Equus Capital
Management Corporation, a registered investment advisor, and Equus II
Incorporated ("Equus"), a registered public investment company whose stock is
traded on the American Stock Exchange. Mr. Lehmann also serves as a director of
American Residential Services, Inc., a residential services company, Brazos
Sportswear, Inc., a casual sportswear company, Drypers Corporation, a
manufacturer of disposable diapers, and Garden Ridge Corporation, a specialty
retailer, all of which are public companies.
 
     Robert G. Reedy has served as a Director of the Company since March 1992.
Since January 1989, Mr. Reedy has been a partner of Porter & Hedges, LLP, a law
firm in Houston, Texas, and the Company's principal outside legal counsel.
 
                                       54
<PAGE>   55
 
     Alan B. Shepard has served as a Director since April 1994. Mr. Shepard is a
retired Real Admiral of the United States Navy and a former astronaut with NASA,
retiring from the United States Navy and NASA in August 1974. Mr. Shepard is
currently the President of Seven Fourteen Enterprises, a Houston-based
investment company, and a limited partner of HP. He also serves as President of
the Mercury Seven Foundation, a non-profit organization that awards scholarships
to college students and as a Director of American Capital Bond Fund, American
Capital Convertible Securities Fund and Kwik-Kopy Corporation.
 
     James G. Coulter has served as a Director since January 1995. Mr. Coulter
has served as a Vice President of TPG Advisors, Inc., which is the general
partner of TPG GenPar, L.P., the general partner of TPG Partners, L.P. and TPG
Parallel I, L.P. (collectively, "TPG"), since 1992. From 1986 to 1992, Mr.
Coulter was a Vice President of Keystone, Inc. (formerly the Robert M. Bass
Group, Inc.), an investment firm. Mr. Coulter also serves as a Director of
American Savings Bank, F.A., Virgin Cinemas Ltd., and America West Airlines,
Inc.
 
     John M. Lewis has served as a Director since January 1995. Mr. Lewis was
President and Chief Executive Officer of Wometco Cable Corporation from 1988 to
1994.
 
     William K. Reilly has served as a Director since January 1995. Mr. Reilly
was Administrator of the United States Environmental Protection Agency from 1989
to 1993. In 1993, Mr. Reilly served as President of the World Wildlife Fund.
Also in 1993, Mr. Reilly began serving as a Visiting Professor at the Institute
of International Studies at Stanford University. Mr. Reilly also serves as a
Director of several organizations, including E.I. du Pont de Nemours and
Company, the National Geographic Society, the World Wildlife Fund and the Yale
University Corporation.
 
     Jeffrey A. Shaw has served as a Director since January 1995. Mr. Shaw has
been a managing director at TPG since 1993. From 1990 to 1993, Mr. Shaw was
associated with Oakhill Partners, Inc., an investment firm. From 1986 to 1988,
Mr. Shaw was a financial analyst in the Emerging Growth Group and Corporate
Finance Department of Goldman, Sachs & Co. Mr. Shaw also serves as a Director of
Continental Micronesia, Inc. and Favorite Brands International, Inc.
 
     Ivan R. Cairns has been a director of the Company since 1997 and has served
as Senior Vice-President and General Counsel since October 1990 of Laidlaw and,
prior thereto, was Vice-President and General Counsel and Secretary since
November 1981.
 
     James R. Bullock has been a director of the Company since 1997 and has
served as President and Chief Executive Officer of Laidlaw since October 1993.
For more than two years prior thereto, he was President and Chief Executive
Officer of Cadillac Fairview Corporation Limited, a property development
company.
 
     Brian A. O'Leary has served as a Director since January 1997. In 1970, Mr.
O'Leary founded Container Corporation of Carolina, Inc. ("CCC") a solid waste
collection company in Charlotte, North Carolina and served as its President and
CEO until its acquisition by the Company in June 1996.
 
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes of ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10% stockholders are required to furnish
the Company with copies of all Section 16(a) reports they file.
 
     Based solely on a review of the forms the Company has received or prepared,
the Company believes that during the year ended December 31, 1996, all filing
requirements to the Company's Directors, officers and greater than 10%
stockholders were met except Henry L. Hirvela, Steven M. Helm, Brian A. O'Leary
and Alan B. Shepard were each late in filing one report regarding one
transaction.
 
                                       55
<PAGE>   56
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     Summary of Compensation.  The following table provides certain summary
information concerning compensation paid or accrued during the fiscal years
ended December 31, 1996, 1995 and 1994 to the Company's Chief Executive Officer
and to each of the four other most highly compensated executive officers serving
at the end of the fiscal year ended December 31, 1996 (the "Named Executive
Officers"):
 
<TABLE>
<CAPTION>
                                                                                          LONG TERM
                                                                                         COMPENSATION
                                                                                            AWARDS
                                                                                         ------------
                                                         ANNUAL COMPENSATION              SECURITIES
                                                  ----------------------------------      UNDERLYING
                                                                        OTHER ANNUAL       OPTIONS/
            NAME AND POSITION              YEAR    SALARY     BONUS     COMPENSATION      SARS(1)(#)
-----------------------------------------  -----  --------   --------   ------------     ------------
<S>                                        <C>    <C>        <C>        <C>              <C>
Roger A. Ramsey..........................   1996  $348,803   $120,000     $  9,972(2)       600,000
  Chief Executive Officer                   1995   260,000    200,000           --          232,175
                                            1994   223,538     32,500           --           40,000
Thomas H. Van Weelden....................   1996   357,345    120,000        6,849(2)       600,000
  President and Chief Operating Officer     1995   260,000    160,000           --(3)       232,175
                                            1994   223,538     52,500      170,638           40,000
Larry D. Henk............................   1996   197,700     85,000          448(2)        40,000
  Vice President -- Operations              1995   175,000     65,000           --          150,000
                                            1994   135,800     44,000           --           68,100
H. Steven Uthoff.........................   1996   197,147     45,000       68,569(4)        40,000
  Vice President -- Controller              1995   175,000     52,500           --          150,000
                                            1994    84,015      9,000           --           25,000
Henry L. Hirvela.........................   1996   157,827     85,000       26,830(5)       100,000
  Vice President -- Chief Financial
  Officer                                   1995        --         --           --               --
                                            1994        --         --           --               --
</TABLE>
 
---------------
(1) See "-- Option Grants in Last Fiscal Year," for certain information
    regarding options granted during the fiscal year ended December 31, 1996.
 
(2) Represents dues associated with membership in certain organizations.
 
(3) Includes $156,261 paid by the Company as reimbursement for certain
    relocation expenses, $10,772 for automobile allowance, fuel and maintenance,
    and $3,605 for dues associated with membership in certain organizations.
 
(4) Represents reimbursement for certain relocation expenses.
 
(5) Includes $26,553 paid by the Company as reimbursement for certain relocation
    expenses and $277 for dues associated with membership in certain
    organizations.
 
                                       56
<PAGE>   57
 
     Option Grants in Last Fiscal Year.  The following table provides certain
information with respect to options granted to the Chief Executive Officer and
to each of the Named Executive Officers during the fiscal year ended December
31, 1996 under the Incentive Plans:
 
<TABLE>
<CAPTION>
                                              INDIVIDUAL GRANTS                      POTENTIAL REALIZABLE
                           -------------------------------------------------------  VALUE AT ASSUMED ANNUAL
                            NUMBER OF     PERCENT OF TOTAL                           RATES OF STOCK PRICE
                            SECURITIES      OPTIONS/SARS     EXERCISE               APPRECIATION FOR OPTION
                            UNDERLYING       GRANTED TO       OR BASE                       TERM(2)
                           OPTIONS/SARS     EMPLOYEES IN       PRICE     EXPIRATION -----------------------
    NAME AND POSITION      GRANTED(#)(1)    FISCAL YEAR      ($/SHARE)     DATE       5%($)        10%($)
-------------------------  ------------   ----------------   ---------   ---------  ----------   ----------
<S>                        <C>            <C>                <C>         <C>        <C>          <C>
Roger A. Ramsey..........     400,000            21%          $ 9.500    06/21/06   $2,389,800   $6,056,221
  Chief Executive Officer     100,000             5%            9.500    06/21/06      597,450    1,514,055
                              100,000             5%            8.125       N/A        510,977    1,294,916
Thomas H. Van Weelden....     400,000            21%            9.500    06/21/06    2,389,800    6,056,221
  President and COO           100,000             5%            9.500    06/21/06      597,450    1,514,055
                              100,000             5%            8.125       N/A        510,977    1,294,916
Larry D. Henk............      40,000             2%            6.875    01/24/06      172,946      438,279
  Vice President --
  Operations
H. Steven Uthoff.........      40,000             2%            6.875    01/24/06      172,946      438,279
  Vice President --
  Controller
Henry L. Hirvela.........     100,000             5%            9.125    04/01/06      573,866    1,454,290
  Vice President and CFO
</TABLE>
 
---------------
(1) Each option granted under the Incentive Plans becomes immediately
    exercisable on the occurrence of a Change in Control (as defined in the
    Incentive Plans). No stock appreciation rights were granted during 1996. Mr.
    Ramsey and Mr. Van Weelden each were awarded 100,000 in restricted stock
    during 1996. The restrictions may be released or accelerated under certain
    conditions.
 
(2) Because the exercise price of all options equals the market price per share
    of Common Stock on the date of grant, the potential realizable value of the
    options assuming 0% stock price appreciation is zero.
 
     Aggregated Option Exercises and Fiscal Year Ended Option Values.  The
following table provides certain information with respect to options exercised
during the fiscal year ended December 31, 1996 by the Chief Executive Officer
and each of the Named Executive Officers listed in the preceding tables:
 
<TABLE>
<CAPTION>
                                                               NUMBER OF                 VALUE OF
                                                         SECURITIES UNDERLYING         UNEXERCISED
                                                              UNEXERCISED              IN-THE-MONEY
                               SHARES                         OPTIONS/SARS           OPTIONS/SARS AT
                             ACQUIRED ON      VALUE      AT FISCAL YEAR-END(#)    FISCAL YEAR-END($)(1)
           NAME              EXERCISE(#)   REALIZED($)   EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---------------------------  -----------   -----------   ----------------------  ------------------------
<S>                          <C>           <C>           <C>           <C>       <C>             <C>
Roger A. Ramsey............         --            --      564,494       595,181  $2,453,265      $353,313
Thomas H. Van Weelden......         --            --      401,994       520,181   1,608,263       240,815
Larry D. Henk..............         --            --      179,800        90,000     825,975       344,000
H. Steven Uthoff...........         --            --      125,000        90,000     604,250       344,000
Henry L. Hirvela...........         --            --           --       100,000          --        12,500
</TABLE>
 
---------------
(1) Calculated by multiplying the number of shares underlying outstanding
    in-the-money options by the difference between the last sales price of the
    Common Stock on December 31, 1996 ($9.25 per share) and the exercise price,
    which ranges between $3.00 and $9.125 per share. Options are in-the-money if
    the fair market value of the underlying Common Stock exceeds the exercise
    price of the option.
 
     Employment Agreements.  The Company has entered into Executive Employment
Agreements with certain Named Executive Officers. The Executive Employment
Agreements of Mr. Ramsey and Mr. Van Weelden provide a base salary of $500,000
and a primary term which expires in 1999 that, after each year of employment, is
automatically renewed for successive one-year terms. The Executive Employment
Agreements of Mr. Henk and Mr. Uthoff provide for salaries of $260,000 and
$225,000, respectively, and a
 
                                       57
<PAGE>   58
 
primary term which expires in 1997 that is automatically renewed for successive
one-year terms. If the Executive Employment Agreements of Messrs. Ramsey, Van
Weelden, Henk or Uthoff are terminated by the employee for Good Reason (as
defined in the Executive Employment Agreement), of by the Company without Cause
(as defined in the Executive Employment Agreement), the base salary will be paid
until expiration of the term of the Executive Employment Agreement. If the
Executive Employment Agreements of Messrs. Ramsey, Van Weelden, Henk or Uthoff
are terminated by the employee for Good Reason or by the Company without Cause
and a Change in Control (as defined in the Executive Employment Agreement) has
occurred within two years preceding the date of termination, the Company is
obligated to pay an amount equal to the sum of two times the base salary on the
date of termination and the bonus paid for the previous year. The Company has
also entered into Employment Agreements with Anthony F. Ciofalo, Michael G.
Hannon, Peter S. Hathaway, Steven M. Helm and Daniel J. Ivan. These Employment
Agreements provide for base salaries ranging from $85,000 to $225,000, as well
as terms and severance arrangements similar to those found in the Executive
Employment Agreements of the Named Executive Officers.
 
     Compensation Committee Interlocks and Insider Participation.  Messrs.
Coulter, Lehmann and Shepard served on the Compensation Committee of the Board
of Directors in 1996. No member of the Compensation Committee has ever served as
an executive officer of the Company. The Company has issued securities to, and
raised working capital through borrowings from Equus. See "-- Certain
Relationships and Related Transactions."
 
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT
 
     Under the supervision of the Compensation Committee, the Company has
developed and implemented compensation policies, plans and programs designed to
enhance the profitability of the Company, and therefore stockholder value, by
aligning closely the financial interests of the Company's senior executives with
those of its stockholders. Therefore, executive compensation is related to the
financial performance of the Company and consists of the following elements:
base compensation, cash bonus and incentive stock benefits.
 
     Executive base compensation for senior executives (including the Chief
Executive Officer and the Named Executive Officers) is intended to be
competitive with that paid in comparably situated industries and to provide a
reasonable degree of financial security and flexibility to those individuals who
the Board of Directors regards as adequately performing the duties associated
with the various senior executive positions. In furtherance of this objective,
the Compensation Committee periodically, though not necessarily annually,
reviews the salary levels of a sampling of solid waste management companies that
are regarded by the Compensation Committee as having sufficiently similar
financial and operational characteristics to provide a reasonable basis for
comparison. Although the Compensation Committee does not attempt to specifically
tie executive base pay to that offered by any particular sampling of companies,
the review provides a useful gauge in administering the Company's base
compensation policy. In general, however, the Compensation Committee considers
the credentials, length of service, experience, and consistent performance of
each individual senior executive when setting compensation levels. To ensure
retention of qualified management, the Company has entered into employment
agreements with its key management personnel. The employment agreements
establish annual base salary amounts that the Compensation Committee may
increase, based on the foregoing criteria.
 
     The Compensation Committee evaluated the experience, length of service and
the general success of the Company's operations in determining the Chief
Executive Officer's compensation for 1996. The Compensation Committee also
considered the Company's growth through its acquisition strategy, the Company's
revenues, profitability and realization of operational efficiencies in 1996. The
Compensation Committee noted that the Company achieved significant growth in
revenues and profitability in 1996 as compared to 1995 and that the Company
successfully completed the Laidlaw Acquisition, which significantly increased
the Company's revenues and scope of operations in 1996. Based on these factors,
the Committee increased the salary of the Chief Executive Officer to $500,000
for 1997.
 
     Annual cash bonuses reflect a policy of requiring a certain level of
Company financial performance for the year before any cash bonuses are earned by
senior executives. In setting such performance criteria, the
 
                                       58
<PAGE>   59
 
Compensation Committee considers the total compensation payable or potentially
available to the Chief Executive Officer and other senior executives, including
the Named Executive Officers. The Compensation Committee has tied potential
bonus compensation to performance factors, including the officer's efforts and
contributions towards obtaining Company goals, the Company's overall growth, and
the results of the officer's efforts in achieving Company growth. Based on the
Company's significantly improved financial performance in 1996, as reflected in
significant increases in revenues, cash flow, earnings per share and shareholder
return on equity, and the successful completion of the Laidlaw Acquisition, the
Compensation Committee awarded a bonus of $120,000 to the CEO.
 
     The Incentive Plans are intended to provide key employees, including the
Chief Executive Officer and the Named Executive Officers of the Company and its
subsidiaries with a continuing proprietary interest in the Company, with a view
to increasing the interest in the Company's welfare of those personnel who share
the primary responsibility for the management and growth of the Company.
Moreover, the Incentive Plans provide a significant non-cash form of
compensation, which is intended to benefit the Company by enabling it to
continue to attract and to retain qualified personnel.
 
     The Compensation Committee is authorized to make Incentive Awards under the
Incentive Plans to key employees, including officers (whether or not they are
also directors) of the Company and its subsidiaries. Although the Incentive
Awards are not based on any one criteria, the Committee considers:
 
          (i) management's ability to implement the Company's strategy of
     geographic expansion through acquisition followed by successful integration
     and assimilation of the acquired companies;
 
          (ii) margin improvements achieved through management's realization of
     operational efficiencies, as well as revenue and earnings growth; and
 
          (iii) the attainment of personal performance goals established for
     certain employees as well as district and company-wide performance goals.
 
     The Compensation Committee also uses Incentive Awards as a form of
compensation in lieu of providing salary increases, based on its view that
Incentive Awards provide a more effective incentive for management performance
than cash payment.
 
     Based on these criteria, during the fiscal year ended December 31, 1996,
the Company granted to the Chief Executive Officer and Named Executive Officers
options covering an aggregate of 1,180,000 shares of Common Stock at exercise
prices between $6.875 and $9.500 per share. At December 31, 1996, the Chief
Executive Officer and Named Executive Officers held options covering an
aggregate of approximately 2,666,650 shares of which 1,271,288 shares were
vested and exercisable.
 
     The Management Development and Compensation Committee of the Board of
Directors.
 
                                  Nolan Lehman
                                Alan B. Shepard
                                James G. Coulter
 
                                       59
<PAGE>   60
 
Performance Graph
 
     The following performance graph compares the performance of the Common
Stock to the Nasdaq Composite Index and to an index of peer companies selected
by the Company. The graph covers the period from December 31, 1991 to December
31, 1996. The graph assumes that the value of the investment in the Common Stock
and each index was $100 at December 31, 1991 and that all dividends were
reinvested.
 
                                      LOGO
 
<TABLE>
<CAPTION>
                                           12/31/91  12/31/92  12/31/93  12/03/94  12/29/95  12/31/96
                                           --------  --------  --------  --------  --------  --------
<S>                                        <C>       <C>       <C>       <C>       <C>       <C>
Allied Waste Industries, Inc. ...........  $  9.00   $  4.75   $  5.25   $  4.00   $  7.13   $  9.25
                                           --------  --------  --------  --------  --------  --------
          Index..........................   100.0      52.8      58.3      44.4      79.2     102.8
                                           --------  --------  --------  --------  --------  --------
Nasdaq Composite Index...................  $187.20   $217.86   $250.09   $244.46   $346.72   $425.28
                                           --------  --------  --------  --------  --------  --------
          Index..........................   100.0     116.4     133.6     130.6     184.7     227.2
                                           --------  --------  --------  --------  --------  --------
Peer Group:
BFI, Inc. ...............................  $ 21.75   $ 26.13   $ 25.75   $ 28.38   $ 29.38   $ 26.25
American Waste Services, Inc. ...........     7.38      3.38      3.13      1.63      2.00      2.38
WMX Technologies, Inc. ..................    42.13     40.00     26.38     26.13     29.75     32.50
USA Waste Services, Inc. ................    14.00     14.50     11.38     11.38     18.88     31.88
                                           --------  --------  --------  --------  --------  --------
          Total..........................  $ 85.26   $ 84.01   $ 66.64   $ 67.50   $ 80.00   $ 93.00
                                           --------  --------  --------  --------  --------  --------
          Index..........................   100.0      98.5      78.2      79.2      93.8     109.1
                                           --------  --------  --------  --------  --------  --------
</TABLE>
 
                                       60
<PAGE>   61
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
                             PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information regarding the beneficial
ownership of the Common Stock at March 31, 1997 by: (i) each person who is known
by the Company to own beneficially more than five percent of the outstanding
shares of Common Stock, (ii) each director and named executive officer, and
(iii) all directors and executive officers of the Company as a group.
 
<TABLE>
<CAPTION>
                                                                                        PERCENT
              NAME OF PERSON OR IDENTITY OF GROUP(1)                   NUMBER           OF CLASS
-------------------------------------------------------------------  ----------         --------
<S>                                                                  <C>                <C>
Roger A. Ramsey....................................................     998,667(2)         1.3%
Thomas H. Van Weelden..............................................   1,309,013(3)         1.7%
Laidlaw Transportation, Inc.(4)(17)................................  14,600,000(5)        19.1%
     669 Airport Freeway, Suite 400
     Hurst, Texas 76102
TPG Partners, L.P.(17).............................................  11,776,765(6)        15.3%
TPG Parallel I, L.P.
     201 Main Street, Suite 2420
     Fort Worth, Texas 76102
Nolan Lehmann......................................................   1,547,310(7)         2.0%
Brian A. O'Leary...................................................   6,005,241            7.8%
Daniel J. Ivan.....................................................     113,903(8)           *
Larry D. Henk......................................................     288,020(9)           *
H. Steven Uthoff...................................................     202,333(10)          *
Robert G. Reedy....................................................      71,893(11)          *
Alan B. Shepard....................................................      74,596(12)          *
James Bullock......................................................      25,000(13)         --
Iran R. Cairns.....................................................  14,625,000(14)       19.1%
William K. Reilly..................................................      35,000(13)          *
John M. Lewis......................................................      37,243(15)          *
James G. Coulter...................................................  11,811,765(16)       15.3%
Jeffrey A. Shaw....................................................      35,000(13)          *
All directors and executive officers as a group
  (19 persons) (2)-(3), (6)-(16)...................................  32,607,966           41.3%
</TABLE>
 
---------------
  *  Does not exceed one percent.
 
 (1) Unless otherwise indicated, the address of each person or group listed
     above is 15880 North Greenway-Hayden Loop, Suite 100, Scottsdale, Arizona
     85260.
 
 (2) Includes (i) 75,694 shares of Common Stock that are beneficially owned by
     an affiliate of Mr. Ramsey and (ii) 564,494 shares of Common Stock that may
     be acquired on the exercise of options.
 
 (3) Includes 440,119 shares of Common Stock that may be acquired on the
     exercise of options and warrants.
 
 (4) Laidlaw Transportation, Inc. is a wholly-owned subsidiary of Laidlaw Inc.,
     3221 North Service Road, Burlington, Ontario, Canada L7R 3Y8.
 
 (5) Does not include a warrant to purchase 20,400,000 shares of Common Stock
     which may not be exercised by Laidlaw Transportation, Inc. or any affiliate
     unless there is a change of control of the Company.
 
 (6) The general partners of each of TPG Partners, L.P. and TPG Parallel I, L.P.
     is TPG GenPar, L.P., a Delaware limited partnership. The general partner of
     TPG GenPar, L.P. is TPG Advisors, Inc.
 
                                       61
<PAGE>   62
 
     Delaware corporation. The stockholders of TPG Advisors, Inc. are David
     Bonderman, James G. Coulter and William S. Price, III, none of whom own a
     majority of the outstanding stock.
 
 (7) Includes (i) 1,491,449 shares of Common Stock that are beneficially owned
     by an affiliate of Mr. Lehmann, and (ii) 45,000 shares of Common Stock that
     may be acquired on the exercise of options.
 
 (8) Includes 110,567 shares of Common Stock that may be acquired on the
     exercise of options.
 
 (9) Includes 243,133 shares of Common Stock that may be acquired on the
     exercise of options.
 
(10) Includes 188,333 shares of Common Stock that may be acquired on the
     exercise of options and warrants.
 
(11) Includes 45,000 shares of Common Stock that may be acquired on the exercise
     of options.
 
(12) Includes 45,000 shares of Common Stock that may be acquired on the exercise
     of options.
 
(13) Represents shares of Common Stock that may be acquired on the exercise of
     options.
 
(14) Includes (i) 25,000 shares of Common Stock that may be acquired on the
     exercise of options and (ii) 14,600,000 shares of Common Stock that are
     beneficially owned by Laidlaw Transportation, Inc.
 
(15) Includes 35,000 shares of Common Stock that may be acquired on the exercise
     of options.
 
(16) Includes (i) 35,000 shares of Common Stock that may be acquired on the
     exercise of options and (ii) 11,776,765 shares of Common Stock which are
     beneficially owned by TPG partners, L.P.
 
(17) Subsequent to March 31, 1997, Laidlaw, TPG and the Company entered into
     agreements pursuant to which these shares will be purchased by Apollo
     Investment Fund III, L.P. and Blackstone Capital Partners II Merchant
     Banking Fund L.P., and which are expected to close in the second quarter of
     1997.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The Company enters into transactions with related parties only with the
approval of a majority of the independent and disinterested Directors and only
on terms the Company believes to be comparable to or better than those that
would be available from unaffiliated parties. In the Company's view, all of the
transactions described below meet that standard.
 
     Nolan Lehmann is President and a Director of Equus and a Director of the
Company. On May 3, 1996, the Company issued 23,751 shares of its Common Stock to
Equus in satisfaction of a conversion fee due pursuant to the conversion of 9%
Cumulative Convertible Preferred Stock.
 
     Roger A. Ramsey is a general partner of HP, which through its affiliates is
a stockholder of the Company, and is Chairman, Chief Executive Officer and a
Director of the Company.
 
     In consideration of the acquisition of R.18 in January 1992, the Company
and Thomas H. Van Weelden entered into a non-competition agreement which
provides for the payment to Mr. Van Weelden of an annual fee of $25,000 through
February, 1997. Prior to the Company's acquisition of EDC, Mr. Van Weelden,
certain of his affiliates and certain other persons entered into an agreement
with EDC pursuant to which EDC is obligated to pay an aggregate of $5.6 million
on the issuance of a permit entitling EDC or its subsidiaries to operate a
non-hazardous solid waste landfill comprising at least 7,000,000 cubic yards of
airspace on a tract of land formerly owned by such parties. In April 1995, this
permit was issued and the $5.6 million obligation was remitted to the
aforementioned parties in the form of cash and promissory notes. Thomas H. Van
Weelden, Larry D. Henk and James G. Van Weelden received $1,204,875, $187,250
and $655,375, respectively, in four-year promissory notes bearing interest at
12%. All promissory notes issued in connection with this permit are guaranteed
by the Company.
 
     Curtis T. Ramsey received $88,350 in salary plus bonus for the year ended
December 31, 1996. Curtis Ramsey is the son of Roger A. Ramsey.
 
     Edward L. Van Weelden and James G. Van Weelden received $135,000 and
$160,000, respectively, in salary and bonus for the year ended December 31,
1996.
 
                                       62
<PAGE>   63
 
                                    PART IV
 
ITEM 14.  FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
 
  Financial Statement Schedules --
 
     Schedules omitted since the information required to be submitted has been
included in the Consolidated Financial Statements of Allied Waste Industries,
Inc. or the notes thereto, or the required information is not applicable.
 
  Exhibits --
 
<TABLE>
<S>    <C>
 2.1   Stock Purchase Agreement dated September 17, 1996 among the Company, Allied NA,
       3294862 Canada Inc., Laidlaw Inc., Laidlaw Transportation, Inc., Laidlaw Waste
       Systems, Inc., Laidlaw Waste Systems (Canada) Ltd. and Laidlaw Medical Services Ltd.
       Exhibit 2.1 to the Company's Current Report on Form 8-K dated October 2, 1996, is
       incorporated herein by reference.
 2.2   Purchase Agreement relating to the 1996 Notes dated November 25, 1996. Exhibit 2.1 to
       the Company's Current Report on Form 8-K dated December 19, 1996, is incorporated
       herein by reference.
 2.3   Share Purchase Agreement dated January 15, 1997 among the Company, Allied Waste
       Holdings (Canada) Ltd., Laidlaw Waste Systems, Inc., USA Waste Services, Inc. and
       Canadian Waste Services, Inc. Exhibit 10.0 to the Company's Current Report on Form 8-K
       dated January 30, 1997, is incorporated herein by reference.
 3.1   Restated Certificate of Incorporation of the Company.*
 3.2   Certificate of Designation, Preferences, Rights and Limitations of 7% Cumulative
       Convertible Preferred Stock, par value $.10 per share dated April 27, 1994. Exhibit
       3.2 to Post-Effective Amendment Number 1 to the Company's Registration Statement on
       Form S-1 (No. 33-75070) is incorporated herein by reference.
 3.3   Amended and Restated Bylaws of the Company. Exhibit 10.1 to the Company's Quarterly
       Report on Form 10-Q dated November 5, 1996, is incorporated herein by reference.
 4.1   Specimen certificate for shares of Common Stock par value $.01 per share. Exhibit 4.2
       of the Company's Registration Statement on Form S-1 (No. 33-48507) is incorporated
       herein by reference.
 4.2   Indenture relating to the 1994 Notes dated January 15, 1994 between the Company and
       First Trust National Association, as trustee ("First Trust"). Exhibit 4.1 to the
       Company's Registration Statement on Form S-1 (No. 33-73110) is incorporated herein by
       reference.
 4.3   Specimen certificate representing the 1994 Notes. Exhibit 4.2 of the Company's
       Registration Statement on Form S-1 (No. 33-48507) is incorporated herein by reference.
 4.4   Second Supplemental Indenture relating to the 1994 Notes dated June 30, 1994 between
       the Company and First Trust. Exhibit 1.1 to the Company's Current Report on Form 8-K
       dated December 29, 1994, is incorporated herein by reference.
 4.5   Third Supplemental Indenture relating to the 1994 Notes dated January 31, 1995 between
       the Company and First Trust. Exhibit 10.3 to the Company's Quarterly Report on Form
       10-Q dated August 10, 1995, is incorporated herein by reference.
 4.6   Fourth Supplemental Indenture relating to the 1994 Notes dated January 23, 1996,
       between the Company and First Trust. Exhibit 10.1 to the Company's Current Report on
       Form 8-K dated January 22, 1996, is incorporated herein by reference.
 4.7   Fifth Supplemental Indenture relating to the 1994 Notes dated July 30, 1996 between
       the Company and First Trust. Exhibit 10.2 to the Company's Quarterly Report on Form
       10-Q dated August 14, 1996, is incorporated herein by reference.
 4.8   Indenture relating to the 1996 Notes dated February 28, 1997 between the Company and
       First Trust. Exhibit 4.1 to the Company's Registration Statement on Form S-4 (No.
       333-22575) is incorporated herein by reference.
 4.9   1991 Incentive Stock Plan of the Company. Exhibit 10.T to the Company's Form 10 dated
       May 14, 1991, is incorporated herein by reference.
</TABLE>
 
                                       63
<PAGE>   64
 
<TABLE>
<S>    <C>
 4.10  1991 Non-Employee Director Stock Plan of the Company. Exhibit 10.U to the Company's
       Form 10 dated May 14, 1991, is incorporated herein by reference.
 4.11  1993 Incentive Stock Plan of the Company. Exhibit 10.3 to the Company's Registration
       Statement on Form S-1 (No. 33-73110) is incorporated herein by reference.
 4.12  1994 Amended and Restated Non-Employee Director Stock Option Plan of the Company.
       Exhibit B to the Company's Definitive Proxy Statement in accordance with Schedule 14A
       dated April 28, 1994, is incorporated herein by reference.
 4.13  Amendment to the 1994 Amended and Restated Non-Employee Director Stock Option Plan.
       Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q dated August 10, 1995, is
       incorporated herein by reference.
 4.14  Amended and Restated 1994 Incentive Stock Plan. Exhibit 10.1 to the Company's
       Quarterly Report on Form 10-Q dated May 31, 1996, is incorporated herein by reference.
10.1   Employment Agreement dated May 18, 1992, between the Company and Roger A. Ramsey, as
       amended. Exhibit 10.33 to the Company's Registration Statement on Form S-1 (No.
       33-37110) is incorporated herein by reference.
10.2   Employment Agreement dated October 20, 1993, between the Company and Thomas H. Van
       Weelden, as amended. Exhibit 10.32 to the Company's Registration Statement on Form S-1
       (No. 33-37110) is incorporated herein by reference.
10.3   Employment Agreement dated January 3, 1994, between the Company and Larry D. Henk, as
       amended. Exhibit 10.43 to the Company's Current Report on Form S-1/A-1 (No. 33-75070)
       is incorporated herein by reference.
10.4   Employment Agreement dated May 26, 1994, between the Company and H. Steven Uthoff, as
       amended. Exhibit 10.45 to the Company's Current Report on Form S-1/A-1 (No. 33-75070)
       is incorporated herein by reference.
10.5   Securities Purchase Agreement dated October 27, 1994, between the Company and TPG
       Partners, L.P. (the "TPG Agreement"). Exhibit 1.1 to the Company's Current Report on
       Form 8-K dated November 4, 1994, is incorporated herein by reference.
10.6   First Amendment to the TPG Agreement dated December 1, 1994. Exhibit 1.4 to the
       Company's Current Report on Form 8-K/A-1 dated November 4, 1994, is incorporated
       herein by reference.
10.7   Second Amendment to the TPG Agreement dated December 9, 1994. Exhibit 1.5 to the
       Company's Current Report on Form 8-K/A-1 dated November 4, 1994, is incorporated
       herein by reference.
10.8   Third Amendment to the TPG Agreement dated December 16, 1994. Exhibit 1.4 to the
       Company's Current Report on Form 8-K/A-2 dated November 4, 1994, is incorporated
       herein by reference.
10.9   Fourth Amendment to the TPG Agreement dated December 30, 1994. Exhibit 1.1 to the
       Company's Current Report on Form 8-K/A-3 dated November 4, 1994, is incorporated
       herein by reference.
10.10  Agreement dated September 17, 1996, between Allied Waste Industries, Inc., TPG
       Partners, L.P. and TPG Parallel I, L.P. Exhibit 10.1 to the Company's Current Report
       on Form 8-K dated October 2, 1996, is incorporated herein by reference.
10.11  Credit Agreement among the Company, Allied NA, and the various lenders represented by
       Goldman Sachs Credit Partners, L.P., Credit Suisse and Citibank, N.A. dated December
       30, 1996.
11.1   Statement regarding the computation of per share earnings -- primary.
11.2   Statement regarding the computation of per share earnings -- fully diluted.
12     Ratio of earnings to fixed charges.
21     Subsidiaries of the Registrant.
24.1   Consent of Arthur Andersen LLP.
27     Financial Data Schedule.
</TABLE>
 
---------------
* Filed herewith.
 
                                       64
<PAGE>   65
 
  Reports on Form 8-K during the Quarter Ended December 31, 1996 --
 
October 2, 1996       The Company's current report on Form 8-K reports that the
                      Company entered into a Stock Purchase Agreement to acquire
                      the solid waste management operations of Laidlaw Inc.
 
November 29, 1996     The Company's current report on Form 8-K/A-1 reports pro
                      forma financial statements related to the acquisition of
                      the solid waste management operations of Laidlaw Inc.
 
December 19, 1996     The Company's current report on Form 8-K reports the
                      issuance of $525 million 10.25% in Senior Subordinated
                      Notes.
 
December 20, 1996     The Company's current report on Form 8-K/A-2 reports
                      revised pro forma financial statements related to the
                      acquisition of the solid waste management operations of
                      Laidlaw Inc.
 
December 27, 1996     The Company's current report on Form 8-K/A-3 reports
                      revised pro forma financial statements related to the
                      acquisition of the solid waste management operations of
                      Laidlaw Inc.
 
                                       65
<PAGE>   66
 
                                   SIGNATURES
 
   
     Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant, Allied Waste Industries, Inc.,
has caused this Report to be signed on its behalf by the undersigned, in the
City of Scottsdale, State of Arizona, on August 20, 1997.
    
 
                                          ALLIED WASTE INDUSTRIES, INC.
 
                                          By: /s/   HENRY L. HIRVELA
 
                                            ------------------------------------
                                            Henry L. Hirvela
                                            Vice President - Chief Financial
                                              Officer
                                            (Principal Financial Officer)
 
                                          By: /s/   PETER S. HATHAWAY
 
                                            ------------------------------------
                                            Peter S. Hathaway
                                            Vice President -- Chief Accounting
                                              Officer
                                            (Principal Accounting Officer)
 
   
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
August 20, 1997.
    
 
<TABLE>
<CAPTION>
                  SIGNATURE                                         TITLE
---------------------------------------------    --------------------------------------------
<S>                                              <C>
             /s/ ROGER A. RAMSEY                 Director and Chairman of the Board of
---------------------------------------------      Directors
               Roger A. Ramsey
 
           /s/ THOMAS VAN WEELDEN                Director, President and Chief Executive
---------------------------------------------      Officer
             Thomas Van Weelden
            /s/ HENRY L. HIRVELA                 Vice President -- Chief Financial Officer
---------------------------------------------      (Principal Financial Officer)
              Henry L. Hirvela
 
            /s/ PETER S. HATHAWAY                Vice President -- Chief Accounting Officer
---------------------------------------------      (Principal Accounting Officer)
              Peter S. Hathaway
 
              /s/ NOLAN LEHMANN                  Director
---------------------------------------------
                Nolan Lehmann
 
             /s/ ALAN B. SHEPARD                 Director
---------------------------------------------
               Alan B. Shepard
 
            /s/ BRIAN A. O'LEARY                 Director
---------------------------------------------
              Brian A. O'Leary
</TABLE>
 
                                       66
<PAGE>   67
 
<TABLE>
<CAPTION>
                  SIGNATURE                                         TITLE
---------------------------------------------    --------------------------------------------
<C>                                              <S>
 
              /s/ MICHAEL GROSS                  Director
---------------------------------------------
                Michael Gross
 
             /s/ DAVID B. KAPLAN                 Director
---------------------------------------------
               David B. Kaplan
 
            /s/ ANTONY P. RESSLER                Director
---------------------------------------------
              Antony P. Ressler
 
                                                 Director
---------------------------------------------
              Howard A. Lipson
 
             /s/ DENNIS HENDRIX                  Director
---------------------------------------------
               Dennis Hendrix
 
                                                 Director
---------------------------------------------
              Warren B. Rudman
 
                                                 Director
---------------------------------------------
                Vincent Tese
</TABLE>
 
                                       67
<PAGE>   68
 
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
EXHIBIT
   #                                          EXHIBIT                                      PAGE
-------   -------------------------------------------------------------------------------  ----
<C>       <S>                                                                              <C>
  2.1     Stock Purchase Agreement dated September 17, 1996 among the Company, Allied NA,
          3294862 Canada Inc., Laidlaw Inc., Laidlaw Transportation, Inc., Laidlaw Waste
          Systems, Inc., Laidlaw Waste Systems (Canada) Ltd. and Laidlaw Medical Services
          Ltd. Exhibit 2.1 to the Company's Current Report on Form 8-K dated October 2,
          1996, is incorporated herein by reference.
  2.2     Purchase Agreement relating to the 1996 Notes dated November 25, 1996. Exhibit
          2.1 to the Company's Current Report on Form 8-K dated December 19, 1996, is
          incorporated herein by reference.
  2.3     Share Purchase Agreement dated January 15, 1997 among the Company, Allied Waste
          Holdings (Canada) Ltd., Laidlaw Waste Systems, Inc., USA Waste Services, Inc.
          and Canadian Waste Services, Inc. Exhibit 10.0 to the Company's Current Report
          on Form 8-K dated January 30, 1997, is incorporated herein by reference.
  3.1     Restated Certificate of Incorporation of the Company.
  3.2     Certificate of Designation, Preferences, Rights and Limitations of 7%
          Cumulative Convertible Preferred Stock, par value $.10 per share dated April
          27, 1994. Exhibit 3.2 to Post-Effective Amendment Number 1 to the Company's
          Registration Statement on Form S-1 (No. 33-75070) is incorporated herein by
          reference.
  3.3     Amended and Restated Bylaws of the Company. Exhibit 10.1 to the Company's
          Quarterly Report on Form 10-Q dated November 5, 1996, is incorporated herein by
          reference.
  4.1     Specimen certificate for shares of Common Stock par value $.01 per share.
          Exhibit 4.2 of the Company's Registration Statement on Form S-1 (No. 33-48507)
          is incorporated herein by reference.
  4.2     Indenture relating to the 1994 Notes dated January 15, 1994 between the Company
          and First Trust National Association, as trustee ("First Trust"). Exhibit 4.1
          to the Company's Registration Statement on Form S-1 (No. 33-73110) is
          incorporated herein by reference.
  4.3     Specimen certificate representing the 1994 Notes. Exhibit 4.2 of the Company's
          Registration Statement on Form S-1 (No. 33-48507) is incorporated herein by
          reference.
  4.4     Second Supplemental Indenture relating to the 1994 Notes dated June 30, 1994
          between the Company and First Trust. Exhibit 1.1 to the Company's Current
          Report on Form 8-K dated December 29, 1994, is incorporated herein by
          reference.
  4.5     Third Supplemental Indenture relating to the 1994 Notes dated January 31, 1995
          between the Company and First Trust. Exhibit 10.3 to the Company's Quarterly
          Report on Form 10-Q dated August 10, 1995, is incorporated herein by reference.
  4.6     Fourth Supplemental Indenture relating to the 1994 Notes dated January 23,
          1996, between the Company and First Trust. Exhibit 1.1 to the Company's Current
          Report on Form 8-K dated January 22, 1996, is incorporated herein by reference.
  4.7     Fifth Supplemental Indenture relating to the 1994 Notes dated July 30, 1996
          between the Company and First Trust. Exhibit 10.2 to the Company's Quarterly
          Report on Form 10-Q dated August 14, 1996, is incorporated herein by reference.
  4.8     Indenture relating to the 1996 Notes dated February 28, 1997 between the
          Company and First Trust. Exhibit 4.1 to the Company's Registration Statement on
          Form S-4 (No. 333-22575) is incorporated herein by reference.
  4.9     1991 Incentive Stock Plan of the Company. Exhibit 10.T to the Company's Form 10
          dated May 14, 1991, is incorporated herein by reference.
  4.10    1991 Non-Employee Director Stock Plan of the Company. Exhibit 10.U to the
          Company's Form 10 dated May 14, 1991, is incorporated herein by reference.
  4.11    1993 Incentive Stock Plan of the Company. Exhibit 10.3 to the Company's
          Registration Statement on Form S-1 (No. 33-73110) is incorporated herein by
          reference.
</TABLE>
    
 
                                       68
<PAGE>   69
 
<TABLE>
<CAPTION>
EXHIBIT
   #                                          EXHIBIT                                      PAGE
-------   -------------------------------------------------------------------------------  ----
<C>       <S>                                                                              <C>
  4.12    1994 Amended and Restated Non-Employee Director Stock Option Plan of the
          Company. Exhibit B to the Company's Definitive Proxy Statement in accordance
          with Schedule 14A dated April 28, 1994, is incorporated herein by reference.
  4.13    Amendment to the 1994 Amended and Restated Non-Employee Director Stock Option
          Plan. Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q dated August
          10, 1995, is incorporated herein by reference.
  4.14    Amended and Restated 1994 Incentive Stock Plan. Exhibit 10.1 to the Company's
          Quarterly Report on Form 10-Q dated May 31, 1996, is incorporated herein by
          reference.
 10.1     Employment Agreement dated May 18, 1992, between the Company and Roger A.
          Ramsey, as amended. Exhibit 10.33 to the Company's Registration Statement on
          Form S-1 (No. 33-37110) is incorporated herein by reference.
 10.2     Employment Agreement dated October 20, 1993, between the Company and Thomas H.
          Van Weelden, as amended. Exhibit 10.32 to the Company's Registration Statement
          on Form S-1 (No. 33-37110) is incorporated herein by reference.
 10.3     Employment Agreement dated January 3, 1994, between the Company and Larry D.
          Henk, as amended. Exhibit 10.43 to the Company's Current Report on Form S-1/A-1
          (No. 33-75070) is incorporated herein by reference.
 10.4     Employment Agreement dated May 26, 1994, between the Company and H. Steven
          Uthoff, as amended. Exhibit 10.45 to the Company's Current Report on Form
          S-1/A-1 (No. 33-75070) is incorporated herein by reference.
 10.5     Securities Purchase Agreement dated October 27, 1994, between the Company and
          TPG Partners, L.P. (the "TPG Agreement"). Exhibit 1.1 to the Company's Current
          Report on Form 8-K dated November 4, 1994, is incorporated herein by reference.
 10.6     First Amendment to the TPG Agreement dated December 1, 1994. Exhibit 1.4 to the
          Company's Current Report on Form 8-K/A-1 dated November 4, 1994, is
          incorporated herein by reference.
 10.7     Second Amendment to the TPG Agreement dated December 9, 1994. Exhibit 1.5 to
          the Company's Current Report on Form 8-K/A-1 dated November 4, 1994, is
          incorporated herein by reference.
 10.8     Third Amendment to the TPG Agreement dated December 16, 1994. Exhibit 1.4 to
          the Company's Current Report on Form 8-K/A-2 dated November 4, 1994, is
          incorporated herein by reference.
 10.9     Fourth Amendment to the TPG Agreement dated December 30, 1994. Exhibit 1.1 to
          the Company's Current Report on Form 8-K/A-3 dated November 4, 1994, is
          incorporated herein by reference.
 10.10    Agreement dated September 17, 1996, between Allied Waste Industries, Inc., TPG
          Partners, L.P. and TPG Parallel I, L.P. Exhibit 10.1 to the Company's Current
          Report on Form 8-K dated October 2, 1996, is incorporated herein by reference.
 10.11    Credit Agreement among the Company, Allied NA, and the various lenders
          represented by Goldman Sachs Credit Partners, L.P., Credit Suisse and Citibank,
          N.A. dated December 30, 1996.
 11.1     Statement regarding the computation of per share earnings -- primary.
 11.2     Statement regarding the computation of per share earnings -- fully diluted.
 12       Ratio of earning to fixed charges.
 21       Subsidiaries of the Registrant.
 24.1     Consent of Arthur Andersen LLP.
 27       Financial Data Schedule
</TABLE>
 
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* Filed herewith.
 
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