SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 --------------


                                    FORM 10-K
(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, 1997

[  ] 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)
                                 --------------

          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)

       Registrant's telephone number, including area code: (602) 423-2946
                                 --------------


          Securities registered pursuant to Section 12(g) of the Act:

   Title of each class               Name of each exchange on which registered

Common Stock, $.01 par value                     Nasdaq National Market

         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 .

         Indicate 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 $1,801,526,053 as of March 16, 1998.

         The number of shares of the  Company's  common  stock,  $.01 par value,
outstanding at March 16, 1998 was 105,804,325.

         The registrant's  proxy statement is to be filed in connection with the
registrant's  1998  annual  meeting  of  stockholders,  portions  of  which  are
incorporated by reference into Part III of this report.







<PAGE>




                                     PART I


Item l.  Business

     Allied  Waste  Industries,  Inc., a Delaware  corporation  ("Allied" or the
"Company"),  is the fifth largest,  non-hazardous solid waste management company
in the United States, as measured by revenues.  The Company serves approximately
1.4 million customers  through  operations in 18 states located primarily in the
Midwest, Northeast, Southeast and Southwest United States. As of March 16, 1998,
the Company provided its services through a network of 81 collection  companies,
43 transfer stations, 56 landfills, and 21 recycling facilities. The Company had
revenues of $291.7  million and $875.0  million for the years ended December 31,
1996 and 1997,  respectively.  The  substantial  increase  in  revenues  in 1997
compared to the same period in 1996 is primarily attributable to the acquisition
of  substantially  all of the  non-hazardous  solid  waste  management  business
conducted  by Laidlaw  Inc.  ("Laidlaw")  on  December  30,  1996 (the  "Laidlaw
Acquisition").

Industry Trends

         Based on data available from the  Environmental  Protection Agency (the
"EPA") and industry trade  journals,  the Company  estimates that the total 1996
revenues of the  non-hazardous  solid waste  industry in the United  States were
approximately  $36 billion.  The  non-hazardous  solid waste  industry is highly
fragmented.  Approximately  41%,  32% and 27% of the  revenue  is  generated  by
publicly  traded  companies,   municipalities   and  privately  held  companies,
respectively. The five largest publicly traded companies represent a substantial
majority of the publicly traded company revenues.

         The   non-hazardous   solid   waste   industry  is   characterized   by
consolidation. The Company believes that several factors will lead to continuing
acquisitions  and  consolidation  in  the  industry.  Rising  costs,  regulatory
complexities and increased capital  expenditures  will create  opportunities for
large integrated public companies that have the requisite  management  expertise
and  ready  access  to  capital.  The  following  factors  are  contributing  to
consolidation and acquisition opportunities:

         (1) Subtitle D of the Resource  Conservation  and Recovery Act of 1976,
as amended  ("Subtitle  D") and similar  state  regulations  have  significantly
increased  the  amount of  capital,  technical  expertise,  operating  costs and
financial  assurance  obligations  required  to  own  and  operate  solid  waste
landfills.  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.  Industry data show that, in recent years,  the number of landfills in the
United  States  has been  decreasing.  In 1988 there  were  approximately  7,500
landfills; by 1991, the number had dropped to 5,700; and in 1995 there were less
than 2,900 landfills.

         (2) As an  alternative  to funding the changes  required by Subtitle D,
many  municipalities  are  electing to  privatize  their  municipal  solid waste
landfill operations. A survey cited in a 1996 industry trade journal, Waste Age,
indicates that of the 1,600  municipalities  surveyed,  which together represent
80% of the United  States  population,  11%,  35%,  27% and 22% are  considering
privatization of solid waste collection services,  material recovery facilities,
landfill operations and transfer stations, respectively.

         (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  financial  assurance
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.

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Business Strategy

         The major components of the Company's business strategy consist of: (1)
operating  vertically  integrated  non-hazardous  solid waste service businesses
with a high rate of waste internalization; (2) managing these businesses locally
with a strong focus on operations; (3) maintaining a high rate of growth through
acquisitions and internal  development in existing and selected new markets; and
(4)   maintaining   the  financial   capacity,   management   capabilities   and
administrative  systems and controls to support  on-going  operations and future
growth. The Company operates almost exclusively in the United States.

                  Vertical   Integration  and   Internalization.   The  vertical
                  integration  business  model is the key  element  of  Allied's
                  operating  philosophy  and growth  strategy.  The  fundamental
                  objective of the  vertical  integration  business  model is to
                  control the waste stream from the point of collection  through
                  disposal and to achieve a high rate of waste  internalization.
                  Allied seeks to build,  through  acquisitions and other market
                  development   initiatives,    market   specific,    vertically
                  integrated  operations  typically  consisting  of one or  more
                  collection  companies,  transfer stations,  processing centers
                  and landfills.  Within its markets, Allied seeks to strengthen
                  its competitive  position and improve its financial returns by
                  acquiring  additional  operating  assets,   typically  through
                  "tuck-in"  collection  company  acquisitions.  Allied believes
                  that it can realize  competitive  advantages and strong future
                  growth  by  continuously  implementing  this  strategy  across
                  existing  and  new  markets  in the  United  States.  Allied's
                  internalization  rate, as measured by collection volumes,  was
                  approximately 60% in 1997.

                  Focus on  Operations.  Allied's  operations-oriented  business
                  strategy is  characterized  by  decentralized  operations  and
                  local management with significant  experience in operating and
                  growing solid waste businesses. Allied only recruits operating
                  managers  with  extensive  industry  experience,  usually with
                  significant  experience in their geographic markets.  Allied's
                  senior executive  management,  senior operating management and
                  regional vice presidents  currently average  approximately 18,
                  22 and 23  years  of  industry  experience,  respectively.  By
                  continuing   to   hire   and   retain    experienced,    local
                  market-oriented managers, Allied believes that it will be well
                  positioned  to react to changes in its market and will be able
                  to  capitalize  on growth  opportunities  in existing  and new
                  markets.

                  Maintaining High Rate of Growth. Allied seeks to capitalize on
                  the on-going  consolidation of the  approximately  $36 billion
                  solid waste industry in the United  States.  Allied intends to
                  grow  primarily  by  acquiring   privately-owned  solid  waste
                  companies  and  through  internal  development.   Allied  also
                  intends to take  selective  advantage  of  opportunities  when
                  government  entities privatize the operation of all or part of
                  their  solid  waste  systems.  In  addition,  Allied  seeks to
                  achieve broad geographic and business mix  diversification  in
                  its operations  and market  development  activities.  Allied's
                  revenue mix for 1997 was  approximately  59%  collection,  25%
                  disposal, 7% transfer, 3% recycling and 6% other.

                  Maintaining Capacity for Future Growth.  Allied implements its
                  business strategy by maintaining  effective internal controls,
                  experienced  management  and  sufficient  financial  capacity.
                  While Allied  expects  internal cash flows to fund most of its
                  working capital and capital expenditure  requirements,  Allied
                  intends to access the public and private capital  markets,  as
                  appropriate,   to  fund  its  continuing   growth  and  market
                  development activities.







                                        3

<PAGE>




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 without a penalty 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 compaction 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 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,

                                        4

<PAGE>



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 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 to own or operate its own disposal facilities thereby
ensuring access on favorable terms and the internalization of disposal fees.

Organization, Marketing and Sales

         The Company's operations are organized into six regions which beginning
in 1998 were designated as Great Lakes, Midwest, Northeast, Southeast, Southwest
and West.  Each region is organized  into several  operating  districts and each
district is comprised of specific site operations.  In determining these regions
and  districts,  the  Company  utilizes  its  vertical  integration  strategy to
optimize  operating  efficiencies  within each  region.  Each of its regions and
substantially all of its districts include collection,  transfer, processing and
disposal services, which facilitates efficient and cost effective waste handling
and  allows  the  districts  to  maximize  the   internalization  of  waste.  In
determining the boundaries of regions and districts, consideration is also given
to the aggregate  revenues  generated in each region and district and the growth
and expansion plans in each geographic area.

         Each region is managed by a regional vice  president,  who is supported
by a modest  staff  which  includes a regional  controller.  All  regional  vice
presidents and most regional  controllers have significant  industry  experience
(in the case of regional  vice  presidents,  averaging 24 years of  experience).
Most  regional  offices  are  located in a district  facility in order to reduce
overhead costs and to promote a close working  relationship between the regional
management and field operations personnel.  In addition,  Allied generally makes
it a practice to fill management positions from within the organization.

         The responsibilities of Allied's field management also are aligned with
the vertical  integration  model.  All  regional  managers  and  generally  most
district  mangers  have  responsibility  for all  phases of the  waste  handling
process  including  collection,  transfer,  processing  and  disposal.  Regional
management also has  responsibility  for growing regional  revenues through both
acquisition  and internal  development  initiatives.  Allied  believes that this
approach  promotes the most  efficient  handling of waste,  including  increased
internalization, and results in reduced costs and increased profits. In addition
to base salary, regional and district management are compensated through a bonus
program and stock option plan. The compensation payable to each manager pursuant
to the bonus and stock option  plans is largely  based upon meeting or exceeding
operating profit goals in such manager's geographic area of responsibility.

         Each of  Allied's  districts  has a staff  responsible  for  sales  and
marketing.  Allied'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.





                                        5

<PAGE>



         In addition, to its sales efforts directed at commercial and industrial
customers,  Allied has a municipal marketing  coordinator in most service areas.
The municipal  marketing  coordinators are responsible for interfacing with each
municipality or community to which Allied provides residential service to ensure
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.  In addition to the Company, the industry is currently comprised of
four  national  waste  companies,   Waste  Management,   Inc.;   Browning-Ferris
Industries,  Inc. ("BFI");  Republic  Industries,  Inc.; and USA Waste Services,
Inc.  ("USA  Waste");  and local and  regional  companies  of varying  sizes and
competitive  resources  such  as  American  Disposal  Services,  Inc.,  Superior
Services,  Inc. and Waste Industries,  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
through  pricing and service 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.

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.  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  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.  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,  ("RCRA")  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 non-hazardous 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

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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,  which  varied  state by  state,  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 Comprehensive  Environmental  Response,  Compensation and Liability
Act of 1980,  ("CERCLA") 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 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 applied the Clean Air Act 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.





                                        7

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         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 is to obtain an environmental
assessment prepared by an independent environmental consulting firm for all real
estate  acquired.   For  calendar  year  1998,  the  Company  expects  to  spend
approximately   $24   million  for   closure,   post-closure   and   remediation
expenditures.


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  $342.9  million  in  financial  assurance
obligations  relating to its landfill operations by the end of fiscal year 1998.
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.



                                        8

<PAGE>



Employees

         The Company employs  approximately 5,400 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 N.
Greenway-Hayden  Loop, Suite 100,  Scottsdale,  Arizona 85260 where it currently
leases  approximately  33,000  square feet of office  space.  The  Company  also
maintains six regional  administrative offices in Arizona,  Illinois,  Missouri,
South Carolina, Colorado and New York.

         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,  substantially all of which
are secured by liens to the  Company's  primary  lenders.  The  Company  owns or
leases real  property in the states in which it is doing  business.  At December
31,  1997,  56 solid waste  landfills,  aggregating  approximately  19,009 total
acres, including approximately 8,123 permitted acres, were owned and operated by
the Company. In addition, the Company owned or operated 81 collection companies,
43 transfer stations and 21 recycling facilities.

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, 1997,  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  other
third-parties,  and  properties  under the  management of the LWS  Subsidiaries.
Several  contaminated  landfills and other  properties were  identified,  two of
which are owned by subsidiaries of the Company,  that 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

                                        9

<PAGE>



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, 1997 of
approximately  $62.5  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 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 LWS Subsidiaries received a Statutory Notice
of Deficiency  proposing that the LWS Subsidiaries pay additional taxes relating
to disallowed  deductions  in those income tax returns (the "Tax  Controversy").
The consolidated tax group of the LWS Subsidiaries has also received notice that
fiscal years 1992, 1993 and 1994 will be examined regarding the Tax Controversy.
The LWS 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 LWS  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 LWS 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 LWS
Subsidiary  may  ultimately be found liable,  are included in and covered by the
indemnification  of the Company by Laidlaw set forth in the Laidlaw  acquisition
agreement.  The  obligation  of Laidlaw  Inc. and Laidlaw  Transportation,  Inc.
(collectively,  the  "Laidlaw  Group") to  indemnify  the  Company in respect of
amounts at issue in the Tax  Controversy is a general,  unsecured  obligation of
the Laidlaw  Group.  The ability of the  Laidlaw  Group to pay and fulfill  such
indemnification obligation will depend on the financial condition of the Laidlaw
Group at the time of any required performance of such obligation.


Item 4.  Submission of Matters to a Vote of Security Holders

         None.














                                       10

<PAGE>




                                   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, $0.01 par value
(the "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 sales prices per
share for the periods indicated were as follows:

                                                          High         Low
   Year ended December 31, 1996
   First Quarter..................................       9    1/4     6   1/2
   Second Quarter.................................      10    3/8     8
   Third Quarter..................................      10    1/8     6   7/16
   Fourth Quarter.................................       9    5/8     8

   Year ended December 31, 1997
   First Quarter..................................       9    7/8     7   1/4
   Second Quarter.................................      18    1/8     8
   Third Quarter..................................      20    1/8    14   1/4
   Fourth Quarter.................................      24    3/8    18   3/8

               As of March 16, 1998, there were approximately 579 record holders
of the Common Stock.






















                                       11

<PAGE>



Recent Sales of Unregistered Securities

         The  following  table  reflects  sales by the  Company of  unregistered
securities  during the fiscal year ended December 31, 1997.  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.

<TABLE>

                               Number of
                               Shares or
                               Principal
Description/Date                Amount       Consideration        Underwriters and Other Purchasers
<CAPTION>

Common Stock

   <S>                  <C>               <C>                     <C>
   January 24, 1997                684    $         85,000        W. DeArman (cashless exercise of warrant)
   January 24, 1997              2,568              45,000        Hambro International (cashless exercise of warrant)
   January 27, 1997             42,431             958,750        Groot Family Trust (cashless exercise of warrant)
   January 27, 1997             12,702              76,571        Larry Groot (cashless exercise of warrant)
   March 4, 1997                80,808             425,001        Allied Capital (cashless exercise of warrant)
   April 8, 1997                15,000              63,750        Oakes, Fitzwilliams (exercise of warrant)
   April 15, 1997               30,000             127,500        Oakes, Fitzwilliams (exercise of warrant)
   April 16, 1997               25,529             108,498        Oakes, Fitzwilliams (exercise of warrant)
   April 21, 1997               15,000              63,750        Oakes, Fitzwilliams (exercise of warrant)
   April 30, 1997               90,000           1,125,000        IPP92,  LP (cashless exercise of warrant)
   May 22, 1997                 12,500              96,875        H. Steven Uthoff (exercise of warrant)
   May 29, 1997                235,000           1,800,000        IPP92, LP (cashless exercise of warrant)
   June 4, 1997                 57,323             250,000        Morgan Keegan (cashless exercise of warrant)
   June 16, 1997                28,125             102,094        James Van Weelden and Edward Van Weelden
                                                                  (exercise of expiring warrant)
   June 16, 1997                45,000             231,250        Mike Weible (exercise of warrant)
   June 16, 1997               171,969             749,999        Southern Farm Bureau Life (cashless exercise of
                                                                  warrant)
   June 18, 1997                28,125             102,094        Thomas Van Weelden (exercise of expiring
                                                                  warrant)
   October 9, 1997              63,193             719,800        Ralph Velocci (commission paid in connection with
                                                                  acquisitions)
   October 15, 1997            162,500             975,000        IPP92, LP (conversion of note)

1997 Notes

   May 15, 1997         $  418,000,000     $   240,000,000        Senior Discount Notes(1) (effective interest rate
                                                                  at 11.3%)
<FN>

(1) The Senior Discount Notes were subsequently registered on November 7, 1997.

</FN>
</TABLE>





                                       12

<PAGE>



Item 6.  Selected Financial Data

         The  selected  financial  data  presented  below as of and for the five
years  ended  December  31,  1997 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 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 and percentages.
<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                   1993         1994          1995         1996        1997
                                               ----------   -----------  -----------  -----------  --------
<S>                                            <C>          <C>          <C>          <C>          <C>
Statement of Operations Data:
Revenues....................................   $   108,948  $   200,184  $   262,243  $   291,685  $   875,028
Cost of operations..........................        68,374      128,271      153,524      171,947      475,381
Selling, general and
   administrative expenses..................        18,278       39,077       44,067       47,706       99,539
Depreciation and
   amortization expense.....................        10,637       19,829       28,859       34,591      113,467
Acquisition related costs (1)...............            --           --        1,531       90,764        5,010
Unusual items (2)...........................            --        2,100           --        5,744           --
                                               -----------  -----------  -----------  -----------  -----------
Operating income (loss).....................        11,659       10,907       34,262      (59,067)     181,631
Interest income.............................         (310)       (1,107)        (907)      (2,219)     (1,969)
Interest expense............................         7,633       13,958       12,237       10,798       94,007
Other income, net...........................            --           --           --           --      (1,076)
                                               -----------  -----------  -----------  -----------  -----------
Income (loss) before income taxes...........         4,336       (1,944)      22,932      (67,646)      90,669
Income tax expense (benefit)................         1,694        (663)        9,802        (475)       37,052
                                               -----------  -----------  -----------  -----------  -----------

Income (loss) before extraordinary
   item.....................................         2,642      (1,281)       13,130     (67,171)       53,617
Extraordinary loss, net of income tax
   benefit(4)...............................            --       (3,029)          --      (13,411)    (53,205)
                                               -----------  ------------ -----------  -----------    --------
Net income (loss)...........................         2,642      (4,310)       13,130     (80,582)          412
Preferred dividends.........................         (927)      (3,773)      (4,070)      (1,073)        (381)
Conversion fee on equity
   securities converted(3)..................            --           --      (2,151)           --           --
                                               -----------  -----------  -----------  -----------  -----------
Net income (loss) available
   to common shareholders...................   $     1,715  $   (8,083)  $     6,909  $  (81,655)  $        31
                                               ===========  ===========  ===========  ==========   ===========
Basic EPS:
   Income (loss) before extraordinary
     loss...................................   $      0.08  $    (0.18)  $      0.17  $    (1.11)  $      0.61
   Extraordinary loss.......................            --       (0.11)           --       (0.22)       (0.61)
                                               -----------  -----------  -----------  -----------  -----------
   Income (loss)............................   $      0.08  $    (0.29)  $      0.17  $    (1.33)  $      0.00
                                               ===========  ===========  ===========  ===========  ===========
Weighted average common shares..............        21,490       27,907       40,559       61,364       87,045
                                               ===========  ===========  ===========  ===========  ===========

</TABLE>




                                       13

<PAGE>


<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                   1993         1994          1995         1996           1997
                                               ----------   -----------  -----------  -----------    -------------

<S>                                            <C>          <C>          <C>          <C>             <C>
Diluted EPS:
   Income (loss) before
     extraordinary loss.....................   $      0.08  $     (0.15) $      0.16  $      (1.06)   $        0.57
   Extraordinary loss.......................            --        (0.09)          --         (0.21)          (0.57)
                                               -----------  ------------ -----------  -------------   -------------
   Income (loss)............................   $      0.08  $     (0.24) $      0.16  $      (1.27)   $        0.00
                                               ===========  ============ ===========  =============   =============
   Weighted average common and
     common equivalent shares...............        22,702       33,828       43,779         64,109          93,444
                                               ===========  ============ ===========  =============   =============
</TABLE>

<TABLE>
<CAPTION>

Balance Sheet Data:
                                                                   December 31,
                                               1993         1994         1995        1996         1997
                                            ---------     --------     ---------  -----------  ----------

<S>                                         <C>           <C>          <C>        <C>          <C>
Cash and cash equivalents...............    $   3,812     $  6,269     $   5,385  $    51,079  $    11,920
Working capital (deficit)...............        3,892     (10,087)      (43,101)       19,457     (45,078)
Property and equipment, net.............       94,208      222,386       316,837      738,388    1,287,208
Goodwill................................       34,880       78,633        89,431      857,350      899,145
Total assets............................      159,926      379,324       480,841    2,338,267    2,448,660
Total long-term debt,
   net of current portion...............       61,019      177,126       196,428    1,158,937    1,356,281
Stockholders' equity....................       70,277       93,174       139,571      276,008      596,171
Long-term debt to
   total capitalization.................           46%          66  %         58%          81%          69%
-----------------------
<FN>

(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 related to companies acquired.  Acquisition related costs
     of $1.5 million,  $6.2 million and $5.0 million were incurred in 1995, 1996
     and 1997,  respectively,  for transaction and integration  costs related to
     acquisitions during each period. Acquisition related costs incurred in 1993
     and 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.

(4)  The  extraordinary  losses in 1994, 1996 and 1997 were incurred as a result
     of premiums paid for the early  extinguishment of debt and the write-off of
     related deferred debt issue costs.


</FN>
</TABLE>




                                       14

<PAGE>



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 over 130  acquisitions  including the
Laidlaw  Acquisition  in 1996. In 1997,  the Company  acquired 35 businesses and
subsequent  to 1997 it has acquired 12  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 (the
"Warrant"), and two junior subordinated debentures with an aggregate face amount
of $318 million.  The cash  consideration  was financed from the proceeds of its
$1.275 billion  senior credit  facility (the "Bank  Agreement")  and the sale of
$525 million of 10.25% senior subordinated notes due 2006 (the "1996 Notes").

         In March 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
"Canadian  Sale").  The Company used the proceeds  from the Canadian Sale to pay
down  approximately  $517 million in debt under the Bank Agreement.  The Company
acquired the Canadian operations in connection with the Laidlaw Acquisition.

         In May 1997,  pursuant to a Securities Purchase Agreement (the "Laidlaw
Securities  Purchase  Agreement")  with the Laidlaw  Group and  certain  private
securities  investment funds affiliated with either (i) Apollo Advisors II, L.P.
or (ii) the Blackstone Group, the Company repurchased from the Laidlaw Group the
Allied  Debentures  and the  Warrant  for an  aggregate  purchase  price of $230
million in cash (the "Repurchase").  The net proceeds of $230 million related to
the $418 million face value 11.3% senior  discount  notes (the "Senior  Discount
Notes")  were  used  to  fund  the  Repurchase.  Also  pursuant  to the  Laidlaw
Securities Purchase Agreement, the private securities investment funds purchased
all of the Common Stock of Allied held by Laidlaw.

         In June 1997, the Company  completed a series of transactions  with USA
Waste (the "USA Waste  Transactions")  pursuant  to which the  Company  acquired
eight landfills (two of which were transferred to the Company in July 1997 after
completion of certain regulatory  matters),  eight collection  operations,  five
transfer stations and one recycling facility with an annual aggregate revenue of
$58.0 million for consideration of $87.5 million. Also pursuant to the USA Waste
Transactions,  the  Company  sold to USA  Waste  one  landfill,  two  collection
operations and one recycling  facility with an aggregate of approximately  $33.6
million in annual revenue for which it received  consideration  of approximately
$61.3 million.






                                       15

<PAGE>



         In November 1997, the Company completed a second series of transactions
with USA Waste  pursuant to which the Company  acquired three  landfills,  seven
collection operations,  two transfer stations and one recycling facility with an
annual aggregate  revenue of $66.9 million for  consideration of $124.0 million.
Also pursuant to this transaction,  the Company sold to USA Waste six landfills,
seventeen  collection  operations,  three  transfer  stations and four recycling
facilities  with an aggregate of  approximately  $81.4 million in annual revenue
for which it received consideration of approximately $133.9 million.

         In November  1997, the Company  assumed  ownership and operation of the
active solid waste  disposal  system for San Diego  County,  California.  Allied
acquired  operations of four landfills,  one transfer station,  and one material
recovery  facility for  approximately  $163 million in cash paid directly to San
Diego County.

         In December  1997,  the Company  acquired the ECDC landfill from Laidaw
Environmental  Services,  Inc.  for  approximately  $89 million in cash,  notes,
assumed debt and a contingent payable.

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  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:

                                                   Year Ended December 31,
                                             1995         1996          1997
 Collection(1)..........................     69.7%        66.7%         58.6%
 Transfer...............................      7.9          7.2           7.0
 Landfill(1)............................     15.2         18.6          24.9
 Other..................................      7.2          7.5           9.5
                                            -------     -------        ------
     Total Revenues.....................    100.0%       100.0%        100.0%
                                            =======     =======        ======


                                                   Year Ended December 31,
                                             1995         1996          1997
 Great Lakes............................     29.8%        28.3%         22.9%
 Midwest................................     15.7         15.8          15.5
 Northeast..............................     14.8         13.3          22.5
 Southeast..............................     23.2         26.2          12.5
 Southwest..............................      4.0          2.1          15.5
 West...................................     12.5         14.3          11.1
                                           -------      -------        ------
     Total Revenues.....................    100.0%       100.0%        100.0%
                                           =======      =======        ======

(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.





                                       16

<PAGE>




         The Company's strategy is to develop vertically  integrated  operations
to ensure  internalization  of the 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  60% of  Company-collected  waste is disposed of at  Company-owned
and/or  operated  landfills  as  measured  using  disposal  volumes in 1997.  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 transferred
to long-haul trailers and economically transported to its landfills.

         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  development  costs  (including  capitalized
interest), 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.  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.


                                       17

<PAGE>



         The net present  value of the closure and  post-closure  commitment  is
calculated  assuming  inflation  of 2.5% and a risk-free  capital  rate of 7.0%.
Discounted  amounts  previously  recorded  and not yet  expended 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 $1.0 billion  while the
present value of such estimate is $245.3 million. At December 31, 1996 and 1997,
accruals for landfill  closure and  post-closure  costs (including costs assumed
through  acquisitions)  were  approximately  $107.6 million and $140.8  million,
respectively.  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.

         Year 2000 Systems  Modifications.  During 1997,  Allied began modifying
its  computer  system  programming  to  process  transactions  in the year 2000.
Anticipated  spending for this  modification will be expensed as incurred and is
not expected to have a significant  impact on the Company's  ongoing  results of
operations.

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.

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                                  1996                    1997
                                                                                Compared                Compared
                                                                                 to 1995                 to 1996
                                                                                % Change                % Change
                                                            1995       1996    in Amounts    1997      in Amounts
                                                            ----       ----    ----------    ----      ----------
<S>                                                        <C>        <C>      <C>          <C>       <C>
Statement of Operations Data:
Revenues...........................................        100.0%     100.0%      11.3%     100.0%        200.0%
Cost of operations.................................         58.5       58.9       12.0       54.3         176.6
Selling, general and administrative expenses.......         16.8       16.4        8.2       11.4         108.6
Depreciation and amortization expense..............         11.0       11.9       19.7       13.0         228.0
Acquisition related costs..........................          0.6       31.1    6,333.3        0.6        (94.5)
Unusual costs......................................           --        2.0      100.0         --       (100.0)
                                                           -----      -----                 -----
Operating income (loss)............................         13.1      (20.3)    (272.5)      20.7       (407.8)
Interest expense, net..............................          4.3        2.9      (23.9)      10.5         969.8
Other income, net..................................           --         --         --      (0.1)         100.0
Income tax expense, (benefit) .....................          3.7       (0.2)    (105.1)       4.2     (7,520.0)
Extraordinary loss, net of income tax benefit .....           --        4.6      100.0        6.1         297.0
                                                           -----      -----                 -----
  Net income (loss)................................          5.1%     (27.6)%  (714.5)%      0.0%      (100.5)%
                                                           =====      ======                =====
</TABLE>













                                       18

<PAGE>




Years Ended December 31, 1997 and 1996

         Revenues.  Revenues  in 1997 were  $875.0  million  compared  to $291.7
million in 1996, an increase of 200.0%. Revenues of approximately $503.4 million
in 1997 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  ("Internal  Growth")  amounted  to  $79.9  million.  If the  Laidlaw
Acquisition,  net of the Canadian Sale, is included as of January 1996, Internal
Growth  would  have  approximated  11.0%  with 7.0%  attributable  to net volume
increases and 4.0% attributable to price increases.

         Cost of  Operations.  Cost of  operations  in 1997 was  $475.4  million
compared to $171.9 million in 1996, an increase of 176.6%. This increase in cost
of operations was primarily  attributable to the increase in revenues  described
above.  As a percentage of revenues,  cost of  operations  decreased to 54.3% in
1997 from 58.9% in 1996. The improvement in gross margin is due primarily to the
integration  of the assets  acquired from Laidlaw  during 1996 and the increased
volume at the landfills.

         Selling,  General and Administrative Expenses. SG&A expense in 1997 was
$99.5  million  compared to $47.7  million in 1996,  an increase of 108.6%.  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 growth of the Company.  In addition,
SG&A expenses include a charge of  approximately  $3.4 million related to future
post  employment  executive  compensation  and a credit  of  approximately  $3.0
million related to a favorable settlement of certain litigation. As a percentage
of revenues, SG&A decreased to 11.4% in 1997 from 16.4% in 1996. The decrease in
SG&A as a percentage of revenues is primarily due to the substantial increase in
the revenues of the Company resulting  principally from the Laidlaw Acquisition,
while SG&A expenses have not increased proportionately.

         Depreciation and Amortization Expense. Depreciation and amortization in
1997 was $113.5  million  compared  to $34.6  million in 1996,  an  increase  of
228.0%.  The  increase  in  depreciation  and  amortization  expense  was due to
acquisitions and capital  expenditures.  Fixed assets have increased from $495.3
million in 1996,  excluding the Laidlaw Acquisition on December 30, 1996 to $1.5
billion in 1997 and  goodwill has  increased  to $939.1  million at December 31,
1997 from $116.8 million at December 31, 1996, excluding the Laidlaw Acquisition
on December 30, 1996. As a percentage of revenues, depreciation and amortization
increased to 13.0% in 1997 from 11.9% in 1996.  This is primarily  the result of
an increase in  amortization  of goodwill as a percentage of revenues to 2.7% in
1997 from 1.3% in 1996  related to  increased  goodwill in  connection  with the
Laidlaw Acquisition.

         Acquisition Related Costs.  Acquisition related costs in 1997 were $5.0
million compared to $90.8 million in 1996, a decrease of 94.5%.  During 1996, 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.

         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.

         Other Income,  Net. The Company recorded  approximately $1.1 million of
other income, comprised of a $5.6 million gain on sale of assets to USA Waste in
the fourth  quarter of 1997,  net of a charge of  approximately  $4.5 million in
connection with the abandonment of certain collection and transfer operations.




                                       19

<PAGE>



         Net Interest  Expense.  Net interest  expense was $92.0 million in 1997
compared  to $8.6  million in 1996,  an  increase  of 969.8%.  The  increase  in
interest  expense is due to the increase in debt from $365.0 million at December
31, 1996,  excluding the Laidlaw  Acquisition on December 30, 1996,  compared to
$1.4  billion at  December  31,  1997.  This  increase  in debt  outstanding  is
primarily the result of debt incurred in connection with the Laidlaw Acquisition
net of the  application  of the net  proceeds  received in  connection  with the
Canadian Sale. Additionally, in connection with the construction and development
of the Company's  landfills,  Allied capitalized  approximately $36.9 million of
interest in 1997  compared to $13.0  million in 1996.  The increase is primarily
due to the increase in the base of assets under  development  which  qualify for
capitalized  interest  (primarily  landfill  assets) as a result of the  Laidlaw
Acquisition in late 1996 and other acquisitions made during 1997.

         Income Taxes.  Income taxes reflect a 41% effective income tax rate for
1997 which deviates from the federal  statutory rate of 35% due primarily to the
effects of  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, Net. In May 1997, the Company repurchased from the
Laidlaw Group two junior  subordinated  debentures with an aggregate face amount
of $318 million and the Warrant,  used as partial  consideration for the Laidlaw
Acquisition,  for an  aggregate  purchase  price of $230  million  in  cash.  An
extraordinary  charge to earnings  related to the  Repurchase  of  approximately
$65.7  million  ($39.4  million  net of income tax  benefit)  was  recorded.  In
addition,  the Company  replaced its $1.275 billion Bank Agreement with the $900
million  senior  credit  facility  (the  "Credit  Agreement")  in June  1997 and
recognized an extraordinary charge of approximately $21.6 million ($13.0 million
net of income tax benefit).

         In September 1997, the Company sold 18.6 million shares of common stock
with net proceeds of approximately  $327.4 million (the "Equity  Offering").  In
October,  the Company  used $203 million of the net proceeds to retire a portion
of the term loan  facility  of the Credit  Agreement,  $71  million to repay the
entire amount  outstanding on the revolving credit facility.  As a result of the
early repayment of debt  outstanding  under the term loan facility,  the Company
recognized an extraordinary charge in the third quarter of 1997 of approximately
$1.3  million  ($0.8  million net of income tax  benefit)  for the  write-off of
previously deferred debt issuance costs.























                                       20

<PAGE>



Years Ended December 31, 1996 and 1995

         Revenues.  Revenues  in 1996 were  $291.7  million  compared  to $262.2
million in 1995,  an increase of 11.3%.  Approximately  3.6% of the  increase in
revenues is attributable  to  acquisitions  and 7.7% is attributable to internal
growth. Revenues of $9.4 million for 1996 were generated from companies acquired
subsequent to December 1994, while increases in revenue attributable to existing
operations amounted to $20.1 million. Average price increases as a percentage of
revenue  were  approximately  3.0% of revenue  while the  remainder  of Internal
Growth was from volume.

         Cost of  Operations.  Cost of  operations  in 1996 was  $171.9  million
compared to $153.5 million in 1995, an increase of 12.0%.  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 58.9% in
1996 from 58.5% in 1995.  Cost of  operations  were  effected  by a  significant
increase in municipal  solid waste volumes offset by a decrease in higher margin
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 $47.7 million in 1996 compared to $44.1 million in 1995, an increase of 8.2%.
As a percentage of revenues, SG&A decreased to 16.4% in 1996 from 16.8% 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.

         Depreciation and Amortization Expense. Depreciation and amortization in
1996 was $34.6 million  compared to $28.9 million in 1995, an increase of 19.7%.
The increase in depreciation and amortization expense is due to acquisitions and
capital expenditures.  Before the Laidlaw Acquisition, fixed assets increased to
$495.3 million at December 31, 1996 from $381.1 million at December 31, 1995 and
goodwill  increased to $116.8 million at December 31, 1996 from $99.1 million at
December 31, 1995. As a percentage of revenues,  depreciation  and  amortization
increased to 11.9% in 1996 from 11.0% in 1995.

         Acquisition  Related Costs.  During 1996 in connection with the Laidlaw
Acquisition,  the Company incurred approximately $84.6 million in charges, 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 were  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.






                                       21

<PAGE>



         As a result of the Laidlaw  Acquisition,  Allied  increased its revenue
base by  approximately  400%  and  entered  into 14 new  markets  where it would
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 were impaired as they will provide no further  benefit
to the 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 $6.2 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.
Transaction costs include,  but are not limited to, stock  registration,  legal,
accounting,  consulting, engineering and other direct third-party costs incurred
to complete the acquisitions. Integration costs include, but are not limited to,
uncollectible   accounts  receivable   write-offs,   employee   termination  and
relocation, write down of fixed assets and lease termination.

         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 $8.6 million in 1996
compared  to $11.3  million in 1995,  a decrease of 23.9%.  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 0.7% 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  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)  that was
charged to earnings in the fourth quarter of 1996.






                                       22

<PAGE>



Liquidity and Capital Resources

         Historically,  the  Company  has  satisfied  its  acquisition,  capital
expenditure  and working  capital  needs  primarily  through bank  financing and
public offerings and private placements of debt and equity  securities.  Between
January 1, 1994 and December 31, 1997, the Company has completed debt and equity
financings in excess of $3 billion.

         Due to the acquisition  driven and the capital  intensive nature of the
Company's  business  strategy,  the Company has used,  and  believes  that it is
reasonably  possible that it will  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  and  operating
equipment  has been  acquired  using  financing  leases  which  have  short  and
medium-term  maturities.  Additionally,  the Company uses excess cash  generated
from  operations to pay down amounts owed on its revolver which is classified as
long-term  debt.  As a result,  the Company has  periodically  had low levels of
working capital or working capital deficits.

         During the years ended December 31, 1995,  1996 and 1997, the Company's
cash flows from  operating,  investing and financing  activities were as follows
(in millions):
<TABLE>
<CAPTION>

                                                                                   Year Ended December 31,
                                                                       -------------------------------------------
                                                                           1995            1996           1997
                                                                       -------------  -------------  -------------
<S>                                                                    <C>            <C>            <C>
Operating Activities:
Net income (loss).................................................     $        13.1  $      (80.6)  $         0.4
Extraordinary loss on early extinguishments of debt...............                --           22.4           21.5
Acquisition related costs.........................................               1.5           91.7             --
Unusual items.....................................................                --            5.7             --
Non-cash operating expenses(1)....................................              37.5           39.9          108.3
Loss (gain) on sale of assets.....................................               0.3            1.9          (6.5)
Increase in operating assets and liabilities, net.................            (10.4)         (41.8)         (41.1)
                                                                       -------------  -------------  -------------
     Cash provided by operating activities........................              42.0           39.2           82.6
                                                                       -------------  -------------  -------------
Investing Activities:
Cost of acquisitions, net of cash acquired........................            (18.7)      (1,356.6)        (324.5)
Capital expenditures..............................................            (59.4)         (45.5)        (157.2)
Proceeds from sale of fixed assets................................               1.1            0.7          530.0
Other.............................................................             (0.4)             --          (6.0)
                                                                       -------------  -------------  -------------
     Cash provided by (used for) investing activities.............            (77.4)      (1,401.4)           42.3
                                                                       -------------  -------------  -------------

Financing Activities:
Net proceeds from sale and
     redemption of preferred stock and common stock...............              30.6           48.1          329.0
Net proceeds from long-term debt..................................              67.2        1,810.0        1,118.2
Payments of long-term debt........................................            (55.8)        (446.4)      (1,578.4)
Other.............................................................             (7.5)          (3.8)         (32.9)
                                                                       -------------  -------------  -------------
     Cash provided by (used for) financing activities.............              34.5        1,407.9        (164.1)
                                                                       -------------  -------------  -------------
Increase (decrease) in cash.......................................     $       (0.9)  $        45.7  $      (39.2)
                                                                       =============  =============  =============
------------------
<FN>
(1)  Consists  principally  of provisions  for  depreciation  and  amortization,
     landfill  closure  and  post-closure   accruals,   allowance  for  doubtful
     accounts,  potentially  unrealizable  acquisition costs and deferred income
     taxes.

</FN>
</TABLE>



                                       23

<PAGE>



     As of December 31, 1997, the Company had cash and cash equivalents of $11.9
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 1997,  the Company
acquired solid waste  operations  representing  approximately  $369.1 million in
annual revenues, and sold operations  representing  approximately $127.9 million
in annual revenue.  Net consideration of approximately $528.3 million (including
$10.5  million for landfills  under  development)  comprised of cash,  notes and
Common  Stock,  was  paid in these  transactions.  This  consideration  includes
several landfills  acquired for approximately  $348.2,  million net of landfills
sold,  with  estimated  annual net  revenues  of $83.1  million.  Subsequent  to
December 31, 1997, the Company acquired 12 operating solid waste businesses with
annual   revenues  of   approximately   $33.3  million  for   consideration   of
approximately  $55.0 million, of which $22.3 million consists of approximately 1
million shares of Common Stock.  For the calendar year 1998, the Company expects
to spend  approximately  $210  million  for  capital  expenditures,  closure and
post-closure,  and remediation expenditures relating to its landfill operations.
As the Company continues to acquire waste operations in 1998, additional capital
amounts will be required  during 1998 for the  acquisition of businesses and the
capital expenditure requirements related to those acquired businesses.

         On December 31, 1997, the Company's  debt  structure  consisted of $525
million  of the 1996  Notes,  $294  million  outstanding  under  the  Term  Loan
Facility,  and  approximately  $255 million of the $418 million  aggregate  face
amount of senior discount notes (the "Senior  Discount  Notes").  As of December
31, 1997 there is aggregate  availability under the Revolving Credit Facility of
approximately  $550 million to be used for working  capital,  letters of credit,
acquisitions and other general corporate purposes.  In October 1997, the Company
amended the Credit  Agreement  (the  "Amendment").  The  Amendment  expanded the
Credit  Agreement to $1.1 billion from $900 million by increasing  the Revolving
Credit  Facility  from $400 million to $600 million and by adding a $200 million
delayed draw term  facility (the  "Delayed  Draw Term  Facility"),  after giving
effect to the  repayment of $203 million of the Term Loan  Facility on September
30, 1997. The Revolving Credit Facility includes a $250 million sublimit for the
issuance of letters of credit  (increased  from $175  million at  September  30,
1997). The indentures  relating to the 1996 Notes, the Senior Discount Notes and
the Credit Agreement contain financial and operating  covenants and 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.  Currently,  on an annualized  basis,  this is expected to
include approximately $156.1 million in annual principal and interest payments.

         The  Company  is also  required  to  provide  financial  assurances  to
governmental agencies under applicable environmental regulations relating to its
landfill  operations  and  collection   contracts.   These  financial  assurance
requirements are satisfied by the Company issuing performance bonds,  letters of
credit, insurance policies or trust deposits to secure the Company's obligations
as they relate to landfill closure and post-closure  costs and performance under
certain collection contracts.  At December 31, 1997, the Company had outstanding
approximately $359.2 million in financial assurance instruments,  represented by
$303.3 million of performance  bonds,  $5.6 million of letters of credit,  $38.2
million  of  insurance  policies  and $12.1  million of trust  deposits.  During
calendar year 1998, the Company expects to be required to provide  approximately
$342.9  million in  financial  assurance  obligations  relating to its  landfill
operations  and  collection  contracts.   The  Company  expects  that  financial
assurance obligations will increase in the future as it acquires and expands its
landfill  activities  and that a greater  percentage of the financial  assurance
instruments will be comprised of performance bonds and insurance policies.

         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,  1996 and 1997 of $59.4  million and $62.9
million,  respectively,  the Company had available  lease  commitments  of $11.9
million  and $32.4  million,  respectively.  The  Company  intends to enter into
master equipment lease  facilities  relating to the financing of the acquisition
of trucks and containers.


                                       24

<PAGE>



         Subtitle D and other regulations that apply to the non-hazardous  waste
disposal industry have required the Company,  as well as others in the industry,
to alter  operations  and to modify or replace  pre-Subtitle  D landfills.  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, to pay interest,
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.  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  and  interest on debt  incurred
under the Credit  Agreement,  interest on the 1996 Notes and the Senior Discount
Notes, and capital amounts required for acquisitions and expansion. However, the
principal  payment at maturity on the 1996 Notes and the Senior  Discount  Notes
may 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 Credit Agreement,  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 January  1994,  the  Company  issued $100  million of 10.75%  senior
subordinated  notes (the "1994  Notes").  The net proceeds  from the sale of the
1994 Notes after underwriting  discounts 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 in 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.

         In January  1995,  the  Company  obtained  stockholder  approval of the
issuance of 11.7 million  shares of Common Stock to TPG  Partners,  L.P. and TPG
Parallel I, L.P.,  for $50 million  (less  approximately  $5.0 million of direct
offering costs and other costs related to an amendment to the 1994 Notes).  Such
shares of Common Stock were  purchased by the  Apollo/Blackstone  Investors  (as
defined herein) contemporaneously with the Repurchase.

         During 1995, the Company offered to holders 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  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, 7.8 million shares of
Common Stock were issued upon  conversion.  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 1996  conversion fee
charge of approximately $2.2 million paid in 285,000 shares of Common Stock.


                                       25

<PAGE>



         In January 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.

         In July  1996,  in  connection  with  the  Tender  Offer,  the  Company
completed a new $300 million  revolving credit  facility.  This revolving credit
facility was  extinguished  in December 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), relating to the extinguishment
in the fourth quarter of 1996.

     In connection with the 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 was retired
in connection with the Repurchase in May 1997.

         In December  1996, to partially  finance the Laidlaw  Acquisition,  the
Company  entered  into  a bank  credit  facility  (the  "1996  Bank  Agreement")
consisting  of (i) a $475  million  five and  one-half  year  amortizing  senior
secured  term loan  facility,  (ii) three  amortizing  senior  secured term loan
facilities in an aggregate  original  principal  amount of $500 million and with
ultimate  maturities  which  ranged  from six and  one-half  years to eight  and
one-half  years,  and (iii) a $300 million five and one-half year senior secured
revolving credit facility.  In connection with the closing of the Canadian Sale,
an aggregate amount of  approximately  $517 million was applied to prepayment of
the 1996 Bank Agreement.

         In December 1996,  Allied Waste North America  ("AWNA") issued the 1996
Notes.  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
revolving credit facility,  fund certain  acquisitions and for general corporate
purposes. AWNA had an obligation to offer fully registered securities,  pursuant
to an exchange offer, that are  substantially  identical to the 1996 Notes. AWNA
completed  this exchange  offer in July 1997.  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 AWNA, at the
greater  of (i) 100% of the  principal  amount  or (ii)  the sum of the  present
values of the remaining  scheduled  payments of principal  and interest  thereon
discounted to maturity on a  semi-annual  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 AWNA,  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 AWNA's current and
future subsidiaries,  the guarantees of which are expressly  subordinated to the
guarantees of AWNA's Senior Credit Facility.

         In May 1997, the Company,  pursuant to the Laidlaw Securities  Purchase
Agreement with the Laidlaw Group and certain private securities investment funds
affiliated with either (i) Apollo Advisors II, L.P. or (ii) the Blackstone Group
(the  "Apollo/Blackstone  Investors"),  repurchased  from the Laidlaw  Group the
Allied  Debentures  and the  Warrant  for an  aggregate  purchase  price of $230
million in cash. Also pursuant to the Laidlaw Securities Purchase Agreement, the
Apollo/Blackstone  Investors  purchased all of the Common Stock held by Laidlaw.
In connection  with the  Repurchase,  Allied issued $418 million  aggregate face
amount of the Senior  Discount Notes in a private  offering on May 15, 1997. The
net proceeds of $230 million realized from the sale of the Senior Discount Notes
were used to pay the cash  consideration in the Repurchase.  The Senior Discount
Notes  were  issued at a  discount  of  principal  amount  and,  unless  certain
provisions  are  triggered,  there will be no periodic cash payments of interest
before  June 1, 2002.  Thereafter,  the Senior  Discount  Notes will accrue cash
interest at the rate of 11.30% per annum,  payable  semi-annually  on June 1 and
December 1 of each year,  commencing  December 1, 2002. Allied had an obligation
to offer fully registered  securities,  pursuant to an exchange offer,  that are
substantially  identical to the Senior  Discount  Notes.  Allied  completed this
exchange offer on December 16, 1997. The Senior

                                       26

<PAGE>



Discount Notes cannot be redeemed  until December 1, 2001,  except under certain
circumstances.  Prior to June 1, 2000,  up to 33% of principal  amount of Senior
Discount Notes will be redeemable, at the option of Allied, from the proceeds of
one or more public  offerings  of capital  stock by Allied at a premium to their
accreted value, plus accrued interest.

         In June 1997, the Company repaid its senior credit facility and entered
into the Credit Agreement. The Credit Agreement provides a six and one-half year
senior secured $500 million term loan facility (the "Term Loan  Facility") and a
six and one-half year senior secured $400 million revolving credit facility (the
"Revolving  Credit  Facility"  and  together  with the Term Loan  Facility,  the
"Senior Credit Facility").

         On September  30,  1997,  the Company  repaid $203 million  outstanding
under the Term Loan  Facility and $71 million  outstanding  under the  Revolving
Credit Facility of the Credit Agreement. In connection with this repayment,  the
Company  amended the Credit  Agreement in October 1997,  providing for a six and
one-half year senior secured $297 million funded term loan facility (the "Funded
Term Loan  Facility"),  a senior  secured  $200  million  delayed draw term loan
facility to finance certain  acquisitions  prior to March 31, 1998 (the "Delayed
Draw Term Loan  Facility"),  and a senior secured $600 million  revolving credit
facility due December 2003 (the "Revolving  Credit  Facility").  The Funded Term
Loan Facility is an amortizing  senior  secured term loan with annual  principal
payments (payable  quarterly)  increasing from $6 million in 1997 to $60 million
in each of 2000, 2001, 2002 and 2003. The Delayed Draw Term Loan Facility may be
drawn in multiple advances and at varying amounts until either (i) the full $200
million  has been drawn or (ii)  March 31,  1998,  whichever  comes  first.  The
Delayed Draw Term Loan requires  annual  principal  payments  equal to a certain
percentage of the outstanding  amount as of March 31, 1998.  Principal  payments
begin in March 1999 at 10% of the  original  balance,  increasing  to 20% in the
years 2000-2002,  and 30% in 2003. Principal under the Revolving Credit Facility
is due upon maturity.

         In addition to the scheduled  principal  payments above, the Company is
also required to make mandatory  prepayments on the Senior Credit Facility equal
to 100% of the net proceeds from certain  asset sales,  the issuance of new debt
securities and extraordinary  amounts,  which include tax refunds,  pension plan
reversions and certain insurance proceeds, and 50% of the net cash proceeds from
new  equity  issuances.  Furthermore,  the  Company  is  also  required  to make
mandatory  prepayments  on  the  Senior  Credit  Facility  equal  to  50% of the
Company's  annual Excess Cash Flow, as defined in the Credit  Agreement,  unless
the Company's  Senior Debt Ratio,  as defined in the Credit  Agreement,  for the
relevant  fiscal  year end is less than 2.0 to 1.0.  Mandatory  prepayments  are
applied  first to the Term Loan Facility and the Delayed Draw Term Facility on a
pro rata basis against remaining scheduled  principal  payments,  and second, to
the permanent reduction of the Revolving Credit Facility.  In no event, however,
shall the Revolving  Credit Facility be required to be reduced to an amount less
than $300 million in connection with any such mandatory prepayment.

         Borrowings  under  the  Revolving  Credit  Facility  may  be  used  for
acquisitions,  the  issuance  of letters of credit,  working  capital  and other
general  corporate  purposes.  Of the $600 million available under the Revolving
Credit Facility ($400 million prior to the Amendment), no more than $250 million
($175  million  prior the  Amendment)  may be used to support  the  issuance  of
letters of credit.

         The Senior Credit Facility bears interest,  at the Company's option, at
the lesser of (a) a Base Rate, or (b) a Eurodollar  Rate,  both terms as defined
in the Credit Agreement, plus, in either case, an agreed upon applicable margin.
The  applicable  margin will be adjusted from time to time pursuant to a pricing
grid based upon the  Company's  Total  Debt to EBITDA  ratio,  as defined in the
Credit Agreement, and varies between zero percent and 0.75% for Base Rate loans,
and 0.75% and 1.75% for  Eurodollar  loans.  In  addition,  if at any time,  the
Company's  Senior Debt Ratio is greater than 2.5 to 1.0, the  applicable  margin
for all loans will be increased by 0.25%.

         The Senior Credit  Facility is guaranteed by  substantially  all of the
Company's  present  and future  subsidiaries.  In  addition,  the Senior  Credit
Facility is secured by substantially  all the personal  property and a pledge of
the stock, of substantially all the Company's present and future subsidiaries.


                                       27

<PAGE>



         The Credit Agreement  contains certain financial  covenants  including,
but not limited to, a Total Debt to EBITDA ratio, a Senior Debt to EBITDA ratio,
a Fixed Charge Coverage ratio and an Interest  Expense Coverage ratio, all terms
as defined in the Credit  Agreement.  In  addition,  the Credit  Agreement  also
limits the Company's ability to make  acquisitions,  purchase fixed assets above
certain amounts,  pay dividends,  incur additional  indebtedness and liens, make
optional  prepayments on certain  subordinated  indebtedness,  make investments,
loans or advances, enter into certain transactions with affiliates or enter into
a merger, consolidation or sale of all or a substantial portion of the Company's
assets.  The Company is in compliance with all applicable  covenants at December
31, 1997.

         The Company has entered into interest rate  protection  agreements (the
"Agreements"),  with reputable national  commercial banks and investment banking
institutions to reduce its exposure to fluctuations in variable  interest rates.
A summary of the Agreements outstanding as of December 31, 1997 is as follows:

  Notional Amount      Fixed Rate                    Period
  ---------------      ----------       ----------------------------------------
   (in millions)
    $  130               6.27%          April 1997          -     May 1998
        50               6.08           September 1997      -     September 2000
        50               6.06           September 1997      -     March 2000
        50               5.97           October 1997        -     April 1999
        50               6.02           October 1997        -     October 1999
        50               5.90           November 1997       -     November 1999
        50               5.91           November 1997       -     November 1999

         The Agreements  effectively  change the Company's interest rate paid on
its  floating  rate  long-term  debt  to  a  weighted   average  fixed  rate  of
approximately  6.07% plus applicable  margins imposed by the terms of the Credit
Agreement at December 31, 1997.

         The  Company  has  also  entered  into  an  additional   interest  rate
protection  agreement with effective dates beginning in the future (the "Forward
Agreement").   This  Forward  Agreement   provides   continuing   protection  to
fluctuations  in variable  interest rates as existing  Agreements  expire and as
additional  debt is drawn  under the  Delayed  Draw Term  Facility of the Senior
Credit Facility. A summary of the Forward Agreement is as follows:

  Notional Amount      Fixed Rate                    Period
  ---------------      ----------       ----------------------------------
   (in millions)

    $ 130                6.06%          May 1998            -     May 2001



Disclosure Regarding Forward Looking Statements

         This annual  report  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 report,  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

                                       28

<PAGE>



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  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 and requires  substantial  amounts of capital.  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.

         Availability of Acquisition  Targets. The Company's ongoing acquisition
program is a key  element of its  expansion  strategy.  In  addition,  obtaining
landfill  permits  has  become  increasingly   difficult,   time  consuming  and
expensive.  There can be no assurance that the Company will succeed in obtaining
landfill  permits or locating  appropriate  acquisition  candidates  that can be
acquired  at  price  levels  that the  Company  considers  appropriate  and that
reflects  historical prices. The Forward Looking Statements assume 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 three 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 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  internal volume and price growth which is not impacted by an
economic downturn. 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 1997.  There can be no assurance  that an economic  downturn will
not  result in a  reduction  in the  volume of waste  being  disposed  of at the
Company's  operations  and/or  the price  that the  Company  can  charge 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.



                                       29

<PAGE>



         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 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 limitations on the expansion of disposal  facilities,  limitations 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'
transportation  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 the Company's 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  liability  for  environmental  damage,  its business and
financial condition 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.








                                       30

<PAGE>




Item 8.  Financial Statements and Supplementary Data

         Report of Independent Public Accountants.

         Consolidated Balance Sheets - December 31, 1996 and 1997.

         Consolidated Statements of Operations for the Three Years Ended
         December 31, 1997.

         Consolidated  Statements  of  Stockholders'  Equity for the Three Years
         Ended December 31, 1997.

         Consolidated  Statements  of Cash  Flows  for  the  Three  Years  Ended
         December 31, 1997.

         Notes to Consolidated Financial Statements.




































                                       31

<PAGE>












                    Report of Independent Public Accountants




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,
1997  and  1996,  and  the  related   consolidated   statements  of  operations,
stockholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 1997. 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,  1997 and 1996,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.



                                                     /s/ ARTHUR ANDERSEN LLP


Phoenix, Arizona,
 February 16, 1998.










                                       32

<PAGE>

<TABLE>


                          ALLIED WASTE INDUSTRIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<CAPTION>
                                                                                December 31,
                                                                            1996           1997

<S>                                                                    <C>            <C>
ASSETS
Current Assets --
   Cash and cash equivalents .......................................   $    51,079    $    11,920
   Accounts receivable, net of allowance of $6,522
      and $6,072 ...................................................        94,405        147,604
   Prepaid and other current assets ................................        10,220         16,438
   Inventories .....................................................         6,961          6,179
   Deferred income taxes ...........................................         5,809          5,318
   Assets held for sale ............................................       524,716           --
                                                                       -----------    -----------
          Total current assets .....................................       693,190        187,459
Property and equipment, net ........................................       738,388      1,287,208
Goodwill, net ......................................................       857,350        899,145
Other assets .......................................................        49,339         74,848
                                                                       -----------    -----------
          Total assets .............................................   $ 2,338,267    $ 2,448,660
                                                                       ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities --
   Current portion of long-term debt ...............................   $   536,678    $    45,846
   Accounts payable ................................................        58,995         58,783
   Accrued interest ................................................         4,910          7,999
   Other accrued liabilities .......................................        61,059         85,251
   Unearned income .................................................        12,091         34,659
                                                                       -----------    -----------
          Total current liabilities ................................       673,733        232,538
Long-term debt, less current portion ...............................     1,157,231      1,356,281
Convertible subordinated debt, net of discount, less current portion         1,706           --
Deferred income taxes ..............................................        53,095         14,761
Accrued closure, post-closure and environmental costs ..............       152,604        203,314
Other long-term obligations ........................................        23,890         45,595
Commitments and contingencies
Stockholders' Equity --
   Preferred stock, aggregate liquidation preference of
      $9,907 at December 31, 1996 ..................................             1           --
   Common stock ....................................................           793          1,036
   Additional paid-in capital ......................................       351,683        671,388
   Retained deficit ................................................       (76,469)       (76,253)
                                                                       -----------    -----------
          Total stockholders' equity ...............................       276,008        596,171
                                                                       -----------    -----------
          Total liabilities and stockholders' equity ...............   $ 2,338,267    $ 2,448,660
                                                                       ===========    ===========


<FN>

     The accompanying Notes to Consolidated Financial Statements are an integral
part of these balance sheets.
</FN>
</TABLE>


                                       33

<PAGE>


<TABLE>

                          ALLIED WASTE INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   (in thousands except for per share amounts)

<CAPTION>

                                                                           Year Ended December 31,
                                                                    1995               1996             1997
<S>                                                            <C>               <C>              <C>
Revenues.............................................          $    262,243      $    291,685     $    875,028
Cost of operations...................................               153,524           171,947          475,381
Selling, general and administrative expenses.........                44,067            47,706           99,539
Depreciation and amortization........................                28,859            34,591          113,467
Acquisition related costs............................                 1,531            90,764            5,010
Unusual items........................................                    --             5,744               --
                                                               ------------      ------------     ------------
    Operating income (loss)..........................                34,262          (59,067)          181,631
Interest income......................................                 (907)           (2,219)          (1,969)
Interest expense.....................................                12,237            10,798           94,007
Other income, net....................................                    --                --          (1,076)
                                                               ------------      ------------     ------------
    Income (loss) before income taxes................                22,932          (67,646)           90,669
Income tax expense (benefit).........................                 9,802             (475)           37,052
                                                               ------------      ------------     ------------
  Income (loss) before extraordinary loss............                13,130          (67,171)           53,617
Extraordinary loss due to early extinguishment
  of debt, net of income tax benefit ................                    --          (13,411)         (53,205)
                                                               ------------      ------------     ------------
    Net income (loss)................................                13,130          (80,582)              412
Dividends on preferred stock.........................               (4,070)           (1,073)             (381)
Conversion fee on equity securities converted........               (2,151)                --               --
                                                               ------------      ------------     ------------
    Net income (loss) available
    to common shareholders...........................          $      6,909      $   (81,655)     $         31
                                                               ============      ============     ============

Basic EPS:
    Net income (loss) before extraordinary loss......          $       0.17      $     (1.11)     $       0.61
    Extraordinary loss...............................                    --            (0.22)           (0.61)
                                                               ------------      ------------     ------------
    Net Income (loss)................................          $       0.17      $     (1.33)     $       0.00
                                                               ============      ============     ============
Weighted average common shares outstanding...........                40,559            61,364           87,045
                                                               ============      ============     ============

Diluted EPS:
    Net income (loss) before extraordinary loss......          $       0.16      $     (1.06)     $       0.57
    Extraordinary loss...............................                    --            (0.21)           (0.57)
                                                               ------------      ------------     ------------
    Net Income (loss)................................          $       0.16      $     (1.27)     $       0.00
                                                               ============      ============     ============
Weighted average common and common
    equivalent shares outstanding....................                43,779            64,109           93,444
                                                               ============      ============     ============




<FN>

       The  accompanying  Notes  to  Consolidated  Financial  Statements  are an
integral part of these statements.

</FN>
</TABLE>






                                       34

<PAGE>


<TABLE>


                                           ALLIED WASTE INDUSTRIES, INC.
                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                  (in thousands)
<CAPTION>

                                                                                                        Total
                                                                        Additional        Retained     Stock-
                                              Preferred     Common        Paid-In         Earnings     holders'
                                               Stock         Stock        Capital        (Deficit)     Equity

<S>                                       <C>             <C>          <C>            <C>            <C>
Balance December 31, 1994...............  $       44      $   296      $    92,834    $        --    $    93,174
  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....................          --           --          (1,820)          (449)        (2,269)
  Net income............................          --           --               --         13,130         13,130
                                          ----------      -------      -----------    -----------    -----------
Balance December 31, 1995...............           2          518          132,591          6,460        139,571
  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 of pooled
    companies...........................          --            2              829        (2,347)        (1,516)
  Net loss..............................          --           --               --       (80,582)       (80,582)
                                          ----------      -------      -----------    -----------    -----------
Balance December 31, 1996...............           1          793          351,683       (76,469)        276,008
  Common stock issued, net of
  issuance costs and cancellations......          --          213          357,798             --        358,011
  Warrants repurchased..................          --           --         (49,000)             --       (49,000)
  Stock grant amortization..............          --           --              381             --            381
  Stock options and warrants exercised..          --           13            4,195             --          4,208
  9% Cumulative Convertible preferred stock
    and convertible notes converted.....         (1)           17            2,174             --          2,190
  Dividends declared on
    preferred stock.....................          --           --            (381)             --          (381)
  Equity transactions of pooled
    companies...........................          --           --            4,538          (196)          4,342
  Net income............................          --           --               --            412            412
                                          ----------      -------      -----------    -----------    -----------
Balance December 31, 1997...............  $       --      $ 1,036      $   671,388    $  (76,253)    $   596,171
                                          ==========      =======      ===========    ===========    ===========
<FN>

             The accompanying Notes to Consolidated  Financial Statements are an
integral part of these statements.
</FN>
</TABLE>


                                       35

<PAGE>


<TABLE>


                          ALLIED WASTE INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<CAPTION>

                                                                                   Year Ended December 31,
                                                                             1995            1996          1997
<S>                                                                     <C>            <C>            <C>
Operating Activities --
   Net income (loss) ................................................   $    13,130    $   (80,582)   $       412
   Adjustments to reconcile net income (loss) to cash provided
     by operating activities --
   Extraordinary loss on early extinguishment of debt ...............          --           22,352         21,549
   Provisions for:
     Depreciation and amortization ..................................        28,859         34,591        113,467
     Closure and post-closure .......................................           711          1,300          7,146
     Acquisition related costs ......................................         1,531         91,693           --
     Unusual items ..................................................          --            5,744           --
     Doubtful accounts ..............................................         1,994          2,388          3,479
     Accretion of senior discount notes .............................          --             --           22,764
     Deferred income taxes ..........................................         5,741          1,574        (38,531)
     Loss (gain) on sale of assets ..................................           291          1,941         (6,529)
     Write-off intangible assets ....................................           237           --             --
   Change in operating assets and liabilities, excluding the
     effects of purchase acquisitions --
     Accounts receivable, prepaid expenses, inventories and other ...        (9,091)       (15,539)       (67,161)
     Accounts payable, accrued liabilities, unearned income and other          (408)       (24,553)        41,086
     Closure and post-closure costs .................................        (1,003)        (1,681)       (15,105)
                                                                        -----------    -----------    -----------
Cash provided by operating activities ...............................        41,992         39,228         82,577
                                                                        -----------    -----------    -----------

Investing Activities --
   Cost of acquisitions, net of cash acquired .......................       (18,715)    (1,356,639)      (324,492)
   Capital expenditures .............................................       (48,281)       (32,577)      (120,221)
   Capitalized interest .............................................       (11,088)       (12,970)       (36,929)
   Proceeds from sale of assets .....................................         1,057            729        529,969
   Increase in cash value of life insurance policies ................          (272)          --             --
   Change in deferred acquisition costs and notes receivable ........           (85)            (9)        (5,969)
                                                                        -----------    -----------    -----------
Cash provided by (used for) investing activities ....................       (77,384)    (1,401,466)        42,358
                                                                        -----------    -----------    -----------

Financing activities --
   Net proceeds from sale and redemption of preferred stock .........          (316)          --             --
   Net proceeds from sale of common stock, and exercise of
     stock options and warrants .....................................        30,911         48,119        329,019
   Proceeds from long-term debt,
     net of issuance costs ..........................................        67,196      1,810,057      1,118,158
   Repayments of long-term debt .....................................       (55,812)      (446,408)    (1,578,413)
   Repurchase of warrant ............................................          --             --          (49,000)
   Other long-term obligations ......................................        (1,604)        (1,152)        12,325
   Dividends paid ...................................................        (3,598)        (1,188)          (525)
   Equity transactions of pooled companies ..........................        (2,269)        (1,516)         4,342
                                                                        -----------    -----------    -----------
Cash provided by (used for) financing activities ....................        34,508      1,407,912       (164,094)
                                                                        -----------    -----------    -----------
Increase (decrease) in cash and cash equivalents ....................          (884)        45,674        (39,159)
Cash and cash equivalents, beginning of period ......................         6,269          5,385         51,079
                                                                        -----------    -----------    -----------
Cash and cash equivalents, end of period ............................   $     5,385    $    51,059    $    11,920
                                                                        ===========    ===========    ===========
<FN>

               The accompanying Notes to Consolidated  Financial  Statements are
an integral part of these statements.

</FN>
</TABLE>

                                       36

<PAGE>



                          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  material  acquisitions
accounted for as poolings-of-interests (See Note 2).

         Certain  reclassifications have been made to the prior period financial
statements to conform to the current presentation.

   Cash and cash equivalents --

         Cash equivalents are investments with original  maturities of less than
ninety  days  and are  stated  at  quoted  market  prices.  The  cash  and  cash
equivalents  includes  approximately  $21.2  million  of  outstanding  checks at
December 31, 1997.

   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,  until they are
completed  and ready for their  intended  use.  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

                                       37

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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.

         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, 1997, maintenance and repair expenses charged to cost of operations
were $18,031,000,  $16,389,000 and $54,993,000,  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 is 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
$4,262,000,   $2,247,000  and  $23,306,000  is  included  in  depreciation   and
amortization  for the  three  years  in the  period  ended  December  31,  1997,
respectively.  Accumulated goodwill amortization was $16,614,000 and $39,920,000
at December 31, 1996 and 1997, 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, not exceeding 5 years.

   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-

                                       38

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


     closure costs. The impact of changes  determined to be changes in estimates
are accounted for on a prospective basis.

   Environmental costs --

         Allied  accrues for costs  associated  with  environmental  remediation
obligations when such costs 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  remediation  obligations are not
discounted to their present value. Recoveries of environmental remediation costs
from other parties are recorded when their receipts are deemed probable.

   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 1996  acquisition of  substantially  all of the
non-hazardous  solid waste  management  business  conducted by Laidlaw Inc. (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 for  incremental  closure and
post-closure measures,  remediation activities and litigation costs, expected to
be disbursed  over the next 30 years,  $18.4  million of asset  impairments  and
abandonments  consisting  of $10.8  million  related  to over 50  noncompetition
agreements  in  several  markets  where  the  counterparty  no  longer  poses  a
significant  threat,  $4.8 million for discontinued  facilities and $2.8 million
for market development  activities no longer being pursued, and $14.7 million of
acquisition liabilities.

         For the three years ended  December 31, 1997,  costs were $1.5 million,
$7.1 million and $5.0 million,  respectively,  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.

   Other income,  net. The Company recorded  approximately $1.1 million of other
income,  comprised  of a $5.6 million gain on sale of assets to USA Waste in the
fourth  quarter  of 1997,  net of a charge  of  approximately  $4.5  million  in
connection with the abandonment of certain collection and transfer operations.

                                       39

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



   Extraordinary loss --

1996:
         In July 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  December  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).

1997:

     In May 1997, the Company  repurchased (the  "Repurchase") from Laidlaw Inc.
("Laidlaw") and Laidlaw Transportation, Inc. (collectively, the "Laidlaw Group")
for $230  million in cash,  the $150  million 7% Junior  Subordinated  Debenture
($81.6  million book value),  the $168.3  million Zero Coupon  Debenture  ($34.9
million book value,  collectively  the "Allied  Debentures")  and the warrant to
purchase 20.4 million shares of the Company's common stock, $0.01 par value (the
"Common  Stock") ($49.0 million book value,  the  "Warrant"),  issued as partial
consideration  for  the  Laidlaw   Acquisition.   An  extraordinary   charge  of
approximately $65.7 million ($39.4 million net of income tax benefit) related to
the Repurchase was recorded in the second quarter of 1997.

       During June 1997, the Company  replaced its Credit  Facility (see Note 5)
with the Credit Agreement (see Note 5) and recognized an extraordinary charge of
approximately $21.6 million ($13.0 million net of income tax benefit) related to
prepayment  penalties  and the  write-off of  previously  deferred debt issuance
costs.

         In September 1997, the Company sold 18.6 million shares of common stock
with net proceeds of approximately  $327.4 million (the "Equity  Offering").  In
October,  the Company  used $203 million of the net proceeds to retire a portion
of the Term Loan Facility (see Note 5) of the Credit Agreement (see Note 5), $71
million to repay the entire amount  outstanding on the Revolving Credit Facility
(see Note 5). As a result of the early repayment of debt  outstanding  under the
Term  Loan  Facility,   the  Company  recognized  an  extraordinary   charge  of
approximately  $1.3 million ($0.8 million net of income tax benefit)  related to
the write-off of previously deferred debt issuance costs in the third quarter of
1997.















                                       40

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Statements of cash flows --

         The supplemental  cash flow  disclosures and non-cash  transactions for
the three years ended December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                                 1995           1996            1997

<S>                                                                          <C>             <C>            <C>
       Supplemental Disclosures --
         Interest paid...............................................        $    20,922     $    26,667    $   110,475
         Income taxes paid...........................................              2,994           6,301         14,704

       Non-Cash Transactions --
         Common stock, preferred stock or warrants
           issued in acquisitions, as commissions,
           or contributed to 401(k) plan.............................        $       754     $   164,764    $    36,489
         Capital leases .............................................             21,659          19,094         35,491
         Debt and liabilities incurred or assumed
           in acquisitions...........................................             14,434         213,082        194,298
         Debt converted to common stock..............................              6,802           5,485          2,265
         Dividends and interest paid, and
           conversion fee on debt and equity securities
           converted paid in common stock............................              3,490              --             --
         Non-cash purchase and sale of operating businesses..........                 --              --        181,434
</TABLE>

   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.

   Interest rate protection agreements --

     Interest rate protection  agreements are used to reduce interest rate risks
and interest  costs of the Company's  debt  portfolio.  The Company  enters into
these agreements to change the fixed/variable interest rate mix of the portfolio
to reduce the Company's  aggregate  exposure to increases in interest rates. The
Company  does not hold or issue  derivative  financial  instruments  for trading
purposes.  Hedge  accounting  treatment is applied to interest  rate  derivative
contracts  that are designated as hedges of specified  debt  positions.  Amounts
payable or receivable  under  interest rate swap  agreements  are  recognized as
adjustments  to  interest  expense  in the  periods in which  they  accrue.  Net
premiums paid for derivative  financial  instruments are deferred and recognized
ratably  over the life of the  instruments.  Under hedge  accounting  treatment,
current  period  income is not  affected by the increase or decrease in the fair
market  value of  derivative  instruments  as  interest  rates  change and these
instruments are not reflected in the financial  statements at fair market value.
Early  termination  of a hedging  instrument  does not result in  recognition of
immediate gain or loss except in those cases when the debt  instruments to which
a contract is specifically linked is terminated.




                                       41

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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  and  long-term  debt.  The  estimated  fair  value  amounts  have  been
determined  by  the  Company  at  December  31,  1997  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.

   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,  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 --

         During 1997, the Financial  Accounting  Standards Board issued SFAS No.
130 "Reporting Comprehensive Income" and SFAS 131 "Disclosures About Segments of
an Enterprise  and Related  Information."  The new  statements are effective for
fiscal years  beginning  after  December 15, 1997 and are not expected to have a
material impact on the Company's financial statements.

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.  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 adjusted.  Certain  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 cash, Common Stock, a warrant to acquire
Common Stock, and subordinated  debentures.  The cash consideration was financed
from the proceeds of the Senior  Credit  Facility and the sale of the 1996 Notes
(see Note 5).


                                       42

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


         The following  table  reflects the allocation of purchase price for the
Laidlaw Acquisition, giving effect to the Canadian Sale (in thousands):

                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
                                                              ===========

         The following table  summarizes  acquisitions for the three years ended
December 31, 1997, excluding the Laidlaw Acquisition:

                                                  1995       1996       1997
                                                -------    --------    -------
     Number of businesses acquired accounted
     for as:
            Poolings-of-interests...........       5           5             9
            Purchases.......................      13          16            26
     Total consideration (in millions)...... $  45.3   $   126.5    $    730.8
     Shares of common stock issued:......... 4,000,040 8,924,374(1) 7,038,456(2)

         (1) Includes 774,794 shares of contingently  issuable common stock.
         (2) Includes 359,516 shares of contingently issuable common stock.

         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             1997          Allied, as
                                                                   Acquisitions         Poolings         Restated

<S>                                                               <C>                  <C>              <C>
       Year ended December 31, 1997
         Revenues...........................................      $   841,513          $   33,515       $   875,028
         Net income.........................................              358                  54               412
       Year ended December 31, 1996
         Revenues...........................................          246,679              45,006           291,685
         Net loss ..........................................         (79,427)             (1,155)          (80,582)
       Year ended December 31, 1995
         Revenues...........................................          217,544              44,699           262,243
         Net income.........................................           12,381                 749            13,130

</TABLE>

    Unaudited pro forma statement of operations data --

         The following table compares,  for the year ended December 31, 1996 and
1997,  reported  consolidated  results  of  operations  to  unaudited  pro forma
consolidated data as if all of the companies acquired in 1996 and 1997 accounted
for using the purchase  method for  business  combinations  were  acquired as of
January 1, 1996 (in thousands, except per share data):

                                       43

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>

                                                              1996                             1997
                                                 -------------------------------  ---------------------------------
                                                   Reported          Pro Forma      Reported           Pro Forma
         <S>                                     <C>              <C>             <C>                <C>
         Revenues..............................  $    291,685     $    1,066,220  $     875,028      $    1,026,400
         Operating income......................       (59,067)           190,570        181,631             210,280
         Net income (loss).....................       (80,582)          (83,046)            412               6,941
         Net income (loss) to common
          shareholders.........................       (81,655)          (84,119)             31               6,560
         Net income (loss) per common
          share - basic........................         (1.33)            (1.07)           0.00                0.07
         Net income (loss) per common
          share - diluted......................         (1.27)            (1.02)           0.00                0.07
</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

         During  March 1997,  the Company  completed  the sale of the  Company's
Canadian  non-hazardous solid waste management  operations (the "Canadian Sale")
for  approximately  $518 million in cash and sold certain non-core medical waste
assets for  approximately  $6.7 million.  No gain or loss was recorded on either
sale.

     During the period from January 1, 1997 through March 16, 1997,  the date of
sale,  the Company  excluded from  consolidated  statements  of  operations  and
included in net assets  held for sale at  December  31,  1996,  $5.8  million of
income from operations and $9.6 million of interest expense  attributable to the
Canadian operations.

         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):

               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...................         $  524,716
                                                           ==========












                                       44

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4.   Property and Equipment

         Property and equipment at December 31, 1996 and 1997 was as follows (in
thousands):

                                                          1996           1997
                                                      -----------  -------------
      Land and improvements.......................   $    40,377   $    103,939
      Land held for permitting as landfills(1)....        66,070         76,476
      Landfills...................................       320,763        756,481
      Buildings and improvements..................        60,879         95,514
      Vehicles and equipment......................       290,278        286,180
      Containers and compactors...................        63,158        135,870
      Furniture and office equipment..............         7,574          9,866
                                                      -----------   ------------
                                                         849,099      1,464,326
      Accumulated depreciation and amortization...      (110,711)      (177,118)
                                                      -----------   ------------
                                                     $   738,388   $  1,287,208
                                                      ===========   ============

         (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, 1996 and 1997 consists of the following
(in thousands):

   To related parties --

                                                              1996        1997
                                                            --------   ---------
Unsecured notes payable to former stockholders, net of
   discount, interest at an effective rate of 14%........ $  110,747  $      --
Unsecured notes payable to stockholders, interest at 12%.      1,862      1,726
                                                            --------   ---------
                                                             112,609      1,726
   Current portion.......................................        136        154
                                                            --------   ---------
                                                          $  112,473  $   1,572
                                                            ========   =========

          In  connection  with the  Laidlaw  Acquisition,  a  subsidiary  of the
Company  issued a $150  million 7% junior  subordinated  debenture  and a $168.3
million  zero  coupon  debenture  recorded at a net  discounted  amount of $77.5
million and $33.2  million,  respectively,  at December 31, 1996. The debentures
were repaid during 1997 with the proceeds from the Senior Discount Notes.

         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, certain 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.




                                       45

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>

   To unrelated parties --
                                                                           1996              1997
                                                                        -----------       ---------

<S>                                                                     <C>            <C>
Senior credit facilities, weighted average interest
   at 10.03% and 7.5% at December 31, 1996
   and 1997, respectively.........................................      $    975,000   $     438,000
Senior subordinated notes,
   interest at 10.25%
   at December 31, 1996 and 1997, unsecured.......................           525,010         525,000
Senior discount notes, interest at 11.3%..........................               --          254,690
Notes payable to banks,  finance  companies and
   individuals,  weighted  average interest rate of
   10.35% and 6.37% at December 31, 1996 and 1997,
   respectively and principal  payable  through 2014,
   secured by vehicles,  equipment,  real estate,
   accounts receivable or stock of certain subsidiaries...........             9,475          89,600
Notes payable to individuals and a commercial company,
   interest at 5%-12%, principal and interest payable through
   2006, unsecured................................................            12,383          30,247
Obligations under capital leases of vehicles and
   equipment, weighted average interest at
   9.6% and 7.8% at December 31, 1996,
   and 1997, respectively, payable monthly........................            59,376         62,864
                                                                          -----------    -----------
                                                                           1,581,244      1,400,401
   Current portion................................................           536,486         45,692
                                                                          -----------    -----------
                                                                         $ 1,044,758    $ 1,354,709
                                                                          ===========    ===========
</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 "Credit  Facility").  The
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 AXELTMA;  (iv) a $200 million 7.5 year AXELTMB;
and (v) a $200 million 8.5 year AXELTMC.  In connection  with the Canadian Sale,
Allied paid  approximately  $517 million of the 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 Facility.

         In June 1997, the Company  repaid the Credit  Facility and entered into
an Amended and Restated Credit  Agreement (the "Credit  Agreement").  The Credit
Agreement provides a six and one-half year senior secured $500 million term loan
facility (the "Term Loan  Facility")  and a six and one-half year senior secured
$400 million  revolving  credit  facility (the "Revolving  Credit  Facility" and
together with the Term Loan Facility,  the "Senior Credit Facility").  Principal
payments on the Term Loan Facility are payable quarterly, beginning in September
1997 and increase from $10 million to $100 million per annum through maturity in
December  2003.  Principal  under  the  Revolving  Credit  Facility  is due upon
maturity.  The Senior Credit Facility bears interest at the lesser of (a) a Base
Rate, or (b) a Eurodollar  Rate, both terms as defined in the Credit  Agreement,
plus,  in either case,  an  applicable  margin.  The  applicable  margin will be
adjusted  from time to time  pursuant to a pricing grid based upon the Company's
Total Debt to EBITDA  ratio,  as defined  in the  Credit  Agreement,  and varies
between  zero  percent  and 0.75% for Base Rate  loans,  and 0.75% and 1.75% for
Eurodollar loans. In addition, if at any time the Company's Senior Debt Ratio is
greater than 2.5 to 1.0, the  applicable  margin for all loans will be increased
by 0.25%.


                                       46

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


         On September 30, 1997, the Company repaid $203 million on the Term Loan
Facility  and $71 million  outstanding  on the  Revolving  Credit  Facility.  In
connection  with this repayment,  the Company amended the Credit  Agreement (the
"Amendment") in October 1997. The Amendment  expanded the Senior Credit Facility
to $1.1 billion from $900 million by increasing  the Revolving  Credit  Facility
from $400 million to $600 million and by adding a $200 million delayed draw term
facility  (the  "Delayed  Draw  Term  Facility"),  after  giving  effect  to the
repayment of $203 million on the Term Loan Facility on September  30, 1997.  The
Revolving  Credit Facility  includes a $250 million sublimit for the issuance of
letters of credit (increased from $175 million at September 30, 1997).  Interest
rates were not changed in connection with the Amendment.

         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  which was  subsequently  registered  with the Securities and
Exchange  Commission.  Net proceeds  from the sale of the 1996 Notes,  after the
underwriting discounts 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.

         In May 1997, Allied issued $418 million aggregate face amount of senior
discount notes in a private offering (the "Senior Discount  Notes").  The Senior
Discount Notes were issued at a discount of principal amount and, unless certain
provisions  are  triggered,  there will be no periodic cash payments of interest
before  June 1, 2002.  Thereafter,  the Senior  Discount  Notes will accrue cash
interest at the rate of 11.30% per annum,  payable  semi-annually  on June 1 and
December 1 of each  year,  commencing  December  1, 2002.  Allied  completed  an
exchange  offer for the Senior  Discount  Notes on December 16, 1997. The Senior
Discount Notes cannot be redeemed  until December 1, 2001,  except under certain
circumstances.  Prior to June 1, 2000,  up to 33% of principal  amount of Senior
Discount Notes will be redeemable, at the option of Allied, from the proceeds of
one or more public offerings of capital stock by Allied at a redemption  premium
to their accreted value, plus accrued interest.

   Convertible subordinated debt --

                                                                        1996
Senior Convertible Subordinated Debentures, unsecured......         $    975
Convertible note payable to an individual, unsecured.......              787
                                                                     ---------
                                                                       1,762
   Current portion.........................................               56
                                                                     ---------
                                                                    $  1,706
                                                                     =========
         The 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 1997, this debt was converted into 162,500 shares
of common stock.


                                       47

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


         The 8% Convertible note payable to an individual was payable  quarterly
through  September  1996.  Beginning  October  1996,  principal and interest was
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.  In 1997,  this debt was  converted  into 75,494
shares of common stock.

   Future maturities of long-term debt --

         Aggregate  future  maturities of long-term debt outstanding at December
31, 1997 (in thousands):

                                    Maturity                 1997
                                    --------            -----------
                                    1998                $    45,846
                                    1999                     54,920
                                    2000                     74,813
                                    2001                     74,356
                                    2002                     74,798
                                    Thereafter            1,077,394
                                                        -----------
                                                        $ 1,402,127
                                                        ===========

         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, 1997 (in thousands):

                                            1997
        Maturity            Principal     Interest      Total
        --------          ------------  -----------   ---------
        1998              $     15,606   $    5,090   $  20,696
        1999                    12,540        3,775      16,315
        2000                    10,343        2,791      13,134
        2001                    10,601        1,794      12,395
        2002                    11,894          754      12,648
        Thereafter               1,880          456       2,336
                           -----------   ----------   ---------
                          $     62,864   $   14,660   $  77,524
                           ===========   ==========   =========


   Fair value of debt --

         The Company's  1996 Notes had a fair value of $548.6 million and $577.5
million at December 31, 1996 and 1997,  respectively,  based upon quoted  market
prices. The convertible subordinated debt has a fair value of approximately $2.4
million 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  approximates  book value at December 31,
1996 due to the short  passage of time since their  origination.  The  Company's
Senior  Discount  Notes had a value of $292.6 million at December 31, 1997 based
upon  quoted  market  prices.  Management  believes  the  carrying  value of all
remaining long-term debt approximates fair value.








                                       48

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Interest rate protection agreements --

         The Company has entered into interest rate  protection  agreements (the
"Agreements"),  with reputable national  commercial banks and investment banking
institutions to reduce its exposure to fluctuations in variable  interest rates.
A summary of the Agreements outstanding as of December 31, 1997 is as follows:

  Notional Amount        Fixed Rate                   Period
  (in millions)
 $     130                   6.27%          April 1997        -   May 1998
        50                   6.08           September 1997    -   September 2000
        50                   6.06           September 1997    -   March 2000
        50                   5.97           October 1997      -   April 1999
        50                   6.02           October 1997      -   October 1999
        50                   5.90           November 1997     -   November 1999
        50                   5.91           November 1997     -   November 1999

         The Agreements  effectively  change the Company's interest rate paid on
its  floating  rate  long-term  debt  to  a  weighted   average  fixed  rate  of
approximately  6.07% plus applicable  margins imposed by the terms of the Credit
Agreement at December 31, 1997.  The fair value of the Agreements as of December
31, 1997 was  approximately  $1.5 million,  which reflects the estimated amounts
that the Company  would pay to terminate the  Agreements  based on quoted market
prices of comparable contracts as of December 31, 1997.

         The  Company  has  also  entered  into  an  additional   interest  rate
protection  agreement with effective dates beginning in the future (the "Forward
Agreement").   This  Forward  Agreement   provides   continuing   protection  to
fluctuations  in variable  interest rates as existing  Agreements  expire and as
additional  debt is drawn  under the  Delayed  Draw Term  Facility of the Senior
Credit Facility. A summary of the Forward Agreement is as follows:

  Notional Amount         Fixed Rate                  Period
  (in millions)

 $     130                  6.06%          May 1998          -   May 2001


   Debt covenants --

         The  Company's  Senior Credit  Facility,  the 1996 Notes and the Senior
Discount Notes,  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  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,
1997, Allied was in compliance with all applicable covenants.

         Substantially all subsidiaries of the Company are jointly and severally
liable for the  obligations  under the 1997 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.

                                       49

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



6.    Closure, Post-Closure and Environmental Costs

   Closure and post-closure costs --

         The net present  value of the closure and  post-closure  commitment  is
calculated  assuming  inflation  of 2.5% 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,  in accordance  with Subtitle D, is $1.0 billion,  as
shown below,  while the present  value of such  estimate is $245.3  million.  At
December 31, 1996 and 1997,  respectively,  accruals  for  landfill  closure and
post-closure   costs  (including  costs  assumed  through   acquisitions)   were
approximately $107.6 million and $140.8 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):

                           1998                      $      19,783
                           1999                             15,087
                           2000                             11,076
                           2001                             12,311
                           2002                             13,261
                           Thereafter                      951,775
                                                     -------------
                                                     $   1,023,293
                                                     =============
   Environmental costs --

         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  subsidiaries  acquired
from Laidlaw or other  third-parties,  and  properties  under the  management of
companies  acquired  from  Laidlaw.  Several  contaminated  landfills  and other
properties  were  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 at sites  acquired  from
Laidlaw,  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 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  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 and 1997 of  approximately  $45.0  million and $62.5  million,
respectively,  represents the most probable outcome of these contingent matters.
The Company does not expect that adjustments to estimates, which are

                                       50

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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          1996            1997
                                      ---------    -------------  --------------  ---------------

<S>                                    <C>         <C>               <C>             <C>
Preferred stock, $.10 par --
   Series C Convertible.............   $     10          800,000              --               --
   Series D Convertible.............         15          267,000              --               --
   Series E Convertible.............      5,000            3,000              --               --
   9% Cumulative Convertible........      1,000           30,000              --               --
   $90 Cumulative Convertible.......      1,000           20,000              --               --
   7% Cumulative Convertible........      1,000          100,000           9,907               --
Common stock, $.01 par, net of
   570,048 treasury shares..........         --      200,000,000      78,461,266      103,563,906
</TABLE>

         Dividends  declared and accrued on the  Company's  classes of preferred
stock were as follows:

<TABLE>
<CAPTION>
                                                          Dividends Declared                  Accrued Dividends at
                                                  For The Years Ended December 31,                December 31,
                                                   1995         1996          1997             1996         1997
<S>                                              <C>          <C>          <C>               <C>          <C>
Series D Convertible......................       $     184    $       1    $       --        $     --     $     --
9% Cumulative Convertible.................           2,466          377            --              --           --
$90 Cumulative Convertible................             560           --            --              --           --
7% Cumulative Convertible.................             698          695           381             144           --
Series E Cumulative Convertible...........             162           --            --              --           --
                                                 ---------    ---------    ----------        --------     --------
                                                 $   4,070    $   1,073    $      381        $    144     $     --
                                                 =========    =========    ==========        ========     ========
</TABLE>

          During  1995,  the Series E  preferred  stock,  the Series C preferred
stock and $90 preferred stock was converted into Common Stock.  During 1996, the
Series D preferred stock and 9% preferred stock was converted into Common Stock.
During 1997, the 7% preferred stock was converted into Common Stock.

  Warrants to purchase common stock --

         Warrants to purchase  common  shares at December  31, 1996 and 1997 are
summarized as follows:

                                                    1996             1997
                                                  ----------      -----------
   Number of shares.......................        22,645,166       858,942
   Purchase price per share...............      $3.37 -- $13.50  $4.60 -- $7.00
   Expiration dates.......................       1997 -- 2008     1998 -- 2005

                                       51

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



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.  The Company  repurchased  this  warrant  from Laidlaw
during 1997.

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, 1997). 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.

         A summary of the status of the Company's stock option plans at December
31,  1995,  and 1996 and 1997 and for the years then ended is  presented  in the
table and narrative below:

<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                                                                1995                1996                1997
<S>                                                         <C>              <C>                <C>
Options outstanding, beginning of period.........               1,575,739           2,849,568          4,308,694
   Options granted...............................               1,493,469           1,747,550          3,153,775
   Options exercised.............................               (183,606)           (277,016)          (457,780)
   Options terminated............................                (36,034)            (11,408)          (104,333)
                                                            -------------    ----------------    ---------------
Options outstanding, end of period...............               2,849,568           4,308,694          6,900,356
                                                            =============    ================    ===============
Options exercisable, end of period...............               1,774,456           2,170,086          3,498,598
Weighted average fair value of options granted...           $        4.66    $           8.64    $          8.25
</TABLE>

         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:

                                      For the Years Ended December 31,
                                    1995             1996          1997

   Risk free interest rate....  6.0% to 7.6%    5.2% to 6.7%    5.8% to 7.6%
   Expected life..............       8 years       5-8 years         5 years
   Dividend rate..............            0%              0%              0%
   Expected volatility........           51%             49%      25% to 50%


                                       52

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


         Using  these  assumptions,  pro forma net income  (loss) and net income
(loss) per share would reflect additional  compensation  expense recognized over
the vesting  periods of the  options.  The pro forma loss for 1997  includes the
impact of certain  options that fully vested in 1997 due to a change in control.
The  resulting  pro forma net income  (loss),  in  thousands,  and pro forma net
income (loss) per share is as follows:

                                              For the Years Ended December 31,
                                                 1995      1996        1997
Net income (loss):             As reported     $ 13,130  $(80,582) $     412
                               Pro forma         12,389   (82,239)   (11,359)

Net income (loss) per share:   As reported     $   0.30  $ (1.26)  $    0.00
                               Pro forma           0.28    (1.28)      (0.12)


         The  following  table  summarizes   information   about  stock  options
outstanding  at December 31, 1997 which are fully vested,  partially  vested and
non-vested:

                                    Fully           Partially          Non-
                                    Vested            Vested          Vested
                                ---------------  --------------  ---------------
Options outstanding:
 Range of exercise prices.......$3.00 to $16.88  $4.50 to $9.50  $4.27 to $15.88
 Number outstanding.............      2,908,073       1,642,243        2,350,040
 Weighted average remaining life        6 years         8 years          9 years
 Weighted average exercise price          $6.25           $8.81           $10.31
Options exercisable:
 Range of exercise prices.......$3.00 to $16.88  $4.50 to $9.50               --
 Number outstanding.............      2,908,073         590,525               --
 Weighted average remaining life        6 years         8 years               --
 Weighted average exercise price          $6.25           $8.71               --





















                                       53

<PAGE>




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 basic earnings per share and diluted
earnings per share is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>

                                                                                  Year Ended December 31,
                                                                       1995             1996              1997
<S>                                                               <C>               <C>              <C>
Basic earnings per share computation:
   Income (loss) before extraordinary item....................    $       13,130    $     (67,171)   $      53,617
   Less: Preferred stock dividends............................           (4,070)          (1,073)            (381)
         Conversion fee on equity securities converted........           (2,151)               --               --
                                                                  --------------    -------------    -------------
   Income (loss) before extraordinary item
     available to common shareholders.........................    $        6,909    $     (68,244)   $      53,236
                                                                  ==============     =============   =============

     Weighted average common shares outstanding
     during the period........................................            40,559           61,364           87,045
                                                                  ==============    =============    =============

   Basic earnings per share before extraordinary item.........    $         0.17    $      (1.11)    $        0.61
                                                                  ==============    =============    =============

Diluted earnings per share computation:
   Income (loss) before extraordinary item
     available to common shareholders.........................    $        6,909    $     (68,244)   $      53,236
                                                                  ==============    ==============   =============

   Weighted average common
     shares outstanding during the period.....................            40,559           61,364           87,045
   Effect of stock options and warrants,
     assumed exercisable......................................             1,771            1,777            6,126
   Effect of Series C preferred stock, assumed converted......               234               --               --
   Effect of shares assumed issued
     pursuant to earn-out agreements..........................             1,215              968              273
                                                                  --------------    -------------    -------------
   Total Shares...............................................            43,779           64,109           93,444
                                                                  ==============    =============    =============
   Diluted earnings per share before extraordinary item.......    $         0.16    $      (1.06)    $        0.57
                                                                  ==============    =============    =============
</TABLE>

         Conversion  has not been  assumed for Series D  preferred  stock and 9%
preferred  stock,  as the  effect  would  not be  dilutive  for 1995  and  1996.
Additionally,  conversion has not been assumed for stock options and warrants in
1996, nor has  conversion  been assumed for 7% preferred  stock and  convertible
notes in 1995, 1996 and 1997, as the effects would not be dilutive.







                                       54

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


         In 1997,  the  Company  adopted  SFAS No.  128  "Earnings  per  Share,"
effective  December 15, 1997. As a result,  the Company's  reported earnings for
1995 and 1996 were restated.  The effect of this accounting change on previously
reported earnings per share data was as follows:
                                                1995                1996
                                              ---------          ---------
  Per share amounts

  Primary earnings per share                  $   0.16            $  (1.09)
  Effect of SFAS No. 128                          0.01               (0.02)
                                              ---------          ----------
  Basic earnings per share as restated            0.17            $  (1.11)
                                              =========          ==========

  Fully diluted earnings per share            $   0.16            $  (1.06)
  Effect of SFAS No. 128                            --                   --
                                              ---------          ----------
  Diluted earnings per share as restated      $   0.16            $  (1.06)
                                              =========          ==========

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, 1997,  Allied had a net operating loss  carryforward
("NOLC") for federal  income tax purposes of  approximately  $3.7  million.  The
NOLC,  which expires  beginning in 2004,  is available to offset future  taxable
income  subject to  potential  limitations.  The  Company has placed a valuation
reserve on this NOLC to reflect limitations from separate Company filing rules.

The  components of the income tax provision  (benefit)  consist of the following
(in thousands):

                                                Year Ended December 31,
                                           1995         1996         1997

     Current tax provision..........   $  4,724     $    947    $   75,793
     Deferred provision (benefit)...      5,078       (1,422)      (38,741)
                                       -----------  ----------- -----------
     Total                             $  9,802     $   (475)   $   37,052
                                       ===========  =========== ===========

Reconciliation of the federal statutory tax rate to the Company's effective rate
is as follows:


                                                      Year Ended December 31,
                                                      1995     1996      1997

  Federal statutory tax rate........................  35.0%   (35.0)%    35.0%
  Consolidated state taxes, net of federal benefit..   5.0     (5.0)      3.1
  Taxes of pooled companies.........................  (3.5)     0.6       1.5
  Amortization of goodwill..........................   3.8      2.3       0.6
  Potential tax goodwill greater than book goodwill.    --     34.7        --
  Other permanent differences.......................   2.4      1.7       0.7
                                                     ------    -----     -----
  Effective tax rate................................  42.7%    (0.7)%    40.9%
                                                     ======    =====     =====

                                       55

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



Tax  benefits  on the  extraordinary  items in 1996 and 1997  were  based on the
Company's then ordinary combined federal and state rate of 40%.

         The net current deferred tax asset of $5.8 million and $5.3 million, as
of December  31, 1996 and 1997,  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
$1.3 million,  as of December 31, 1996 and 1997 to reflect possible  limitations
on the  ability  to use NOLCs for  separate  company  federal  and state  filing
purposes.

The  components of the net  long-term  deferred tax liability are as follows (in
thousands):

                                                        Year Ended December 31,
                                                          1996         1997
 Deferred tax liability relating primarily to property
   consisting of landfill assets and debt basis
   differences........................................   $ 78,700   $ 17,056
                                                        ---------   ---------

 Deferred tax assets relating to:
   Closure and post-closure reserves..................      1,883        954
   Other reserves and estimated expenses..............     23,722      1,341
                                                        ---------   ---------

   Deferred tax assets................................     25,605      2,295
                                                        ---------   ---------

 Net long-term deferred tax liability.................   $ 53,095    $ 14,761
                                                        =========   =========

         The change in the long-term  deferred tax liability  includes  deferred
taxes related to 1997 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, 1997 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.

                                       56

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



         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").  The obligation of Laidlaw to indemnify the
Company in respect  of  amounts  at issue in the Tax  Controversy  is a general,
unsecured  obligation of 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 generally payable quarterly and amounts earned but
not paid are accrued in the accompanying consolidated balance sheets.

         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):

                                             December 31, 1997
                           1998             $            5,236
                           1999                         11,287
                           2000                          9,053
                           2001                          7,083
                           2002                          5,551
                           Thereafter                   20,913

Rental  expense  under such  operating  leases was  $3,200,000,  $6,848,000  and
$9,234,000 for the three years ended December 31, 1997, 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 $9.6 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  $359.2  million at
December 31, 1997.  These financial  instruments are issued in the normal course
of business  and are not  reflected  in the  accompanying  balance  sheets.  The
underlying  obligations  of the  financial  instruments  are valued based on 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.


                                       57

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


         The Company  leases  certain  properties and equipment in Illinois from
related parties resulting from prior year acquisitions. In connection with these
leases,  payments of $69,000 and $45,000 for the years ended  December  31, 1995
and 1996, respectively, were made to officers of the Company.

         The Company  made a payment of $254,000  in 1995,  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,  1996 and 1997,  the  Company  paid  principal  of  $121,000  and  $136,000,
respectively, to these stockholders.  The Company has approximately $1.7 million
in promissory  notes payable to these  stockholders  outstanding at December 31,
1997.

         In  connection  with  the  successful   completion  of  certain  market
development  projects during 1997, Allied paid  approximately  $2.5 million to a
former owner of an acquired company and a director of the Company.


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.
However,  summarized balance sheet information for Allied NA and subsidiaries as
of December 31, 1996 and 1997 is as follows (in thousands):

                Summarized Consolidated Balance Sheet Information

                                          December 31, 1996    December 31, 1997
Current assets...........................   $    693,190        $     187,459
Property and equipment, net..............        738,388            1,287,208
Goodwill.................................        857,350              899,144
Other non-current assets.................         49,339               74,848
Current liabilities......................        673,733              222,809
Long-term debt, net of current portion...      1,048,190            1,101,591
Due to parent............................        354,468              731,983
Due to Allied Canada Finance, Ltd........        110,747              152,825
Other long-term obligations..............        229,588              268,943
Retained deficit.........................        (78,460)             (29,492)

         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  from inception to December 31, 1996 were not material except for the
acquisition related costs and unusual items (see Note 1).








                                       58

<PAGE>


                          ALLIED WASTE INDUSTRIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Summarized Statement of Operations Information

                                                                  Year Ended
                                                              December 31, 1997
                                                              -----------------
     Total revenue........................................     $    875,028
     Total operating costs and expenses...................          693,397
     Operating income.....................................          181,631
     Net income before extraordinary loss.................           62,633
     Extraordinary loss, net..............................           13,831
     Net income...........................................           48,802

14.  Subsequent Events (unaudited)

     Subsequent to December 31, 1997,  the Company  acquired 12 operating  solid
waste  businesses  with  annual  revenues  of  approximately  $33.3  million for
consideration of approximately $55.0 million, of which $22.3 million consists of
approximately 1 million shares of Common Stock.
































                                       59

<PAGE>



Item 9.    Changes in and Disagreements on Accounting and Financial Disclosure

         Not applicable.

















































                                       60

<PAGE>



                                    PART III

Item 10.   Directors and Executive Officers of the Registrant

         Information  required by this item is  incorporated by reference to the
material  appearing  under the  heading  "Election  of  Directors"  in the Proxy
Statement for the 1998 Annual Meeting of Stockholders.

Item 11.   Executive Compensation

         Information  required by this item is  incorporated by reference to the
material  appearing  under the  heading  "Executive  Compensation"  in the Proxy
Statement for the 1998 Annual Meeting of Stockholders.

Item 12.   Security Ownership of Certain Beneficial Owners and Management

         Information  required by this item is  incorporated by reference to the
material  appearing  under the  headings  "Election of  Directors"  and "Certain
Stockholders"   in  the  Proxy   Statement  for  the  1998  Annual   Meeting  of
Stockholders.

Item 13.   Certain Relationships and Related Transactions

         Information  required by this item is  incorporated by reference to the
material  appearing  under  the  heading  "Certain   Relationships  and  Related
Transactions"   in  the  Proxy   Statement  for  the  1998  Annual   Meeting  of
Stockholders.

                                     PART IV

Item 14.   Financial Statement Schedules, Exhibits and Reports on Form 8-K

         Financial Statement Schedules --

         Schedules  have been  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 --

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      Amended  Certificate  of  Incorporation  of the  Company  (Incorporated
         herein be reference to Exhibit 3.1 to the Company's report on Form 10-K
         for the fiscal year ended December 31, 1996.).
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

                                       61

<PAGE>



         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 as of May 13, 1997.  Exhibit
         3.2 to the Company's report on Form 10-Q for the quarter ended June 30,
         1997 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.
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.
4.15     Indenture, dated as of May 15, 1997, by and among the Company and First
         Bank National Association with respect to the Senior Discount Notes and
         Exchange Notes. Exhibit 4.1 to the Company's  Registration Statement on
         Form S-4 (No. 333-31231) is incorporated herein by reference.
4.16     Indenture,  dated as of December 1, 1996, by and among the Company, the
         Guarantors and First Bank National Association with respect to the 1996
         Notes and Exchange  Notes.  Exhibit 4.1 to the  Company's  Registration
         Statement  on Form  S-4  (No.  333-22575)  is  incorporated  herein  by
         reference.
4.17     First  Supplemental  Indenture  dated  December 30, 1996 related to the
         1996 Notes. Exhibit 4.2 to the Company's Registration Statement on Form
         S-4 (No. 333-22575) is incorporated herein by reference.
4.18     Second Supplemental  Indenture dated April 30, 1997 related to the 1996
         Notes. Exhibit 4.3 to the Company's  Registration Statement on Form S-4
         (No. 333-22575) is incorporated herein by reference.

                                       62

<PAGE>



4.19     Senior Subordinated Guarantee dated as of December 1, 1996 related to
         the 1996 Notes.  Exhibit 4.5 to the Company's Registration Statement on
         Form S-4 (No. 333-22575) is incorporated herein by reference.
4.20     Amendment No. 1 to the 1991 Incentive Stock Plan dated November 1,
         1996.*
10.1     Agreement  dated September 17, 1996,  between Allied Waste  Industries,
         and the Laidlaw Group.  Exhibit 10.1 to the Company's  Current  Report
         on Form  8-K  dated  October  2,  1996,  is incorporated herein by
         reference.
10.2     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. Exhibit 10.11 to the Company's
         report  on  Form  10-K  for  the  year  ended   December  31,  1996  is
         incorporated herein by reference.
10.3     Securities  Purchase  Agreement  dated  April 21, 1997  between  Apollo
         Investment  Fund III,  L.P.,  Apollo  Overseas  Partners III, L.P., and
         Apollo  (U.K.)  Partners  III,  L.P.;  Blackstone  Capital  Partners II
         Merchant  Banking Fund L.P.,  Blackstone  Offshore  Capital Partners II
         L.P. and Blackstone Family Investment Partnership II L.P.; Laidlaw Inc.
         and Laidlaw Transportation,  Inc.; and Allied Waste Industries. Exhibit
         10.1 to the  Company's  report on Form 10-Q for the quarter ended March
         31, 1997 is incorporated herein by reference.
10.4     Shareholders  Agreement dated as of April 14, 1997 between Allied Waste
         Industries,  Inc. and Apollo Investment Fund III. L.P., Apollo Overseas
         Partners III.  L.P., and Apollo (U.K.)  Partners III, L.P.;  Blackstone
         Capital  Partners II Merchant  Banking Fund L.P.,  Blackstone  Offshore
         Capital Partners II L.P. and Blackstone Family  Investment  Partnership
         II L.P.  Exhibit  10.2 to the  Company's  report  on Form  10-Q for the
         quarter ended March 31, 1997 is incorporated herein by reference.
10.5     Amended and Restated Shareholders  Agreement dated as of April 21, 1997
         between Allied Waste  Industries,  Inc. and Apollo Investment Fund III.
         L.P.,  Apollo  Overseas  Partners III. L.P., and Apollo (U.K.) Partners
         III, L.P.;  Blackstone  Capital Partners II Merchant Banking Fund L.P.,
         Blackstone  Offshore  Capital  Partners II L.P. and  Blackstone  Family
         Investment  Partnership II L.P. Exhibit 10.3 to the Company's report on
         Form 10-Q for the quarter ended March 31, 1997 is  incorporated  herein
         by reference.
10.6     Registration Rights Agreement dated as of April 21, 1997 between Allied
         Waste  Industries,  Inc. and Apollo  Investment Fund III. L.P.,  Apollo
         Overseas  Partners III.  L.P.,  and Apollo (U.K.)  Partners III,  L.P.;
         Blackstone  Capital Partners II Merchant Banking Fund L.P.,  Blackstone
         Offshore  Capital  Partners II L.P. and  Blackstone  Family  Investment
         Partnership II L.P.  Exhibit 10.4 to the Company's  report on Form 10-Q
         for the  quarter  ended  March  31,  1997  is  incorporated  herein  by
         reference.
10.7     Amended and Restated  Credit  Agreement  dated as of June 5, 1997 among
         the  Company,  Allied  Waste North  America,  the  Lenders  referred to
         therein and Credit Suisse First Boston,  Goldman Sachs Credit  Partners
         L.P.,  and  Citibank,  N.A.,  as agents.  Exhibit 10.1 to the Company's
         report on Form 10-Q for the quarter ended June 30, 1997 is incorporated
         herein by reference.
10.8     Executive  Employment  Agreement  between the Company and with Henry L.
         Hirvela  dated June 6, 1997.  Exhibit 10.2 to the  Company's  report on
         Form 10-Q for the quarter ended June 30, 1997 is incorporated herein by
         reference.
10.9     Third Amendment to Executive  Employment  Agreement between the Company
         and with Thomas H. Van Weelden dated January 30, 1997.  Exhibit 10.3 to
         the  Company's  report on Form 10-Q for the quarter ended June 30, 1997
         is incorporated herein by reference.
10.10    Executive  Employment  Agreement  between the Company and with Larry D.
         Henk dated June 6, 1997.  Exhibit 10.4 to the Company's  report on Form
         10-Q for the  quarter  ended June 30,  1997 is  incorporated  herein by
         reference.
10.11    Executive  Employment  Agreement between the Company and with Steven M.
         Helm dated June 6, 1997  Exhibit  10.5 to he  Company's  report on Form
         10-Q for the  quarter  ended June 30,  1997 is  incorporated  herein by
         reference.
10.12    Third Amendment to Executive  Employment  Agreement between the Company
         and with Roger A. Ramsey dated  January 30,  1997.  Exhibit 10.6 to the
         Company's  report on Form 10-Q for the  quarter  ended June 30, 1997 is
         incorporated herein by reference.

                                       63

<PAGE>



10.13    Registration  Rights  Agreement,  dated as of December 5, 1996,  by and
         among the  Company,  Goldman,  Sachs & Co.,  Merrill  Lynch & Co.,  and
         Credit Suisse First Boston.  Exhibit 10.1 to the Company's Registration
         Statement  on Form  S-4  (No.  333-31231)  is  incorporated  herein  by
         reference.
10.14    Executive  Employment  Agreement  between the Company and with Peter S.
         Hathaway dated June 6, 1997.*
10.15    Executive  Employment Agreement between the Company and with Michael G.
         Hannon dated June 6, 1997.*
10.16    Share Purchase Agreement between Allied Waste Industries, Inc. and
         Allied Waste Holdings (Canada) Ltd. and Laidlaw Waste Systems,
         Inc. and USA Waste Services, Inc. and Canadian Waste Services,
         Inc. dated January 15, 1997.  Exhibit 10.0 to the Company's report
         on Form 8-K dated January 30, 1997 is incorporated herein by
         reference.
12       Ratio of earnings to fixed charges.*
21       Subsidiaries of the Registrant..  Exhibit 21 to the Company's report on
         Form 10-K for the year ended December 31, 1996 is  incorporated  herein
         by reference.
23.1     Consent of Arthur Andersen LLP.*
27.1          Financial  Data  Schedule  for the year ended  December 31, 1997.*
27.2          Restated Financial Data Schedule for the year ended
              December 31, 1996.*
27.3          Restated Financial Data Schedule for the year ended
              December 31, 1995.*
27.4          Restated  Financial Data Schedule for the three months ended March
              31,  1997.*
27.5          Restated Financial Data Schedule for the six months ended June 30,
              1997.*
27.6          Restated Financial Data Schedule for the nine months ended
              September 30, 1997.*
27.7          Restated  Financial Data Schedule for the three months ended March
              31,  1996.*
27.8          Restated Financial Data Schedule for the six months ended June 30,
              1996.*
27.9          Restated Financial Data Schedule for the nine months ended
              September 30, 1996.*


*        Filed herewith.

































                                       64

<PAGE>



 Reports on Form 8-K during the Quarter Ended December 31, 1997--

  November 4, 1997      The Company's current report on Form 8-K reports
                        the acquisition of Wayne County Disposal - Oakland, Inc.
                        and Wayne County Disposal - Canton, Inc. and
                        pro forma financial statements related to these
                        acquisitions.














































                                       65

<PAGE>




                                   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 March 30, 1998.

                                          ALLIED WASTE INDUSTRIES, INC.

                                          By:   /s/HENRY L. HIRVELA
                                                 Henry L. Hirvela
                                          Vice President-Chief Financial officer
                                               (Principal Financial Officer)

                                          By:   /s/JAMES S. ENG
                                                   James S. Eng
                                               Corporate Controller
                                            (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 March
30, 1998.

       Signature                                   Title

  /s/ROGER A. RAMSEY             Director and Chairman of the Board of Directors
      Roger A. Ramsey

  /s/THOMAS H. VAN WEELDEN       Director, President and Chief Executive Officer
     Thomas H. Van Weelden

  /s/HENRY L. HIRVELA            Vice President - Chief Financial Officer
     Henry L. Hirvela            (Principal Financial Officer)

  /s/PETER S. HATHAWAY           Vice President - Chief 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

 /s/JAMES S. ENG                 Corporate Controller
     James S. Eng                (Principal Accounting Officer)

                                       66

<PAGE>


                            SIGNATURES - (Continued)


  /s/MICHAEL GROSS                 Director
     Michael Gross

  /s/DAVID B. KAPLAN               Director
     David B. Kaplan

  /s/ANTONY P. RESSLER             Director
     Antony P. Ressler

  /s/HOWARD A. LIPSON              Director
     Howard A. Lipson

  /s/DENNIS HENDRIX                Director
     Dennis Hendrix

  /s/WARREN B. RUDMAN              Director
     Warren B. Rudman

  /s/VINCENT TESE                  Director
     Vincent Tese
































                                       67

<PAGE>


                                  EXHIBIT INDEX


Exhibit #     Exhibit                                                      Page


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           Amended Certificate of Incorporation of the Company Incorporated
              herein by reference to Exhibit 3.1 to the Company's report on
              Form 10-K for the fiscal year ended December 31, 1996.).
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 as of May 13, 1997.
              Exhibit 3.2 to the Company's report on Form 10-Q for the quarter
              ended June 30, 1997 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.

<PAGE>



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.
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.
4.15          Indenture, dated as of May 15, 1997, by and among the Company and
              First Bank National Association with respect to the Senior
              Discount Notes and Exchange Notes Exhibit 4.1 to the Company's
              Registration Statement on Form S-4 (No. 333-31231) is incorporated
              herein by reference.
4.16          Indenture, dated as of December 1, 1996, by and among the Company,
              the Guarantors and First Bank National Association with respect to
              the 1996 Notes and Exchange Notes.  Exhibit 4.1 to the Company's
              Registration Statement on Form S-4 (No. 333-22575) is incorporated
              herein by reference.
4.17          First Supplemental Indenture dated December 30, 1996 related to
              the 1996 Notes.Exhibit 4.2 to the Company's Registration Statement
              on Form S-4 (No. 333-22575) is incorporated herein by reference.
4.18          Second Supplemental Indenture dated April 30, 1997 related to the
              1996 Notes. Exhibit 4.3 to the Company's Registration Statement on
              Form S-4 (No. 333-22575) is incorporated herein by reference.
4.19          Senior Subordinated Guarantee dated as of December 1, 1996 related
              to the 1996 Notes.  Exhibit 4.5 to the Company's Registration
              Statement on Form S-4 (No. 333-22575) is incorporated herein by
              reference.
4.20          Amendment No. 1 to the 1991 Incentive Stock Plan dated November 1,
              1996.*
10.1          Agreement dated September 17, 1996, between Allied Waste
              Industries, Inc., and the Laidlaw Group. Exhibit 10.1 to the
              Company's Current Report on Form 8-K dated October 2, 1996, is
              incorporated  herein by reference.
10.2          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.  Exhibit 10.11
              to the Company's report on Form 10-K for the year ended December
              31, 1996 is incorporated herein by reference.
10.3          Securities Purchase Agreement dated April 21, 1997 between Apollo
              Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and
              Apollo (U.K.) Partners III, L.P.; Blackstone Capital Partners II
              Merchant Banking Fund L.P., Blackstone Offshore Capital Partners
              II L.P. and Blackstone Family Investment Partnership II L.P.;
              Laidlaw Inc. and Laidlaw Transportation, Inc.; and Allied Waste
              Industries. Exhibit 10.1 to the Company's report on Form 10-Q
              for the quarter ended March 31, 1997 is incorporated herein by
              reference.
10.4          Shareholders Agreement dated as of April 14, 1997 between Allied
              Waste Industries, Inc. and Apollo Investment Fund III. L.P.,
              Apollo Overseas Partners III. L.P., and Apollo(U.K.) Partners III,
              L.P.; Blackstone Capital Partners II Merchant Banking Fund  L.P.,


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              Blackstone  Offshore Capital  Partners  II  L.P.  and  Blackstone
              Family Investment Partnership II L.P.  Exhibit 10.2 to the
              Company's  report on Form 10-Q for the quarter ended March 31,
              1997 is  incorporated  herein  by reference.
10.5          Amended and Restated Shareholders Agreement dated as of April 21,
              1997 between Allied Waste Industries, Inc. and Apollo Investment
              Fund III. L.P., Apollo Overseas Partners III. L.P., and Apollo
              (U.K.) Partners III, L.P.; Blackstone Capital Partners II Merchant
              Banking Fund L.P., Blackstone Offshore Capital Partners II L.P.
              and Blackstone Family Investment Partnership II L.P.
              Exhibit 10.3 to the Company's report on Form 10-Q for the quarter
              ended March 31, 1997 is incorporated herein by reference.
10.6          Registration Rights Agreement dated as of April 21, 1997 between
              Allied Waste Industries, Inc. and Apollo Investment Fund III.
              L.P., Apollo Overseas Partners III. L.P., and Apollo (U.K.)
              Partners III, L.P.; Blackstone Capital Partners II Merchant
              Banking Fund L.P., Blackstone Offshore Capital
              Partners II L.P. and Blackstone Family Investment Partnership II
              L.P.  Exhibit 10.4 to the Company's report on Form 10-Q for the
              quarter ended March 31, 1997 is incorporated herein by reference.
10.7          Amended and Restated Credit Agreement dated as of June 5, 1997
              among the Company, Allied Waste North America, the Lenders
              referred to therein and Credit Suisse First Boston, Goldman Sachs
              Credit Partners L.P., and Citibank, N.A., as agents.  Exhibit 10.1
              to the Company's report on Form 10-Q  for the quarter ended
              June 30, 1997 is incorporated herein by reference.
10.8          Executive Employment Agreement between the Company and with
              Henry L.Hirvela dated June 6, 1997.  Exhibit 10.2 to the Company's
              report on Form 10-Q for the quarter ended June 30, 1997 is
              incorporated herein by reference.
10.9          Third  Amendment to  Executive  Employment  Agreement  between the
              Company  and with Thomas H. Van Weelden  dated  January 30,  1997.
              Exhibit 10.3 to the Company's  report on Form 10-Q for the quarter
              ended June 30, 1997 is incorporated herein by reference.
10.10         Executive  Employment Agreement between the Company and with Larry
              D. Henk dated June 6, 1997.  Exhibit 10.4 to the Company's  report
              on Form 10-Q for the quarter  ended June 30, 1997 is  incorporated
              herein by reference.
10.11         Executive Employment Agreement between the Company and with Steven
              M. Helm dated June 6, 1997 Exhibit 10.5 to he Company's  report on
              Form 10-Q for the  quarter  ended  June 30,  1997 is  incorporated
              herein by reference.
10.12         Third  Amendment to  Executive  Employment  Agreement  between the
              Company and with Roger A. Ramsey dated  January 30, 1997.  Exhibit
              10.6 to the  Company's  report on Form 10-Q for the quarter  ended
              June 30, 1997 is incorporated herein by reference.
10.13         Registration  Rights  Agreement,  dated as of December 5, 1996, by
              and among the Company,  Goldman, Sachs & Co., Merrill Lynch & Co.,
              and Credit  Suisse First  Boston.  Exhibit  10.1 to the  Company's
              Registration Statement on Form S-4 (No. 333-31231) is incorporated
              herein by reference.
10.14         Executive Employment Agreement between the Company and with Peter
              S. Hathaway dated June 6, 1997.*
10.15         Executive Employment Agreement between the Company and with
              Michael G. Hannon dated June 6, 1997.*
10.16         Share Purchase Agreement between Allied Waste Industries, Inc. and
              Allied Waste Holdings (Canada) Ltd. and Laidlaw Waste Systems,
              Inc. and USA Waste Services, Inc. and Canadian Waste Services,
              Inc. dated January 15, 1997.  Exhibit 10.0 to the Company's report
              on Form 8-K dated January 30, 1997 is incorporated herein by
              reference.

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12            Ratio of earnings to fixed charges.*
21            Subsidiaries of the Registrant.  Exhibit 21 to the Company's
              report on Form 10-K for the year ended December 31, 1996 is
              incorporated herein by reference.
23.1          Consent of Arthur Andersen LLP.*
27.1          Financial  Data  Schedule  for the year ended  December 31, 1997.*
27.2          Restated Financial Data Schedule for the year ended
              December 31, 1996.*
27.3          Restated Financial Data Schedule for the year ended
              December 31, 1995.*
27.4          Restated  Financial Data Schedule for the three months ended March
              31,  1997.*
27.5          Restated Financial Data Schedule for the six months ended June 30,
              1997.*
27.6          Restated Financial Data Schedule for the nine months ended
              September 30, 1997.*
27.7          Restated  Financial Data Schedule for the three months ended March
              31,  1996.*
27.8          Restated Financial Data Schedule for the six months ended June 30,
              1996.*
27.9          Restated Financial Data Schedule for the nine months ended
              September 30, 1996.*

*  Filed herewith.


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