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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K


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|(Mark One)                                  |  |                                                                                     
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|(CHECK BOX)                                 |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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|For the fiscal year ended December 31, 2001
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|OR                                         
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|(BOX)                                       |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934     

For the transition period from ____ to ____Commission File Number 0-19285

ALLIED WASTE INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


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|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 88-0228636                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)
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|15880 North Greenway-Hayden Loop, Suite 100                    |  |                                     
|Scottsdale, Arizona                                            |  | 85260                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (480) 627-2700
Securities registered pursuant to Section 12(b) of the Act:

|                                                                                 |  |                                                                                          
|-------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------
|Title of each class
Common Stock, $.01 par value
Preferred Stock Purchase Rights |  | Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:None
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesX      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. (BOX)

The aggregate market value of the registrants voting stock held by nonaffiliates of the registrant was $2,665,389,138
as of March 18, 2002.

The number of shares of the registrants common stock, $.01 par value, outstanding at March 18, 2002 was 197,144,167.

The registrants proxy statement is to be filed in connection with the registrants 2002 annual meeting of
stockholders, portions of which are incorporated by reference into Part III of this report.



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TABLE OF CONTENTS



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|PART I    
|           | Item 1. Business                                                                             
|           | Item 2. Properties                                                                           
|           | Item 3. Legal Proceedings                                                                    
|           | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II   
|           | Item 5. Market Price and Dividends on the Common Stock and Related Stockholder Matters       
|           | Item 6. Selected Financial Data                                                              
|           | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|           | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|           | Item 8. Financial Statements and Supplementary Data                                          
|           | Item 9. Changes in and Disagreements on Accounting and Financial Disclosure                  
|PART III  
|           | Item 10. Directors and Executive Officers of the Registrant                                  
|           | Item 11. Executive Compensation                                                              
|           | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|           | Item 13. Certain Relationships and Related Transactions                                      
|PART IV   
|           | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|Signatures
|EX-4.14   
|EX-12.1   
|EX-21     
|EX-23.1   
|EX-99     



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TABLE OF CONTENTS

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|Item 14. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 92 
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|         |  | Signatures                                                                            |  | 127

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PART I




Item 1.Business

Allied Waste Industries,
Inc. (Allied or we),
a Delaware corporation,
is the second largest,
non-hazardous solid waste
management company in the
United States. We
operate as a vertically
integrated company
providing collection,
transfer, recycling and
disposal services for
approximately 10 million
residential, commercial
and industrial customers.
We serve customers
through a network of 355
collection companies, 181
transfer stations, 167
active landfills and 65
recycling facilities
within 39 states.

As of December 31, 2001
operations were organized
into two areas: East and
West. The areas were
further divided into the
following eight regions:
Atlantic, Central, Great
Lakes, Midwest,
Northeast, Southeast,
Southwest and West.
Consistent with the
vertical integration
model, each region is
organized into several
operating districts and
each district contains a
group of specific site
operations. Each of our
regions, and
substantially all of our
districts include
collection, transfer,
recycling and disposal
services, which
facilitates efficient and
cost effective waste
handling and allows the
regions and districts to
maximize the efficiencies
from the internalization
of waste.

We are expanding our
existing infrastructure
in 2002 by increasing the
number of areas, regions
and districts. There
will be four areas,
Eastern, Southern,
Central and Western by
which we will primarily
manage our business. The
areas will be further
divided into twelve
regions: Atlantic,
Capitol, Great Lakes,
Midsouth, Midwest,
Mountain, North Central,
Northeast, Northwest,
Pacific, Southeast and
Southwest. The number of
districts reporting to
the regions will increase
from 46 to 58. This
expansion is being
implemented to provide
our field operators
better flexibility to
manage profitability by
reducing the amount of
revenue and geographic
area each is responsible
for managing.

We reported revenues of
approximately $5.6
billion and approximately
$5.7 billion for the
years ended December 31,
2001 and 2000,
respectively.

Industry Trends

We estimate that annual
revenues of the
non-hazardous solid waste
industry in the United
States are approximately
$40 billion. The
non-hazardous solid waste
industry has
traditionally been very
fragmented, particularly
in the collection segment
of the business. Publicly
traded companies,
municipalities and
privately held companies,
generate approximately
48%, 24% and 28% of the
industrys revenue,
respectively.

In the past several
years, the non-hazardous
solid waste industry has
undergone significant
consolidation due to
certain funding
requirements brought
about by regulatory
changes enacted
throughout the 1990s.
Subtitle D of the
Resource Conservation and
Recovery Act of 1976
(Subtitle D), as well
as more stringent
financial assurance
requirements imposed by
various state and local
governments,
significantly increased
the amount of capital
required for solid waste
management operations.
Regulatory compliance is
a significant factor in
areas that effect, for
example, workplace
safety, vehicle operating
and maintenance
standards, and the labor
environment. As a
result, many smaller
companies that lacked the
requisite capital chose
to cease operations or
sell their operations to
more strongly capitalized
companies.

We believe the cycle of
industry consolidation in
the United States is
substantially complete,
and we also believe that
most major solid waste
companies will acquire
and sell assets to
improve their competitive
positions within the
markets they serve.
Presently, the three
largest companies in the
United States represent a
substantial majority of
the revenues of the
publicly traded
companies. The industry
is displaying a greater
focus on maximization of
cash flow and internal
growth through
initiatives that increase
returns on investment.
Generally, revenue growth
within the industry has
been a function of
overall economic and
population growth.
Industry growth has also
been impacted by changes
in state and federal
regulations, supply of
and demand for disposal
capacity, and consumer
awareness of
environmental matters.
While the companies
within the industry
provide essential
services, their revenue
growth has been, and will
continue to be, impacted
by changes in general
economic and industry
specific trends.

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Business Strategy

The major components of our business strategy are intended to maximize operating cash flows to enable us to
continue to pay down debt. These components are: (1) operating vertically integrated non-hazardous solid
waste service businesses with a high rate of waste internalization (which is the process of transferring
and disposing of waste we collect at our own landfills); (2) managing these businesses locally with a
strong operations focus on customer service; (3) maintaining or improving our market position through
internal development and incremental acquisitions; and (4) maintaining the financial capacity, management
capabilities and administrative systems and controls to support on-going operations and future growth.

Vertical Integration and Internalization.The vertical integration business strategy has been and continues
to be the key element of our operating philosophy. The fundamental objective of the vertical integration
business model is to control the waste stream from the point of collection through disposal, thereby
achieving a high rate of waste internalization. We have built through market specific acquisitions,
vertically integrated operations typically consisting of collection companies, transfer stations, recycling
facilities and landfills. Within our markets, we seek to strengthen our competitive position and improve
our financial returns by acquiring and selling operating assets. We believe that we can realize competitive
advantages by continuously implementing this strategy across existing and selected new markets in the
United States. Our internalization rate, as measured by collection volumes, was approximately 67% at the
end of 2001 compared to 65% at the end of 2000.

Focus on Operations.Decentralized operations and local management characterize our operations-oriented
business strategy. We focus our recruiting efforts on operating managers with extensive industry
experience, usually with significant experience in their geographic markets. Our senior operating
management average over 20 years of industry experience. By continuing to hire and retain experienced,
local market-oriented managers, we believe that we are well positioned to react to customer needs and
changes in our markets and are able to capitalize on growth opportunities.

Achieving a Sustainable Long-Term Growth Rate. Our focus is on achieving a sustainable rate of long-term
growth and efficiently operating the assets we have accumulated since the early 1990s. We anticipate
future revenue growth will slow to a rate reflecting growth in the economy and inflation. We intend to
increase revenues by increasing volumes collected and disposed and by increasing the rates we charge for
the services we provide. We intend to supplement this internal growth with tuck-in acquisitions of
privately owned solid waste operations, offset by the sale of operations that do not fit our business
model. We also intend to be opportunistic when government entities privatize the operation of all or part
of their solid waste systems. In addition, we seek to achieve broad domestic geographic diversification in
our operations and market development activities.

Maintaining Capacity for Future Growth.We seek to implement our business strategy by maintaining effective
internal controls, experienced management and sufficient financial capacity. We expect operating cash flows
to fund our debt service, working capital and capital expenditure requirements, with our revolving line of
credit capacity sufficient to handle seasonal and other peak spending requirements.

Operations

Our revenue mix for 2001 was approximately 62.4% collection, 31.3% disposal (including transfer), 3.4%
recycling and 2.9% other.

Collection. Collection operations involve collecting and transporting non-hazardous waste from the point of
generation to the transfer station or the site of disposal. Depending on the customer being served, we
generally provide solid waste collection under the following two service lines.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
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| | Commercial.We provide containerized non-hazardous solid waste disposal services to a wide
variety of commercial and industrial customers. Commercial revenue represents approximately
72% of our collection revenue. We provide customers 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. Our commercial
containers generally range in size from one to eight cubic yards and our roll-off containers
generally range in size from 20 to 40 cubic yards. 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 generally a function of general competitive and
prevailing local economic conditions, as well as 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.We perform residential collection services under individual monthly subscriptions
directly to households or under contracts with municipal governments that give us exclusive
rights to service all or a portion of the homes in the municipalities at established rates. We
seek to obtain municipal contracts that enhance the efficiency and profitability of our
operations as a result of the density of collection customers within a given area. Residential
revenue represents approximately 28% of our collection revenue, half of which is subscription
revenue and half of which is municipal revenue. At the end of the term of most municipal
contracts, we will attempt to renegotiate the contract, and if unable to do so, will generally
re-bid the contract on a sealed bid basis. We also make residential collection service
arrangements directly with households. We seek to enter into residential service arrangements
where the route density is high, thereby creating additional economic benefit. We set
collection fees based on general competitive and prevailing local economic conditions and 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. We generally base fees upon such factors as the type and volume or weight of the
waste transferred, the transport distance to the disposal facility and the cost of disposal. We believe
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.

Landfills.Non-hazardous 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
comprehensive federal, state and local regulations promulgated under Subtitle D. Operating procedures
include excavation, spreading and compacting of waste, and covering of waste with earth or other inert
material. Disposal fees and the cost of transferring solid waste to the disposal facility place an economic
restriction on the geographic scope of landfill operations in a particular market. Access to a disposal
facility, such as a landfill, is necessary for all solid waste management companies. While access to
disposal facilities owned or operated by unaffiliated parties can generally be obtained, we prefer, in
keeping with our business strategy, to own or operate our own disposal facilities. This strategy ensures
access and allows us to internalize disposal fees.

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Recycling. We perform certain recycling services. 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. We generally charge recycling fees based on the service
sought by the customer. The customer pays for the cost of removing, sorting and transferring of recyclable
materials downstream in the recycle process. In most cases, we receive mixed waste materials at a materials
recovery facility, which is often integrated into, or contiguous to, a transfer operation. At the facility,
we sort, separate, accumulate, bind or place in a container and ready for transportation materials such as
paper, cardboard, plastic, aluminum and other metals. Cardboard and paper represented 80% of our processed
recyclable product in 2001. The purchaser of the recyclables generally pays for the sorted materials based
on fluctuating spot-market prices. We dispose of material, for which there is no market or for which the
market price is insufficient to warrant processing, at a landfill or other disposal facility. We seek to
mitigate exposure to fluctuating commodity prices by passing through substantially all of the profit or
loss from the sale of recyclables to customers when it is possible. We also engage in organic materials
recycling and/or disposal.

Organization, Marketing and Sales

Our management philosophy utilizes a decentralized operating model, with centralized management and
financial controls. We believe that this model allows us to maximize the opportunities in each market that
we operate and has largely contributed to our ability to operate the business efficiently, while
maintaining adequate controls over our operations.

We implement this philosophy through a corporate, area, regional and district infrastructure.

Corporate and area management establish long term strategic plans, outline business and financial goals,
implement policies and procedures and evaluate their effectiveness to provide for uniform controls
throughout the organization. Regional management develops tactical plans and implements and monitors
compliance with policies and procedures to achieve the strategic goals and objectives. District management
is responsible for operational execution in accordance with strategic plans and compliance with policies
and procedures.

The area vice presidents and area controllers are located in region offices and utilize corporate and
regional personnel for support staff.

A region vice president manages each region supported by a staff, including a controller. All region vice
presidents and most controllers have significant industry experience (in the case of region vice
presidents, an average of 25 years of experience). Region offices are typically located in a districts
facility in order to reduce overhead costs and to promote a close working relationship between the region
management and district personnel.

All region managers and most district managers have responsibility for all phases of the vertical
integration model including collection, transfer, recycling and disposal. Region management also has
responsibility for increasing region revenues through internal development initiatives and acquisitions. In
addition to base salary, we compensate region and district management through a bonus program and stock
incentive plans. Compensation pursuant to the bonus and stock incentive plans is largely contingent upon
meeting or exceeding various goals in the managers geographic area of responsibility, as well as the
achievement of overall company goals.

The districts consist of a collection of stand-alone companies usually operating as a vertically integrated
operation within a common marketplace. These districts range in size from approximately $27 million in
revenue to approximately $366 million in revenue. Each district reports to a regional office. Each regional
office has approximately 6 districts under its management.

In addition to a district manager and controller, each district has staff responsible for sales and
marketing. Our 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.

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We also have municipal marketing coordinators in most service areas, who are responsible for communicating
with each municipality or community to which we provide residential service to ensure customer
satisfaction. Additionally, 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. We compete with large
companies and municipalities, some of which may have greater financial and operations resources. We also
compete with the use of alternatives to landfill disposal (in some cases because of state requirements to
reduce landfill disposal). The non-hazardous waste collection and disposal industry is led by three large
national waste management companies: Allied, Waste Management, Inc., and Republic Services, Inc. It also
includes numerous regional and local companies. Many counties and municipalities that operate their own
waste collection and disposal facilities have the benefits of tax-exempt financing and may control the
disposal of waste collected within their jurisdictions.

We also encounter competition due to the use of alternatives to landfill disposal, such as recycling and
incineration. Further, most of the states in which we operate landfills have adopted plans or requirements
that require the adoption of comprehensive plans to reduce the volume of solid waste deposited in landfills
through waste planning, composting and recycling or other programs. State and local governments sometimes
mandate waste reduction at the source and prohibit the disposal of certain types of wastes, such as yard
wastes, at landfills. Such mandates may reduce the volume of waste going to landfills in certain areas. If
this occurs, we cannot assure you that we will be able to operate our landfills at their optimal level of
utilization or charge optimal prices for landfill disposal services due to the decrease in demand for
services. We also encounter competition in our acquisition of landfills and collection operations. This
competition is due to our competitors interest in acquiring solid waste assets.

Environmental and Other Regulations

We are subject to extensive and evolving environmental laws and regulations. The Environmental Protection
Agency, (the EPA) and various other federal, state and local environmental, zoning, health and safety
agencies administer the regulations. Many of these agencies periodically examine our 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. We believe that regulation of the waste industry will continue to evolve and we will adapt to
such future regulatory requirements to ensure compliance.

Our operation of landfills subjects us to certain operational, monitoring, site maintenance, closure,
post-closure and other obligations which could give rise to increased costs for compliance and corrective
measures. In connection with our acquisition and continued operation of existing landfills, we must often
spend considerable time, effort and money to obtain permits required to increase the capacity of these
landfills. We cannot definitively predict whether or not we will be able to obtain the governmental
approvals necessary to establish new or expand existing landfills.

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Our 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
after October 9, 1991, and, with limited
exceptions, required all landfills to meet these
requirements by October 9, 1993. Subtitle D
required landfills that were not in compliance
with the requirements of Subtitle D on the
applicable date of implementation, which varied
state by state, 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. All
states except Maine and Washington have EPA
approved programs which implemented the minimum
requirements of Subtitle D.

The Federal Water Pollution Control Act of 1972 as
amended (the Clean Water Act).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 our landfills or
transfer stations may be discharged into surface
waters, the Clean Water Act requires us to apply
for and obtain discharge permits, conduct sampling
and monitoring and, under certain circumstances,
reduce the quantity of pollutants in those
discharges. The EPA has expanded the permit
program to include storm water discharges from
landfills that receive, or in the past received,
industrial waste. In addition, if development may
alter or affect wetlands, we may have to obtain
a permit and undertake certain mitigation measures
before development may begin. This requirement is
likely to affect the construction or expansion of
many solid waste disposal sites, including some we
own or are developing.

The Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended
(CERCLA). CERCLA addresses problems created by
the release or threatened release of hazardous
substances (as defined in CERCLA) into the
environment. CERCLAs primary mechanism for
achieving remediation of 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 parties who
arranged for disposal at the facility (i.e.
generators of the waste and transporters who
select the disposal site). 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 as amended (the Clean
Air Act).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 for which construction,
reconstruction or modification was commenced
before May 30, 1991. The other applies to all
municipal solid waste landfills for which
construction, reconstruction or modification was
commenced on or after May 30, 1991. The Emission
Guidelines may be implemented by the states after
the EPA approves the individual states program.
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 to
reduce emissions to allowable limits.

The Occupational Safety and Health Act of 1970 as
amended (OSHA).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 record
keeping, 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
our operations.

8



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##### Table of Contents



Future Federal Legislation.In the future, our 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 laws 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
we 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. Our collection, transfer and landfill operations may also be affected by
flow control legislation, which may be proposed in the United States Congress. This proposed federal
legislation may allow states and local governments to direct waste generated within their jurisdiction to a
specific facility for disposal or processing. If this or similar legislation is enacted, state or local
governments with jurisdiction over our landfills could act to limit or prohibit disposal or processing of
waste in our landfills.

State Regulation.Each state in which we operate 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. We believe 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.

Our 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 within the next few years to reduce,
through waste planning, composting and recycling or other programs, the volume of solid waste deposited in
landfills. 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.

We have implemented and will continue to implement environmental safeguards that seek to comply with these
governmental requirements.

Liability Insurance and Bonding

We carry general liability, comprehensive property damage, workers compensation, employers liability,
directors and officers liability, limited environmental impairment liability and other coverage we
believe are customary in the industry. Except as discussed in Legal Proceedings below, we do not expect the
impact of any known casualty, property or environmental claims or other contingency to be material to our
consolidated liquidity, financial position or results of operations.

We are required to provide certain financial assurances to governmental agencies under applicable
environmental regulations relating to our landfill and collection operations. We are required to provide
approximately $1.6 billion in financial assurance obligations relating to our landfill operations.
Additionally we have approximately $460 million in operational performance bonds with various
municipalities and approximately $95 million of financial guarantee bonds for self-insurance. These
financial assurances include surety bonds, letters of credit, insurance policies and trust deposits
required principally to secure our estimated landfill closure and post-closure obligations and collection
contracts. The mix of financial assurance instruments may change in the future, which may result in an
increased use of letters of credit as financial assurance instruments. Letters of credit provided as
financial assurance are issued under the 1999 Credit Facility and as such are a use of borrowing
availability.

Employees

We employ approximately 29,000 people. Approximately 7,000 of our employees are covered by local collective
bargaining agreements, but no more than 250 employees are covered by any one agreement. We currently have
no disputes or bargaining circumstances that could cause significant disruptions in our business.

9



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##### Table of Contents






Item 2.Properties

Our principal executive offices are located at 15880 N. Greenway-Hayden Loop,
Suite 100, Scottsdale, Arizona 85260 where we currently lease approximately
75,000 square feet of office space. We currently maintain regional
administrative offices in all of our regions.

Our principal property and equipment consists of land, buildings, and vehicles
and equipment, substantially all of which are encumbered by liens in favor of
our primary lenders. We own or lease real property in the states in which we
are doing business. At December 31, 2001, we owned and operated 167 active
solid waste landfills, aggregating approximately 73,674 total acres, including
approximately 26,816 permitted acres. In addition, as of that date we owned or
operated 355 collection companies, 181 transfer stations and 65 recycling
facilities.




Item 3.Legal Proceedings

We are involved in certain routine litigation. We believe that 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
our consolidated liquidity, financial position or results of operations.

Federal, state and local laws and regulations that relate to the protection of
the environment regulate our business. The nature of our business results in us
frequently becoming a party to judicial or administrative proceedings involving
governmental authorities and other interested parties. On December 27, 2001,
BFI Waste Systems of North America, Inc. (BFI), one of our subsidiaries entered
into a Consent Assessment of Civil Penalty (CACP) with the Commonwealth of
Pennsylvania, Department of Environmental Protection (PADEP) based on
violations of certain state statutes and regulations regarding the
transportation of solid wastes. Pursuant to the CACP, BFI paid PADEP a total
of $152,000 in full settlement of all claims. We believe that this matter will
not have a material adverse effect on the Companys consolidated financial
statements. Other than the foregoing matter, at December 31, 2001, we were not
involved in any such proceedings where we reasonably believe sanctions imposed
by governmental authorities will exceed $100,000 or which we believe will have
a material effect on our consolidated liquidity, financial position or results
of operations. From time to time, we may also be subject to actions brought by
citizens groups, adjacent landowners or others in connection with the
permitting and licensing of our landfills or transfer stations, or alleging
personal injury, environmental damage or violations of the permits and licenses
pursuant to which we operate.

We have been notified that we are considered a potentially responsible party at
a number of sites under CERCLA or other environmental laws. In all cases, such
alleged responsibility is due to the actions of companies acquired by us prior
to the time we acquired them. We continually review our status with respect to
each site, taking into account the alleged connection to the site and the
extent of the contribution to the volume of waste at the site, the available
evidence connecting the entity to that site and the number and financial
soundness of other potentially responsible parties at the site. The ultimate
amounts for environmental liabilities at sites where we may be a potentially
responsible party cannot be determined and estimates of such liabilities made
by us require assumptions about future events subject 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 we have concluded that our 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 our assessments to date, the recorded liabilities
are periodically evaluated, as additional information becomes available, to
ascertain that the accrued liabilities are adequate. We have determined that
the recorded liability for environmental matters as of December 31, 2001 of
approximately $395.4 million represents the most probable outcome of these
contingent matters. We do 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 our consolidated liquidity, financial
position or results of operations.




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

Not Applicable.

10



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##### Table of Contents






PART II




Item 5.Market Price and Dividends on the Common Stock and Related Stockholder Matters

Price Range of Common Stock

Our common stock, $0.01 par value, is traded on the New York Stock Exchange under the symbol AW.
The high and low sales prices per share for the periods indicated were as follows:

|                              |  |      |       |     |  |   |       | 
|----------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|                              |  | High |       | Low
|                              |  |      |       |    
|Year Ended December 31, 2001: |  |      |       |     |  |   |       | 
|                             
|                             
|                             
|                             
|First Quarter                 |  | $    | 17.35 |     |  | $ | 13.85 | 
|                             
|                             
|                             
|                             
|Second Quarter                |  |      | 19.35 |     |  |   | 14.50 | 
|                             
|                             
|                             
|                             
|Third Quarter                 |  |      | 19.74 |     |  |   | 11.05 | 
|                             
|                             
|                             
|                             
|Fourth Quarter                |  |      | 14.70 |     |  |   | 9.10  | 
|                             
|                             
|                             
|                             
|                              |  |      |       |     |  |   |       | 
|                             
|                             
|                             
|                             
|Year Ended December 31, 2000: |  |      |       |     |  |   |       | 
|                             
|                             
|                             
|                             
|First Quarter                 |  |      | 8.44  |     |  |   | 5.38  | 
|                             
|                             
|                             
|                             
|Second Quarter                |  |      | 10.38 |     |  |   | 5.31  | 
|                             
|                             
|                             
|                             
|Third Quarter                 |  |      | 11.75 |     |  |   | 9.19  | 
|                             
|                             
|                             
|                             
|Fourth Quarter                |  |      | 14.56 |     |  |   | 7.88  | 

As of March 18, 2002, there were approximately 656 holders of record of our common stock.

Dividend Policy

We have not paid dividends on our common stock and do not anticipate paying any dividends in the
foreseeable future. We are currently prohibited by the terms of our loan agreements from paying
dividends.

Recent Sales of Unregistered Securities

Not Applicable.

11



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##### Table of Contents






Item 6.Selected Financial Data

The selected financial data presented below as of and for the five years ended December 31, 2001 are derived from our Consolidated Financial
Statements, which have been audited by Arthur Andersen LLP, independent public accountants. See Note 2 to our 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
our Consolidated Financial Statements and the notes thereto, included elsewhere herein. (All amounts are in thousands, except per share amounts and
percentages.)

|                                                                                                                                                            |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | - | --------- | --------- | ---- | - | --------- | --------- | ---- | - | --------- | -------- | - | - | --------- | -------- | - | - | --------- | ------- | 
|                                                                                                                                                            |                                                                                                 |   | 2001      |           | 2000 |   | 1999      |           | 1998 |   | 1997(4)  
|                                                                                                                                                            |                                                                                                 |   |           |           |      |   |           |           |      |   |          
|Statement of Operations Data:                                                                                                                               |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Revenues                                                                                                                                                    |                                                                                                 | $ | 5,565,260 |           |      | $ | 5,707,485 |           |      | $ | 3,341,071 |          |   | $ | 1,575,612 |          |   | $ | 1,340,661 |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Cost of operations excluding
acquisition related and unusual costs                                                                                          |                                                                                                 |   | 3,195,209 |           |      |   | 3,280,027 |           |      |   | 1,948,964 |          |   |   | 892,273   |          |   |   | 777,289   |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Selling, general and administrative
expenses excluding acquisition
related and unusual costs                                                                |                                                                                                 |   | 438,744   |           |      |   | 417,558   |           |      |   | 231,366   |          |   |   | 155,835   |          |   |   | 177,396   |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Depreciation and amortization                                                                                                                               |                                                                                                 |   | 466,323   |           |      |   | 450,794   |           |      |   | 273,368   |          |   |   | 149,260   |          |   |   | 131,658   |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Goodwill amortization                                                                                                                                       |                                                                                                 |   | 226,713   |           |      |   | 223,244   |           |      |   | 110,726   |          |   |   | 30,705    |          |   |   | 26,580    |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Acquisition related and unusual
costs(1)                                                                                                                    |                                                                                                 |   | 27,785    |           |      |   | 100,841   |           |      |   | 588,855   |          |   |   | 317,616   |          |   |   | 3,934     |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Non-cash loss on asset sale                                                                                                                                 |                                                                                                 |   | 107,011   |           |      |   | 26,486    |           |      |   |          |          |   |   |          |          |   |   |          |        
|                                                                                                                                                            |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |        
|                                                                                                                                                            | Operating income                                                                                |   |           | 1,103,475 |      |   |           | 1,208,535 |      |   |           | 187,792  |   |   |           | 29,923   |   |   |           | 223,804 | 
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Equity in earnings of unconsolidated
affiliates                                                                                                             |                                                                                                 |   | (14,072   | )         |      |   | (50,788   | )         |      |   | (20,785   | )        |   |   |          |          |   |   |          |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Interest income                                                                                                                                             |                                                                                                 |   | (6,072    | )         |      |   | (4,127    | )         |      |   | (7,212    | )        |   |   | (4,030    | )        |   |   | (1,765    | )      
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Interest expense                                                                                                                                            |                                                                                                 |   | 853,653   |           |      |   | 882,282   |           |      |   | 443,044   |          |   |   | 88,431    |          |   |   | 108,045   |        
|                                                                                                                                                            |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |        
|                                                                                                                                                            | Income (loss) before income taxes                                                               |   |           | 269,966   |      |   |           | 381,168   |      |   |           | (227,255 | ) |   |           | (54,478  | ) |   |           | 117,524 | 
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Income tax expense (benefit)                                                                                                                                |                                                                                                 |   | 190,834   |           |      |   | 237,540   |           |      |   | (8,756    | )        |   |   | 43,773    |          |   |   | 40,277    |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Minority interest                                                                                                                                           |                                                                                                 |   | 3,673     |           |      |   | 5,975     |           |      |   | 2,751     |          |   |   |          |          |   |   |          |        
|                                                                                                                                                            |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |        
|                                                                                                                                                            | Income (loss) before extraordinary
loss and cumulative effect of
change in accounting principle |   |           | 75,459    |      |   |           | 137,653   |      |   |           | (221,250 | ) |   |           | (98,251  | ) |   |           | 77,247  | 
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Extraordinary loss, net of income
tax benefit(2)                                                                                                            |                                                                                                 |   | 16,973    |           |      |   | 13,266    |           |      |   | 3,223     |          |   |   | 124,801   |          |   |   | 53,205    |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Cumulative effect of change in
accounting principle, net of income
tax benefit(3)                                                                           |                                                                                                 |   |          |           |      |   |          |           |      |   | 64,255    |          |   |   |          |          |   |   |          |        
|                                                                                                                                                            |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |        
|                                                                                                                                                            | Net income (loss)                                                                               |   |           | 58,486    |      |   |           | 124,387   |      |   |           | (288,728 | ) |   |           | (223,052 | ) |   |           | 24,042  | 
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Dividends on preferred stock                                                                                                                                |                                                                                                 |   | 73,012    |           |      |   | 68,452    |           |      |   | 27,789    |          |   |   |          |          |   |   | 381       |        
|                                                                                                                                                            |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |        
|                                                                                                                                                            | Net income (loss) available to
common shareholders                                              |   | $         | (14,526   | )    |   | $         | 55,935    |      |   | $         | (316,517 | ) |   | $         | (223,052 | ) |   | $         | 23,661  | 
|                                                                                                                                                            |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |        
|Basic EPS:                                                                                                                                                  |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Income (loss) available to
common shareholders before
extraordinary loss and cumulative
effect of change in accounting
principle, net of income tax benefit |                                                                                                 | $ | 0.01      |           |      | $ | 0.37      |           |      | $ | (1.33     | )        |   | $ | (0.54     | )        |   | $ | 0.47      |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Extraordinary loss, net of income
tax benefit                                                                                                               |                                                                                                 |   | (0.08     | )         |      |   | (0.07     | )         |      |   | (0.02     | )        |   |   | (0.68     | )        |   |   | (0.33     | )      
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Cumulative effect of change in
accounting principle, net of income
tax benefit                                                                              |                                                                                                 |   |          |           |      |   |          |           |      |   | (0.34     | )        |   |   |          |          |   |   |          |        
|                                                                                                                                                            |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Net income (loss) available to
common shareholders                                                                                                          |                                                                                                 | $ | (0.07     | )         |      | $ | 0.30      |           |      | $ | (1.69     | )        |   | $ | (1.22     | )        |   | $ | 0.14      |        
|                                                                                                                                                            |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |        
|Weighted average common shares                                                                                                                              |                                                                                                 |   | 189,583   |           |      |   | 188,814   |           |      |   | 187,801   |          |   |   | 182,796   |          |   |   | 164,888   |        
|                                                                                                                                                            |                                                                                                 |   |           |           |      |   |           |           |      |   |           |          |   |   |           |          |   |   |           |        

12



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##### Table of Contents



|                                                                                                                                                            |  |      |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | -------- | - |  | - | ------- | -
|                                                                                                                                                            |  | 2001 |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                                                                                                                                                            |  |      |         |      |  |      |         |      |  |     
|Diluted EPS:                                                                                                                                                |  |      |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |         |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Income (loss) available to
common shareholders before
extraordinary loss and
cumulative effect of change in
accounting principle, net of income
tax benefit |  | $    | 0.01    |      |  | $    | 0.36    |      |  | $    | (1.33   | ) |  | $ | (0.54    | ) |  | $ | 0.44    |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Extraordinary loss, net of income
tax benefit                                                                                                               |  |      | (0.08   | )    |  |      | (0.07   | )    |  |      | (0.02   | ) |  |   | (0.68    | ) |  |   | (0.30   | )
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Cumulative effect of change in
accounting principle, net of income
tax benefit                                                                              |  |      |        |      |  |      |        |      |  |      | (0.34   | ) |  |   |         |   |  |   |        |  
|                                                                                                                                                            |  |      |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |         |  
|Net income (loss) available to
common shareholders                                                                                                          |  | $    | (0.07   | )    |  | $    | 0.29    |      |  | $    | (1.69   | ) |  | $ | (1.22    | ) |  | $ | 0.14    |  
|                                                                                                                                                            |  |      |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |         |  
|Weighted average common and
common equivalent shares                                                                                                        |  |      | 194,906 |      |  |      | 191,122 |      |  |      | 187,801 |   |  |   | 182,796  |   |  |   | 172,958 |  
|                                                                                                                                                            |  |      |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |         |  
|Pro forma amounts, assuming the
change in accounting principle is
applied retroactively:                                                                    |  |      |         |      |  |      |         |      |  |      |         |   |  |   |          |   |  |   |         |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Net income (loss) available to
common shareholders                                                                                                          |  |      |         |      |  |      |         |      |  |      |         |   |  | $ | (256,265 | ) |  | $ | 5,085   |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Diluted earnings (loss) per share                                                                                                                           |  |      |         |      |  |      |         |      |  |      |         |   |  |   | (1.40    | ) |  |   | 0.03    |  

Balance Sheet Data:

|                                               |  |              |            |      |  |      |            |      |  |      |            |   |  |   |           |   |  |   |           |  
|---------------------------------------------- |  | ------------ | ---------- | ---- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | --------- | - |  | - | --------- | -
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2001         |            | 2000 |  | 1999 |            | 1998 |  | 1997
|                                               |  |              |            |      |  |      |            |      |  |     
|Cash and cash equivalents                      |  | $            | 158,841    |      |  | $    | 122,094    |      |  | $    | 121,405    |   |  | $ | 39,742    |   |  | $ | 33,320    |  
|                                              
|                                              
|                                              
|                                              
|Working capital (deficit)                      |  |              | (235,049   | )    |  |      | (328,049   | )    |  |      | (381,077   | ) |  |   | 45,031    |   |  |   | (75,054   | )
|                                              
|                                              
|                                              
|                                              
|Property and equipment, net                    |  |              | 4,010,886  |      |  |      | 3,860,538  |      |  |      | 3,738,388  |   |  |   | 1,776,025 |   |  |   | 1,583,133 |  
|                                              
|                                              
|                                              
|                                              
|Goodwill, net                                  |  |              | 8,556,877  |      |  |      | 8,717,438  |      |  |      | 8,238,929  |   |  |   | 1,327,470 |   |  |   | 1,082,750 |  
|                                              
|                                              
|                                              
|                                              
|Total assets                                   |  |              | 14,347,093 |      |  |      | 14,513,634 |      |  |      | 14,963,101 |   |  |   | 3,752,592 |   |  |   | 3,073,820 |  
|                                              
|                                              
|                                              
|                                              
|Long-term debt, less current
portion           |  |              | 9,237,503  |      |  |      | 9,635,124  |      |  |      | 9,240,291  |   |  |   | 2,118,927 |   |  |   | 1,492,360 |  
|                                              
|                                              
|                                              
|                                              
|Stockholders equity including
preferred stock |  |              | 1,754,823  |      |  |      | 1,767,659  |      |  |      | 1,639,555  |   |  |   | 930,074   |   |  |   | 962,465   |  
|                                              
|                                              
|                                              
|                                              
|Long-term debt to total
capitalization         |  |              | 84         | %    |  |      | 85         | %    |  |      | 85         | % |  |   | 69        | % |  |   | 61        | %



---

|(1) |  | Acquisition related and unusual costs relate to managements changes in strategic plans and
restructuring resulting from acquisitions. The charges primarily consist of transaction or deal
costs, employee severance and transition costs, changes in estimates relating to environmental
and legal matters and regulatory compliance, restructuring costs related to the consolidation or
relocation of operations, costs for the abandonment or sale of non-revenue producing assets,
provisions for losses on contractual obligations, and asset impairments.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | The extraordinary losses were incurred as a result of the write-off of related deferred debt
issuance costs for the early extinguishment of debt and for premiums paid in 1998.                                                                                                                                                                                                                                                                                                                                                                                  
|   
|   
|   
|   
|(3) |  | During the third quarter of 1999, we changed our method of accounting for capitalized interest.
According to accounting principles generally accepted in the United States, this change is
applied from the beginning of 1999. A charge for the cumulative effect of the change in
accounting principle of $106.2 million ($64.3 million, net of income taxes) was recorded
effective January 1, 1999.                                                                                                                                                           
|   
|   
|   
|   
|(4) |  | The year ended December 31, 1997 Consolidated Financial Statements have been restated to reflect
the acquisition of companies in 1998 accounted for using the pooling-of-interests method for
business combinations.                                                                                                                                                                                                                                                                                                                                             

13



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##### Table of Contents






Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our Consolidated Financial Statements and the notes thereto, included elsewhere herein.

Introduction

During 2001 and 2000, we transitioned from an acquisition growth strategy to a strategy focused on internal growth and maximizing operational cash flow to repay debt.
We have substantially completed the integration of previously acquired companies and achieved planned integration cost savings. We have shifted our primary focus to
the efficient management of cash flows from our operations.

In the past, we experienced significant growth. Over the past nine years, we have completed over 300 acquisitions, most significantly, the acquisition of
Browning-Ferris Industries, Inc. (BFI) on July 30, 1999.

In connection with the BFI acquisition, each share of BFI common stock was converted into the right to receive $45 in cash. Including assumed and refinanced debt, the
original cost of acquiring BFI was approximately $9.6 billion. Financing for the acquisition was obtained from draws of $4.7 billion from credit facilities with a
capacity of $7.1 billion (the 1999 Credit Facility), the sale of $1.0 billion of newly issued senior convertible preferred stock (the Preferred Stock) and the sale
of $2.0 billion of 10% Senior Subordinated Notes due 2009 (the 1999 Notes).

As a result of the BFI acquisition, we initiated an asset divestiture program, whereby we sold, for cash or through simultaneous buy and sell transactions, certain
non-core assets that did not fit with our vertical integration operating strategy for total net proceeds of approximately $1.6 billion. We completed this divestiture
program, with the divestiture and restructure of the American Ref-Fuel operations which was completed on April 30, 2001.

Although we acquired 53 businesses in 2001, they were smaller tuck-in acquisitions acquired to improve the operational efficiencies of existing markets and primarily
funded with the proceeds from the divestitures of other non-integrated operations. The annualized revenue of the acquired companies was approximately $150.4 million.
The results of operations for the acquisitions accounted for under the purchase method for business combinations are included in our financial statements only from the
applicable date of acquisition. As a result, our historical results of operations presented for 1999, which include only a half-year of BFI operations, are not
directly comparable to our results of operations in years after 1999.

General

Revenues. Our revenues result primarily from fees charged to customers for waste collection, transfer, recycling and disposal services. We generally provide collection
services under direct agreements with our customers or pursuant to contracts with municipalities. Commercial and municipal contract terms generally range from one to
five years and commonly have renewal options. Our landfill operations include both company-owned landfills and landfills that we operate on behalf of municipalities.
The following tables show the percentage of our total reported revenues by service line and geographic regions.

Revenues by Service Line (in thousands, except percentages):

|                  |  |                          |            |   |  |  |       |      |  |   |            |   |  |      |       |   |  |   |           |   |  |  |       |  
|----------------- |  | ------------------------ | ---------- | - |  |  | ----- | ---- |  | - | ---------- | - |  | ---- | ----- | - |  | - | --------- | - |  |  | ----- | -
|                  |  | Years Ended December 31,
|                  |  |                         
|                  |  | 2001                     |            |   |  |  |       | 2000 |  |   |            |   |  | 1999 |       |   |  |  
|                  |  |                         
|Collection(1)     |  | $                        | 4,203,897  |   |  |  | 62.4  | %    |  | $ | 4,227,680  |   |  |      | 61.7  | % |  | $ | 2,422,628 |   |  |  | 60.4  | %
|                 
|                 
|                 
|                 
|Disposal(2)       |  |                          | 2,104,467  |   |  |  | 31.3  |      |  |   | 1,993,276  |   |  |      | 29.1  |   |  |   | 1,261,106 |   |  |  | 31.4  |  
|                 
|                 
|                 
|                 
|Recycling         |  |                          | 231,995    |   |  |  | 3.4   |      |  |   | 384,027    |   |  |      | 5.6   |   |  |   | 203,632   |   |  |  | 5.1   |  
|                 
|                 
|                 
|                 
|Other             |  |                          | 196,496    |   |  |  | 2.9   |      |  |   | 242,196    |   |  |      | 3.6   |   |  |   | 125,215   |   |  |  | 3.1   |  
|                  |  |                          |            |   |  |  |       |      |  |   |            |   |  |      |       |   |  |   |           |   |  |  |       |  
|                  |  |                          | 6,736,855  |   |  |  | 100.0 | %    |  |   | 6,847,179  |   |  |      | 100.0 | % |  |   | 4,012,581 |   |  |  | 100.0 | %
|                  |  |                          |            |   |  |  |       |      |  |   |            |   |  |      |       |   |  |   |           |   |  |  |       |  
|Intercompany      |  |                          | (1,171,595 | ) |  |  |       |      |  |   | (1,139,694 | ) |  |      |       |   |  |   | (671,510  | ) |  |  |       |  
|                  |  |                          |            |   |  |  |       |      |  |   |            |   |  |      |       |   |  |   |           |   |  |  |       |  
|Reported revenues |  | $                        | 5,565,260  |   |  |  |       |      |  | $ | 5,707,485  |   |  |      |       |   |  | $ | 3,341,071 |   |  |  |       |  
|                  |  |                          |            |   |  |  |       |      |  |   |            |   |  |      |       |   |  |   |           |   |  |  |       |  



---

|(1) |  | For 2001, collection revenues consist of 72% revenues from commercial customers and 28% revenues from residential customers.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Transfer revenues are included in disposal.                                                                                 

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##### Table of Contents



Revenues by Region:

|            |                |  |                          |       |      |  |      |       |   |  |      |       |  
|----------- | -------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | ---- | ----- | -
|            |                |  | Years Ended December 31,
|            |                |  |                         
|            |                |  | 2001                     |       | 2000 |  | 1999
|            |                |  |                          |       |      |  |     
|Atlantic    |                |  | 10.3                     | %     |      |  | 10.6 | %     |   |  | 9.4  | %    
|           
|           
|           
|           
|Central     |                |  | 9.4                      |       |      |  | 9.3  |       |   |  | 12.1 |      
|           
|           
|           
|           
|Great Lakes |                |  | 11.0                     |       |      |  | 11.2 |       |   |  | 13.1 |      
|           
|           
|           
|           
|Midwest     |                |  | 8.6                      |       |      |  | 8.5  |       |   |  | 9.7  |      
|           
|           
|           
|           
|Northeast   |                |  | 15.0                     |       |      |  | 16.5 |       |   |  | 15.5 |      
|           
|           
|           
|           
|Southeast   |                |  | 14.0                     |       |      |  | 13.5 |       |   |  | 9.2  |      
|           
|           
|           
|           
|Southwest   |                |  | 14.2                     |       |      |  | 13.2 |       |   |  | 12.0 |      
|           
|           
|           
|           
|West        |                |  | 16.8                     |       |      |  | 16.7 |       |   |  | 18.5 |      
|           
|           
|           
|           
|Other(1)    |                |  | 0.7                      |       |      |  | 0.5  |       |   |  | 0.5  |      
|            |                |  |                          |       |      |  |      |       |   |  |      |      
|            | Total revenues |  |                          | 100.0 | %    |  |      | 100.0 | % |  |      | 100.0 | %
|            |                |  |                          |       |      |  |      |       |   |  |      |      



---

|(1) |  | Amounts relate primarily to our subsidiaries which provide services throughout the organization.
|--- |  | ------------------------------------------------------------------------------------------------

Our business strategy is to develop vertically integrated operations to internalize the waste we collect and thus realize higher margins from
our operations. By disposing of waste at company-owned and/or operated landfills, we retain the margin generated through disposal operations
that would otherwise be earned by third-party landfills. Approximately 67% of the waste we collect as measured by disposal volumes was
disposed of at landfills we own and/or operate for the year 2001 compared to 65% at the end of 2000. In addition, transfer stations are an
integral part of the disposal process. We locate our transfer stations in areas where our landfills are outside of the population centers in
which we collect waste. Such waste is transferred to long-haul trailers or rail cars and transported to our landfills.

Operating Expenses. Cost of operations includes expenses related to labor, repairs and maintenance, equipment and facility rent, utilities
and taxes, environmental compliance and remediation, safety and insurance, disposal and costs of independent haulers transporting our waste
to the disposal site. Disposal costs include landfill taxes, host community fees, landfill royalty payments, landfill site maintenance, fuel
and other equipment operating expenses and increases in the accruals for estimated closure and post-closure monitoring expenses.

Selling, general and administrative expenses include compensation and overhead for corporate and field general management, accounting and
finance, legal, management information systems and clerical and administrative departments in addition to sales, investor and community
relations and provisions for estimated uncollectible accounts receivable.

Depreciation and amortization includes depreciation of fixed assets and amortization costs associated with the acquisition and development of
landfill airspace and intangible assets. Depreciation is provided on the straight-line method over the estimated useful lives of buildings
and improvements (30-40 years), vehicles and equipment (3-10 years), containers and compactors (5-15 years) and furniture and office
equipment (3-8 years).

Goodwill amortization includes the amortization of costs paid in excess of the fair value of net assets acquired prior to July 1, 2001 in
purchase business combinations. Beginning January 1, 2002 we will no longer amortize any goodwill in accordance with the adoption of
Financial Accounting Standard Board (FASB), Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS 142). Also in accordance with SFAS 142, we have recorded no amortization for goodwill acquired subsequent to June 30, 2001.

15



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##### Table of Contents



The following is a discussion of significant accounting policies for areas where we
apply judgments and estimates that affect the reported amounts of our assets and
liabilities and related expenses. We have noted examples of the residual accounting
risk inherent for these areas that you should be aware of and for you to consider.
Residual accounting risk is defined as the inherent risk that remains after the
application of our policies and processes and is generally outside of our control.

|                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                            
|--------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                        |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Residual                                                                                                                                                                                                                                                                                   
|Accounting Area                         |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Accounting Risk                                                                                                                                                                                                                                                                            
|                                       
|Landfill asset and
related
amortization |  | We own a portfolio of 167 active
landfills with estimated
remaining lives, based on current
waste flows, which range from 1
to over 150 years, and an
estimated average remaining life
of approximately 40 years.                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                            
|                                       
|                                       
|                                       
|                                       
|                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                            
|                                       
|                                       
|                                       
|                                       
|                                        |  | Site Permit and Technical Design                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                            
|                                       
|                                       
|                                       
|                                       
|                                        |  | In order to develop, construct
and operate a landfill, we are
required to obtain permits from
various regulatory agencies at
the local, state and federal
level. The permitting process
requires an initial siting study
to determine whether the location
is feasible for landfill
operations. The studies are
typically prepared by third party
consultants, and reviewed by our
environmental management group.
The initial studies are submitted
to the regulatory agencies for
approval.                                                                                                    |  | Changes in legislative or regulatory
requirements may cause changes in the
landfill site permitting process. These
changes could make it more difficult or
costly to obtain a landfill permit.                                                                                             
|                                       
|                                       
|                                       
|                                       
|                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                            
|                                       
|                                       
|                                       
|                                       
|                                        |  | Technical Landfill Design                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                            
|                                       
|                                       
|                                       
|                                       
|                                        |  | Upon receipt of initial
regulatory approval, technical
landfill designs are prepared.
These designs are compiled by
third party consultants, and
reviewed by our environmental
management group. The technical
designs include the detailed
specifications to develop and
construct all components of the
landfill including the types and
quantities of materials that will
be required. The technical
designs are submitted to the
regulatory agencies for approval.
Upon receipt of the technical
design approval, the regulatory
agencies issue permits to develop
and operate the landfill. |  | Changes in legislative or regulatory
requirements may require changes in the
landfill technical design. These changes
could make it more difficult or costly to
meet new design standards. 
Technical
design requirements, as approved
may need modifications at some future point
in time.
|                                       
|                                       
|                                       
|                                       
|                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                            
|                                       
|                                       
|                                       
|                                       
|                                        |  | Landfill Disposal Capacity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                            
|                                       
|                                       
|                                       
|                                       
|                                        |  | Included in the technical designs
are the factors that determine
the ultimate disposal capacity of
the landfill. These factors
include the area over which the
landfill will be developed, the
depth of excavation, the height
of the landfill elevation, and
the angle of the side-slope
construction. The disposal
capacity of the landfill is
calculated in cubic yards. This
measurement of volume is then
converted to a disposal capacity
expressed in tons based on an
average expected density to be
achieved over the operating life
of the landfill.                                   |  | Estimates of future disposal capacity may
change as a result of changes in legislative
or regulatory design requirements. 
The
density of waste may vary due to
variations in operating conditions,
including waste compaction practices, site
design, climate and the nature of the waste.
|                                       
|                                       
|                                       
|                                       
|                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                            
|                                       
|                                       
|                                       
|                                       
|                                        |  | Development Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                            
|                                       
|                                       
|                                       
|                                       
|                                        |  | The types of costs that are
detailed in the technical design
specifications generally include
excavation, natural and synthetic
liners, leachate collection
system construction, installation
of methane gas monitoring probes,
installation of groundwater
monitoring wells, construction of
leachate management facilities
and other costs associated with
the development of the site.                                                                                                                                                                                                        |  | Actual future costs of construction
materials and third party labor could differ
from the costs we have estimated.                                                                                                                                                                         

16



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##### Table of Contents



|                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                        
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|                |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Residual                                                                                                                                               
|Accounting Area |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Accounting Risk                                                                                                                                        
|               
|                |  | To review the adequacy of our cost
estimates used in the annual
update of the above costs, we
compare estimated costs with
third party bids or contractual
arrangements, we review changes
in year over year cost estimates
for reasonableness, and we
compare our resulting development
cost per acre with prior periods.
These development costs, together
with any costs incurred to
acquire, design and permit the
landfill, including capitalized
interest, are recorded to the
landfill asset on the balance
sheet as incurred.                                                                                                                                                                                                          |  |                                                                                                                                                        
|               
|               
|               
|               
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                        
|               
|               
|               
|               
|                |  | Landfill Amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                        
|               
|               
|               
|               
|                |  | In order to match the
amortization of the landfill
asset with the revenue generated
by the landfill operations, we
amortize the landfill asset over
its operating life on a per ton
basis as waste is accepted at the
landfill. At the end of a
landfills operating life, the
landfill asset is fully
amortized. The per-ton rate is
calculated by dividing the sum of
the landfill net book value and
estimated future development
costs (as described above) of the
landfill by the estimated
remaining disposal capacity. The
costs are not inflated and
discounted, but rather expressed
in nominal dollars. This rate is
applied to each ton accepted at
the landfill and recorded as a
charge to depreciation and
amortization expense. |  |                                                                                                                                                        
|               
|               
|               
|               
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                        
|               
|               
|               
|               
|                |  | Amortization rates per ton are
influenced by the original cost
basis for the landfill, including
acquisition costs, which in turn
is determined by geographic
location and market values.
Allied secured significant
landfill assets through business
acquisition in recent years and
valued them at the time of
acquisition based upon market
value. Also, per ton rates are
influenced by site specific
engineering and cost factors.                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                        
|               
|               
|               
|               
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                        
|               
|               
|               
|               
|                |  | Estimate Updates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                        
|               
|               
|               
|               
|                |  | On an annual basis, we update the
estimates of future landfill
development costs and remaining
disposal capacity for each
landfill. The cost estimates are
prepared by company and third
party engineers based on the
applicable local, state and
federal requirements and site
specific technical design
requirements. Estimates of
future disposal capacity are
updated using aerial surveys of
each landfill to estimate
utilized disposal capacity and
remaining disposal capacity.
These costs and disposal capacity
estimates are reviewed and
approved by senior operations
management annually. Changes in
the cost estimates are reflected
prospectively in the landfill
amortization rates that are
updated annually.                |  | Rates could change in the future based upon
evaluations of new facts and circumstances
relating to site permit and design criteria
or development cost.
|               
|               
|               
|               
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                        
|               
|               
|               
|               
|                |  | Summary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                        
|               
|               
|               
|               
|                |  | During 2001, we expensed
approximately $149.2 million or
an average of $2.10 per ton
consumed, related to landfill
amortization. We incurred
landfill development costs of
$227.6 million and acquired or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                        

17



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##### Table of Contents



|                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                       |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Residual                                                                                                                                                                                                                                                                                                                                                                                                                               
|Accounting Area                                        |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Accounting Risk                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                      
|                                                       |  | otherwise added $47.1 million to
the landfill assets during 2001.
The above activity results in an
increase in the net book value of
our landfill assets from $1.649
billion at December 31, 2000 to
$1.775 billion at December 31,
2001. We have available disposal
capacity of approximately 2.54
billion tons. Estimated total
future development costs for our
167 active landfills is
approximately $3.2 billion,
excluding capitalized interest.                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                      
|Closure and
post-closure
liabilities and
related costs |  | Landfill Closure Design
In addition to our portfolio of
167 active landfills, we own or
have responsibility for 107
closed landfills no longer
accepting waste                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Changes in legislative or regulatory
requirements including changes in capping or
monitoring activities, types and quantities
of materials used, or term of post-closure
care could cause changes in our cost
estimates.                                                                                                                                                                                                               
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |  | As individual areas within each
landfill reach capacity, we are
required to cap and close the
areas in accordance with the
landfill site permit. These
requirements are detailed in the
technical design of the landfill
siting process described above.
Generally, closure requirements
include the application of
compacted clay, geosynthetic
liners and vegetative soil
barriers in addition to the
construction of drainage channels
and methane gas collection
systems, among other closure
activities.                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |  | Post-Closure Monitoring                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |  | After the entire landfill site
has reached capacity and is
closed, we are required to
maintain and monitor the site for
a post-closure period, which
usually extends for 30 years.
Post-closure requirements
generally include maintenance of
the site and monitoring the
methane gas collection systems
and groundwater systems, among
other post-closure activities.
Costs associated with
post-closure monitoring generally
include groundwater sampling,
analysis and statistical reports,
third party labor associated with
gas systems operations and
maintenance, transportation and
disposal of leachate and erosion
control costs related to the
final cap.                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |  | Closure and Post-Closure Provision                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |  | In order to match the cost of the
closure and post-closure
requirements with the revenue
generated by the landfill
operations, we accrue the closure
and post-closure costs on a per
ton basis as waste is accepted at
the landfill, over its operating
life. 
For
each landfill, the per-ton
rate is calculated as follows:
(1) The total estimated future
costs required to close and
monitor the landfill as specified
by each landfill permit is
quantified. (2) The timing of the
estimated future cash outflows is
projected based on the
anticipated waste flow into the
landfill. (3) The expenditures
are inflated based on an average
CPI rate and discounted back to
todays dollars using an average
long-term risk free rate of
return. We review |  | Actual timing of disposal
capacity utilization could
differ from projected
timing, causing increases
or decreases in the per
ton rates used to accrue
closure and post-closure
liabilities. 
Changes
in future
inflation rate projections
could impact our actual
future costs and our total
liability. 
Changes
in risk-free
capital rates used to
discount the liabilities
could cause changes in our
recorded liabilities and
costs.

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##### Table of Contents



|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                            
|------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                      |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Residual                                                                                                                                                                                                                   
|Accounting Area                       |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Accounting Risk                                                                                                                                                                                                            
|                                     
|                                      |  | historical
interest rates for
government-backed bonds and other
low risk investments to estimate
the long-term risk free rate of
return. For 2001, the average
CPI rate was 2.5% and the
long-term risk free rate was
7.0%. (4) The present value of
the total closure and
post-closure costs for the
landfill is divided by the
estimated remaining disposal
capacity of the landfill to
calculate the per ton rate. The
disposal capacity for the closure
and post-closure rate is
determined on the same basis as
the landfill amortization rate
previously described. (5) This
rate is applied to each ton
accepted at the landfill and
recorded as a charge to cost of
operations and an increase to the
closure and post-closure accrual.
(6) The balance sheet accrual is
increased by accreting the
balance at the long-term risk
free rate and recorded as a
charge to cost of operations. |  |                                                                                                                                                                                                                            
|                                     
|                                     
|                                     
|                                     
|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                            
|                                     
|                                     
|                                     
|                                     
|                                      |  | Actual cash expenditures reduce
the accrual as they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                            
|                                     
|                                     
|                                     
|                                     
|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                            
|                                     
|                                     
|                                     
|                                     
|                                      |  | Estimate Updates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                            
|                                     
|                                     
|                                     
|                                     
|                                      |  | On an annual basis, we update the
estimate of future closure and
post-closure costs and estimates
of future disposal capacity for
each landfill. Cost estimates are
prepared by internal and third
party engineers based on the
applicable local, state and
federal regulations and the
specifications detailed in the
landfill permit. Revisions in
estimates of our costs are
treated prospectively for our
operating landfills but are
recorded immediately for closed
landfills.                                                                                                                                                                                                                                                                                                                                                                                                                |  | Rates could change in the
future based on the
evaluation of new facts
and circumstances relating                                                                                                                           
|                                     
|                                     
|                                     
|                                     
|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                            
|                                     
|                                     
|                                     
|                                     
|                                      |  | Disposal capacity estimates are
updated using aerial surveys of
each landfill to estimate
remaining disposal capacity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                            
|                                     
|                                     
|                                     
|                                     
|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                            
|                                     
|                                     
|                                     
|                                     
|                                      |  | Summary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                            
|                                     
|                                     
|                                     
|                                     
|                                      |  | During 2001 we expensed
approximately $67.2 million or an
average of $0.95 per ton
consumed, related to provisions
for closure and post-closure
accruals, including accretion.
During 2001, expenditures against
these accruals were $59.2
million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                            
|                                     
|                                     
|                                     
|                                     
|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                            
|                                     
|                                     
|                                     
|                                     
|                                      |  | We currently estimate total
future payments for closure and
post-closure to be approximately
$3.1 billion. The present value
of such estimate is $1.2 billion.
At December 31, 2001 and 2000,
accruals for landfill closure and
post-closure costs were $609.5
million and $601.4 million,
respectively which reflects the
degree to which we have filled
the landfill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                            
|                                     
|Estimated remaining
disposal capacity |  | As described previously, disposal
capacity is determined by the
specifications detailed in the
landfill permit obtained. We
classify this disposal capacity
as permitted. We also include
deemed permitted disposal
capacity in our remaining
disposal capacity estimates,
which relates to additional
disposal capacity being                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | We may be unsuccessful in
obtaining permits for
disposal capacity that has
been deemed permitted. If
we are unsuccessful in
obtaining permits for
deemed permitted disposal
capacity, or the disposal
capacity for which we

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|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                              
|------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                     |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Residual                                                                                                                                                                     
|Accounting Area                                                                      |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Accounting Risk                                                                                                                                                              
|                                                                                    
|                                                                                     |  | sought
through means of an expansion.
Deemed permitted disposal
capacity has not yet received
final approval from the
regulatory agencies, but we have
determined that certain critical
criteria have been met and the
successful completion of the
expansion is highly probable. Our
internal criteria to classify
disposal capacity as deemed
permitted are as follows:                                                                                                                        |  | obtain approvals is less
both costs and disposal
capacity will change,
which will impact the
rates we charge for
landfill amortization and
closure and post-closure
accruals.
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  | 1. We have control of and access
to the land where the expansion
permit is being sought.                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  | 2. All geologic and other
technical siting criteria for a
landfill have been met, or a
variance from such requirements
has been received (or can
reasonably be expected to be
achieved)                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  | 3. The political process has been
assessed and there are no
identified impediments that
cannot be resolved.                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  | 4. We are actively pursuing the
expansion permit and an
expectation that the final local,
state and federal permits will be
received within the next five
years.                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  | 5. Senior operations management
approval has been obtained.                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  | After successfully meeting these
criteria, the disposal capacity
that will result from the planned
expansion is included in our
remaining disposal capacity
estimates. Additionally, for
purposes of calculating the
landfill amortization and closure
and post-closure rates, we
include the incremental costs to
develop, construct, close and
monitor the related deemed
permitted disposal capacity.                                                                                         |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  | At December 31, 2001, we had 1.9
billion tons of permitted
disposal capacity, and at 41 of
our landfills, 619 million tons
of deemed permitted disposal
capacity. During 2001, 227
million tons of disposal capacity
was deemed permitted, and we received permits for approximately 76 million
tons of disposal capacity that was previously classified as deemed permitted.
During 2001, we were not denied any expansions for which the disposal capacity
was classified as deemed permitted. |  |                                                                                                                                                                              
|                                                                                    
|Non-recurring
acquisition
accruals and
related acquisition
related and
unusual costs |  | Nature of Liabilities
At the time of an acquisition
accounted for under the purchase
method of accounting, we evaluate
and adjust existing accruals of
the acquired company to represent
our estimate of the future costs
to settle the assumed
obligations. Assumed liabilities
as well as liabilities resulting
directly from the completion of
the acquisition are considered in
the net assets acquired and
resulting goodwill allocation.                                                   |  | There could be changes in
circumstances or estimates
that cause the actual
settlement of these
liabilities to be higher
or lower than our original
estimates.                
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                              
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     |  | Liabilities resulting from
changes in estimates of assumed
obligations, including
litigation, self-insurance
reserves and loss contracts, as
well as liabilities related                                                                                                                                                                                                                                                                                                                         |  | Additional liabilities may
exist related to the
acquired operations that
have not been identified.                                                                           

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|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                
|---------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                       |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Residual                                                                                                                                                                                                                                                                                                                                       
|Accounting Area                                                        |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Accounting Risk                                                                                                                                                                                                                                                                                                                                
|                                                                      
|                                                                       |  | to restructuring and abandonment
activities, are accrued at the
time of acquisition through a
charge to acquisition related and
unusual costs. Additionally,
transition costs that are not
accruable at the time of
acquisition, including
transitional personnel costs,
route restructurings and costs
associated with the consolidation
of operations are expensed to
acquisition related and unusual
costs in the period in which the
costs are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |  | Estimate Updates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |  | We evaluate the adequacy of the
non-recurring acquisition
accruals at least annually by
obtaining third party actuarial
valuations of assumed
self-insurance obligations, third
party legal counsel updates for
assumed litigation and field and
corporate management reviews of
all acquisition related
commitments. Any changes in the
liabilities resulting from these
reviews are recorded in the
period in which the change in
estimate is made. The adjustment
is charged to either acquisition
related and unusual costs or
goodwill consistent with how the
original liability was
established and the period of
time that has elapsed since the
date of the acquisition.
Generally, we do not record
adjustments to goodwill after one
year from the date of the
acquisition.                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |  | Summary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |  | At December 31, 2001 we had
approximately $293 million of
non-recurring acquisition
accruals remaining on our balance
sheet, consisting primarily of
loss contract, litigation and
compliance, and risk management
and insurance liabilities
associated with the acquisition
of BFI. During 2001, we charged
approximately $28 million to
acquisition related and unusual
costs. Cash paid against
non-recurring acquisition
accruals, including severance in
2001 was $117 million and $195
million in 2000.                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                
|                                                                      
|Environmental
liabilities
including CERCLA or
other environmental
laws |  | Nature of Liabilities
Liabilities arise from
contamination existing at
landfills or other properties and
are based on our estimates of
future costs that we will incur
for incremental remediation
activities and the related
litigation costs. To determine
our ultimate liability at these
sites, we have used third party
environmental engineers and
attorneys to assist in the
evaluation of several factors,
including the extent of
contamination at each identified
site and the most appropriate
remedy. We accrue for costs
associated with environmental
remediation obligations when such
costs are probable and reasonably
estimable. If these liabilities
are assumed in connection with an
acquisition, these accruals are
recorded to acquisition related
and unusual costs. If the
liabilities arise through the
normal course of business, the
accruals are charged to operating
expenses. |  | Actual settlement of these
liabilities could differ
from our estimates due to
a number of uncertainties, such as the extent of
contamination at a
particular site, the final
remedy, the financial
viability of other
potentially responsible
parties, and the final
apportionment of
responsibility among the
potentially responsible
parties.

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|                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                             |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Residual                                                                                                                                                                                                                                                                                                                                                                                                                   
|Accounting Area                              |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Accounting Risk                                                                                                                                                                                                                                                                                                                                                                                                            
|                                            
|                                             |  | Estimate Updates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                            
|                                            
|                                            
|                                            
|                                             |  | We periodically consult with
outside legal counsel and
environmental engineers to review
the status of all environmental
matters and to assist our
environmental and legal
management in updating our
estimates of the likelihood and
amounts of resolution. As the
timing of cash payments for these
liabilities is uncertain, the
accrued costs are not discounted.
Any changes in the liabilities
resulting from these reviews are
recorded in the period in which
the change in estimate is made.                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                            
|                                            
|                                            
|                                            
|                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                            
|                                            
|                                            
|                                            
|                                             |  | Summary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                            
|                                            
|                                            
|                                            
|                                             |  | We have determined that the
recorded liability for
environmental matters as of
December 31, 2001 and 2000 of
approximately $395.4 million and
$432.5 million, respectively,
represents the most probable
outcome of these contingent
matters. Cash paid for
environmental matters during 2001
was $36.4 million.                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                            
|Self-insurance
liabilities and
related costs |  | We are partially self-insured for
automobile, general liability,
workers compensation and fully
self-insured for employee group
health claims. The liability for
unpaid claims and associated
expenses, including incurred but
not reported losses, is
actuarially determined by a third
party actuary and reflected in
our Consolidated Balance Sheets
as an accrued liability. We use
a third party to track and
evaluate actual claims experience
for consistency with the data
used in the annual actuarial
valuation. The expense is charged
to operating costs. The
actuarially determined liability
is calculated in part by our past
claims experience factor, which
considers both the frequency and
settlement amount of claims. |  | If we experience insurance
claims or costs above or
below our historically
evaluated levels, these
estimates may increase or
decrease. 
Incident
rates, including
frequency and amounts,
could increase or decrease
during a year causing our
actuarially determined
obligations to increase or
decrease. 
The
costs to discharge our
obligations, including
legal costs and health
care costs, could increase
or decrease.
|                                            
|Allowance for
doubtful accounts
receivable   |  | We provide services to
approximately 10 million
customers throughout the United
States. We perform credit
evaluations of our significant
customers and establish an
allowance for doubtful accounts
based on the aging of our
receivables. In general, we
reserve 50% of receivables
outstanding 90 days or more and
100% of those outstanding for 120
days. We also review outstanding
balances that may be less than
120 days old on an account
specific basis and reserve the
receivable if information becomes
available indicating we will not
receive payment. Our reserve is
evaluated and revised on a
monthly basis.                                                                                                               |  | Adverse changes in the
financial health of our
customers could change the
timing or levels of
collections.                                                                                                                                                                                                                                                                                                                 
|                                            
|Asset Impairment                             |  | Valuation Methodology                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                            
|                                            
|                                            
|                                            
|                                             |  | We evaluate our long term assets
for impairment based on projected
cash flows anticipated to be
generated from the ongoing
operation of those assets. Evaluation
Criteria
We test long-lived assets for
recoverability whenever events or
changes in circumstances indicate
that the assets carrying amounts
may not be recoverable.                                                                                                                                                                                                                                                                                                                                                                                                       |  | If we have changes in
events or circumstances,
including reductions in
anticipated cash flows
generated by our
operations or
determinations to divest
of certain assets, certain
assets could be impaired
which would result in a
non-cash charge to
earnings.                                                                                                                                                             

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|                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                |  | Accounting Policy and Process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Residual                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Accounting Area |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Accounting Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|               
|                |  | Examples
of such events could include a
significant adverse change in the
extent or manner in which we use
a long-lived asset, a change in
its physical condition, or new
circumstances that would cause an
expectation that it is more
likely than not that we would
sell or otherwise dispose of a
long-lived asset significantly
before the end of its previously
estimated useful life.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|               
|               
|               
|               
|                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|               
|               
|               
|               
|                |  | Recognition Criteria                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|               
|               
|               
|               
|                |  | If such circumstances arise, we
recognize an impairment for the
difference between the carrying
amount and fair value of the
asset, if the carrying amount of
the asset does not exceed the sum
of the undiscounted cash flows
expected to result from the use
and eventual disposition of the
asset. We use the present value
of the expected cash flows from
that asset to determine fair
value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|               
|Tax Accruals    |  | We account 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 non-deductible
goodwill, and liabilities. The
differences are measured using
the income tax rate in effect
during the year in which the
differences are expected to
reverse. We utilize outside
experts and legal counsel to
assist in the development or
review of significant tax
positions used in establishing
our liability. 
The
acquisition of BFI in 1999,
which was accounted for as a
business purchase combination,
resulted in approximately $6.8
billion of goodwill, $6.5 billion
of which the amortization is
non-deductible. 
As
of December 31, 2001, net
operating loss, capital loss,
foreign tax credit and minimum
tax credit carryforwards with an
after tax benefit totaling $207
million remain unused that will
expire if not used by the end of
various future years. Valuation
allowances have been established
for the possibility that some of
these carryforwards may not be
used. |  | The balance sheet
classification and amount
of the tax accounts
established relating to
acquisitions are based on
certain assumptions that
could possibly change
based on the ultimate
outcome of certain tax
matters. As these tax
accounts were established
in purchase accounting,
any future changes
relating to these amounts
will result in balance
sheet reclassifications,
which may include an
adjustment to goodwill. 
We
are currently under
examination by various
state and federal taxing
authorities for certain
tax years. Positions taken
in those tax years are
subject to challenge.
Accordingly, we may have
exposures to tax
liabilities arising from
these audits if any
positions taken are
disallowed by the taxing
authorities. (See Note 13
of our Consolidated
Financial Statements in
Item 8 of this Form 10-K.)
|               

23



---



##### Table of Contents



Results of Operations

The following table sets forth the percentage relationship that the various
items bears to revenues for the periods indicated.

|                                                                                             |                                                                                                 |  |                         |      |      |  |       |      |   |  |       |      |   
|-------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | --
|                                                                                             |                                                                                                 |  | Year Ended December 31,
|                                                                                             |                                                                                                 |  |                        
|                                                                                             |                                                                                                 |  | 2001                    |      | 2000 |  | 1999 
|                                                                                             |                                                                                                 |  |                         |      |      |  |      
|Statement of Operations Data:                                                                |                                                                                                 |  |                         |      |      |  |       |      |   |  |       |     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Revenues                                                                                     |                                                                                                 |  | 100.0                   | %    |      |  | 100.0 | %    |   |  | 100.0 | %   
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cost of operations excluding acquisition related and
unusual costs                           |                                                                                                 |  | 57.4                    |      |      |  | 57.5  |      |   |  | 58.3  |     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Selling, general and administrative expenses
excluding acquisition related and unusual costs |                                                                                                 |  | 7.9                     |      |      |  | 7.3   |      |   |  | 6.9   |     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Depreciation and amortization                                                                |                                                                                                 |  | 8.4                     |      |      |  | 7.9   |      |   |  | 8.2   |     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Goodwill amortization                                                                        |                                                                                                 |  | 4.1                     |      |      |  | 3.9   |      |   |  | 3.3   |     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Acquisition related and unusual costs                                                        |                                                                                                 |  | 0.5                     |      |      |  | 1.8   |      |   |  | 17.7  |     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Non-cash loss on asset sale                                                                  |                                                                                                 |  | 1.9                     |      |      |  | 0.4   |      |   |  |      |     
|                                                                                             |                                                                                                 |  |                         |      |      |  |       |      |   |  |       |     
|                                                                                             | Operating income                                                                                |  |                         | 19.8 |      |  |       | 21.2 |   |  |       | 5.6  |   
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Equity in earnings of unconsolidated affiliates                                              |                                                                                                 |  | (0.3                    | )    |      |  | (0.9  | )    |   |  | (0.6  | )   
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Interest expense, net                                                                        |                                                                                                 |  | 15.2                    |      |      |  | 15.4  |      |   |  | 13.0  |     
|                                                                                             |                                                                                                 |  |                         |      |      |  |       |      |   |  |       |     
|                                                                                             | Income (loss) before income taxes                                                               |  |                         | 4.9  |      |  |       | 6.7  |   |  |       | (6.8 | ) 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Income tax expense (benefit)                                                                 |                                                                                                 |  | 3.4                     |      |      |  | 4.2   |      |   |  | (0.3  | )   
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Minority interest                                                                            |                                                                                                 |  | 0.1                     |      |      |  | 0.1   |      |   |  | 0.1   |     
|                                                                                             |                                                                                                 |  |                         |      |      |  |       |      |   |  |       |     
|                                                                                             | Income (loss) before extraordinary loss and
cumulative effect of change in accounting
principle |  |                         | 1.4  |      |  |       | 2.4  |   |  |       | (6.6 | ) 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Extraordinary loss, net of income tax benefit                                                |                                                                                                 |  | 0.3                     |      |      |  | 0.2   |      |   |  | 0.1   |     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cumulative effect of change in accounting
principle, net of income tax benefit               |                                                                                                 |  |                        |      |      |  |      |      |   |  | 2.0   |     
|                                                                                             |                                                                                                 |  |                         |      |      |  |       |      |   |  |       |     
|                                                                                             | Net income (loss)                                                                               |  |                         | 1.1  |      |  |       | 2.2  |   |  |       | (8.7 | ) 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Dividends on preferred stock                                                                 |                                                                                                 |  | 1.3                     |      |      |  | 1.2   |      |   |  | 0.8   |     
|                                                                                             |                                                                                                 |  |                         |      |      |  |       |      |   |  |       |     
|                                                                                             | Net income (loss) available to common
shareholders                                              |  |                         | (0.2 | )%   |  |       | 1.0  | % |  |       | (9.5 | )%
|                                                                                             |                                                                                                 |  |                         |      |      |  |       |      |   |  |       |     

24



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##### Table of Contents



Years Ended December 31, 2001 and 2000

Results of operations for the year ended December 31, 2001 as compared to
December 31, 2000 reflect the negative impact of the economic slowdown, our
inability to maintain selling prices in the face of continued cost basis
inflation and the decline in recycled paper commodity prices and volume. These
factors have combined to result in a decrease in revenue and operating margins
when comparing year over year results. The slowing economy and other
competitive conditions have resulted in reductions in average prices per unit
in most service lines.

Revenues. Revenues in 2001 were $5.565 billion compared to $5.707 billion in
2000, a decrease of 2.5% or $142.2 million. Acquisitions increased revenues by
$182 million, but were offset by $215 million of divested revenue, resulting in
a net decrease in revenue of $33 million between years. During 2001 we
increased revenue by approximately three percent through selective price
increases on existing customers. However, this increase was offset by the
negative impact of customer turnover and price concessions during the year.
The net result was an increase in revenue of approximately $4 million.
Landfill and collection volume increases during 2001 resulted in a year over
year increase in revenue of approximately $38 million. Recycling revenues
decreased by approximately $152 million for 2001 driven by declines in recycled
paper volumes and prices. During 2001, we processed approximately 2.5 million
tons of recycled paper, consisting primarily of cardboard, newspaper and mixed
paper as compared to 3.2 million tons in 2000. The average price per ton for
these products decreased approximately 40% for 2001 as compared to 2000.

Cost of Operations. Cost of operations in 2001 was $3.195 billion compared to
$3.280 billion in 2000, a decrease of 2.6% or $85 million. The decrease in cost
of operations was primarily caused by the decrease in revenues. The cost of
recycling revenues decreased by $60 million as a result of the decline in
commodity price and volume. As a percentage of revenues, cost of operations
decreased slightly to 57.4% in 2001 from 57.5% in 2000. The decrease as a
percentage of revenues is the result of improvement in our landfill
internalization from 63% to 67% from the year ended December 31, 2000 to the
same period in 2001 offset by increased volumes at lower prices primarily in
the second half of 2001.

Selling, General and Administrative Expenses. SG&A expenses in 2001 were $438.7
million compared to $417.6 million in 2000, an increase of 5.1%. As a
percentage of revenues, SG&A increased to 7.9% in 2001 from 7.3% in 2000. This
increase is primarily due to the continued build out of our support structure
of the organization, increases in our bad debt expense as a result of economic
conditions and increases in professional fees.

Depreciation and Amortization.Depreciation and amortization in 2001 was $466.3
million compared to $450.8 million in 2000, an increase of 3.4%. As a
percentage of revenues, depreciation and amortization expense increased to 8.4%
in 2001 from 7.9% in 2000. The percent increase is primarily due to the year
over year increase in landfill volumes of approximately four million tons and
increasing capital expenditures, from $389.9 million during 2000 to $500.9
million during 2001.

Goodwill Amortization.Goodwill amortization in 2001 was $226.7 million
compared to $223.2 million in 2000, an increase of 1.6%, which is comparable to
prior year goodwill amortization. There will be no goodwill amortization from
January 1, 2002 and forward upon the adoption of SFAS 142.

25



---



##### Table of Contents



Acquisition Related and Unusual Costs

During 2001, we recorded approximately $27.8 million of acquisition related and
unusual costs, including transition costs, primarily related to the billing system
conversion associated with the acquisition of BFI. These non-recurring costs
are decreasing as transition efforts are substantially complete at December 31,
2001.

During 2000, we recorded approximately $100.8 million of acquisition related
and unusual costs primarily associated with the acquisition of BFI. These costs
were comprised of approximately $75.2 million of transition costs related to
transitional employees, duplicative facilities and operations, and
the billing system conversion which were expensed as incurred.
Additionally, we charged $30.2 million
relating to changes in estimated loss contract provisions, restructuring and
abandonment liabilities, litigation liabilities and environmental related
matters and reversed approximately $4.6 million of accruals established
in connection with the acquisition of BFI.

Non-Cash Loss on Asset Sale.As part of our ongoing
review of operations and our goal of having a
self-funding market development program, we sold
certain non-integrated operations during February 2001
in the Northeast region for approximately $53 million
and reflected a non-cash loss of approximately $107
million ($65 million, net of income tax benefit) in
the reported results for the first quarter of 2001.
The proceeds were used to repay debt, and subsequently
redeployed as a part of our self-funding market
development program to purchase assets in other
markets that improve our market density and
internalization. During 2000, we recorded $26.5
million on non-cash loss related to divestitures of
certain operations.

Interest Expense, net. Interest expense net of interest income was $847.6
million in 2001 compared to $878.2 million in 2000, a decrease of 3.5%. The
decrease is primarily a result of reductions in the overall debt balance during
2001 of $389.5 million and a decrease in the effective interest rate from 9.2%
at December 31, 2000 to 8.8% at December 31, 2001. At December 31, 2001,
approximately 96% of our debt was fixed, 64% directly, and 32% through interest
rate swap agreements.

Income Taxes. Income taxes reflect an effective tax rate of 71.7% in 2001 and
63.3% in 2000. The effective income tax rate in 2001 deviates from the federal
statutory rate of 35% primarily due to the non-deductibility of the
amortization related to $6.5 billion of goodwill recorded in connection with
the acquisition of BFI. In 2002 the effective tax rate is expected to be less
due to the cessation of goodwill amortization.

Extraordinary Loss, net. In November 2001, we repaid $736.9 million of the
tranche A, B and C term loan facility prior to its maturity date, with net
proceeds from the issuance of $750 million senior notes. In connection with
this repayment, we recognized an extraordinary charge for the early
extinguishment of the debt of approximately $12.4 million ($7.5 million, net of
income tax benefit) related to the write-off of deferred debt issuance costs.

In January 2001, we repaid $589.5 million of the tranche A, B and C term loan
facility prior to its maturity date, with net proceeds from the issuance of
$600 million senior notes. In connection with this repayment, we recognized an
extraordinary charge for the early extinguishment of the debt of approximately
$15.6 million ($9.5 million, net of income tax benefit) related to the
write-off of deferred debt issuance costs.

During 2000, we repaid the asset sale term loan and tranche D loan facilities
prior to their respective maturity dates. In connection with these repayments,
we recognized extraordinary charges for the early extinguishment of the debt of
approximately $21.9 million ($13.3 million, net of income tax benefit) related
to the write-off of deferred debt issuance costs.

Dividends on Preferred Stock.Dividends on preferred stock were $73.0 million
in 2001 and $68.5 million in 2000, which reflects the 6.5% dividend on the
liquidation preference of the preferred stock issued on July 30, 1999 in
connection with the financing of the acquisition of BFI. Dividends were not
paid in cash, instead, the liquidation preference of the preferred stock
increased by accrued, but unpaid dividends.

26



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##### Table of Contents



Years Ended December 31, 2000 and 1999

Revenues. Revenues in 2000 were $5.7 billion compared to $3.3 billion in 1999,
an increase of 70.8%. The increase in revenues was primarily attributable to
the acquisition of companies throughout 1999, the most significant of which was
BFI which was acquired on July 30, 1999. Accordingly, the results in 2000
include twelve months of the operations acquired from BFI compared to five
months in 1999. Revenues attributable to existing operations increased
approximately 4% in 2000 compared to 1999 primarily due to pricing increases.
Volume increases during 2000 were offset by initiatives to reduce customer
accounts which were not generating acceptable returns.

Cost of Operations. Cost of operations in 2000 was $3.3 billion compared to
$1.9 billion in 1999, an increase of 68.3%. The increase in cost of operations
was primarily associated with the increase in revenues described above. As a
percentage of revenues, cost of operations decreased to 57.5% in 2000 from
58.3% in 1999, primarily due to price increases, the initiatives to reduce
customer accounts which were not generating acceptable returns, the achievement
of operating synergies resulting from the BFI acquisition, and the effect of
increased landfill internalization from 61% at the end of 1999 to 65% at the
end of 2000.

Selling, General and Administrative Expenses. SG&A expenses in 2000 were $417.6
million compared to $231.4 million in 1999, an increase of 80.5%, and reflects
our acquisition of BFI. As a percentage of revenues, SG&A increased to 7.3% in
2000 from 6.9% in 1999. This increase is primarily due to compensation
increases during 2000.

Depreciation and Amortization.Depreciation and amortization in 2000 was $450.8
million compared to $273.4 million in 1999, an increase of 64.9%. As a
percentage of revenues, depreciation and amortization expense decreased to 7.9%
in 2000 from 8.2% in 1999. The percent decrease is primarily due to the
increase in depreciation expense, resulting from a 15% increase in capital
expenditures, being more than offset by the greater increase in revenues during
2000.

Goodwill Amortization.Goodwill amortization in 2000 was $223.2 million
compared to $110.7 million in 1999, an increase of 101.6%. The increase in
goodwill amortization was due to an increase in goodwill of approximately $7
billion primarily resulting from the acquisition of BFI.

Acquisition Related and Unusual Costs.During 2000, we
recorded approximately $100.8 million of acquisition related
and unusual costs primarily associated with the acquisition of
BFI. These costs were comprised primarily of approximately
$75.2 million of transition costs related to transitional
employees, duplicative facilities and operations, and the billing
system conversion which were expensed as incurred. Additionally we
charged $30.2
million relating to changes in estimated loss contract
provisions, restructuring and abandonment liabilities,
litigation liabilities and environmental related matters reversed approximately $4.6 million of accruals established in
connection with the acquisition of BFI. During 2000, we recorded
$26.5 million on non-cash loss related to divestitures of
certain operations.

During 1999, we recorded $524.3 million of acquisition related and unusual
costs associated with the $9.6 billion acquisition of BFI in July 1999. These
costs were comprised of approximately $267.0 million related to changes in
estimates of environmental liabilities as a result of assessments performed by
third-party and in-house engineers and legal counsel; $93.5 million related to
changes in estimates of litigation liabilities for employee-related, regulatory
and other commercial litigation matters; $77.4 million for costs related to
transitional employees and duplicative facilities and operations; $33.8 million
related to commitment fees for financing which was ultimately not required;
$32.6 million related to future anticipated losses on specifically-identified
contracts; and $20.0 million for changes to self-insurance accruals based upon
third-party actuarial reviews.

Also during 1999, we recorded approximately $43.5 million for non-cash asset
impairments for Allied assets held for sale; $26.1 million for the write off of
deferred charges for previously targeted acquisitions no longer pursued; $1.8
million for non-cash asset impairments related to duplicative facilities; and
$0.4 million in restructuring and abandonment costs related to other 1999
acquisitions. In addition, $7.2 million of accrued acquisition related costs
associated with 1998 acquisitions were reversed to acquisition related and
unusual costs.

27



---



##### Table of Contents



Any subsequent changes in estimates of acquisition related and unusual costs
have been included in the acquisition related and unusual costs caption of the
Consolidated Statements of Operations in the period in which the change in
estimate is made.

Interest Expense, net. Interest expense, net
of interest income was $878.2 million in 2000
compared to $435.8 million in 1999, an
increase of 101.5%. The increase in 2000
primarily resulted from twelve months of
interest expense on debt incurred and assumed
in connection with the acquisition of BFI as
compared to five months in 1999.

Income Taxes. Income taxes reflect an
effective tax rate of 63.3% in 2000 and
(3.9)% in 1999. The effective income tax rate
in 2000 deviates from the federal statutory
rate of 35% primarily due to the $6.5 billion
non-deductible portion of amortization of the
goodwill recorded in connection with the
acquisition of BFI.

Extraordinary Loss, net.During 2000, we
repaid the asset sale term loan and tranche D
loan facilities prior to the maturity date.
In connection with these repayments, we
recognized extraordinary charges for the
early extinguishment of the debt of
approximately $21.9 million ($13.3 million,
net of income tax benefit) related to the
write-off of deferred debt issuance costs.

In July 1999, we repaid our credit facility
prior to its maturity date. In connection
with this repayment, we recognized a non-cash
extraordinary charge for the early
extinguishment of the debt of approximately
$5.3 million ($3.2 million net of income tax
benefit) related to the write-off of deferred
debt issuance costs.

Cumulative Effect of Change in Accounting
Principle, net.In connection with the
acquisition of BFI, we changed our
capitalized interest policy to more
accurately reflect our long-term business
strategy. As a result, we recorded a charge
of $64.3 million, net of related tax, during
1999, to reflect the cumulative effect on
prior years of the change in the method of
interest capitalization.

Dividends on Preferred Stock.Dividends on
Preferred Stock were $68.5 million in 2000
and $27.8 million in 1999, which reflects the
6.5% dividend on the liquidation preference
of the Preferred Stock issued on July 30,
1999 in connection with the financing of the
acquisition of BFI. Dividends were not paid
in cash, instead, the liquidation preference
of the Preferred Stock increased by accrued,
but unpaid dividends.

Liquidity and Capital Resources

Our operational liquidity needs are met with operating cash flow. When
non-operating liquidity needs arise they are met, if not from remaining
operating cash flow, with borrowings under our revolving credit facility. Cash
provided by operations for the year 2001 of $905.2 million, is after $136.0
million spent on non-recurring acquisition accruals and transition costs. After
a requirement of $500.9 million in capital expenditures and $14 million in
non-operating cash outflows related to net proceeds from divestitures, offset
by capitalized interest and new debt issuance cost, we reduced debt by $389.5
million.

We have historically operated and we expect that we will continue to operate
with a working capital deficit. We regularly use excess available cash from
operating and non-operating activities to pay amounts owed on our revolving
line of credit, which is classified as long term debt. Additionally, this
deficit is in part caused by the current portion of non-recurring acquisition
accruals, which is approximately $75 million as of December 31, 2001.
Non-recurring acquisition accruals are primarily related to the BFI acquisition
and have decreased from prior periods and are expected to further decrease in
future periods.

28



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##### Table of Contents



During the years ended December 31, 2001, 2000 and 1999, our cash flows from operating, investing and financing activities were as follows (in
millions):

|                                                                                   |                                                  |   |                         |        |      |   |          |        |   |   |          |          |  
|---------------------------------------------------------------------------------- | ------------------------------------------------ | - | ----------------------- | ------ | ---- | - | -------- | ------ | - | - | -------- | -------- | -
|                                                                                   |                                                  |   | Year Ended December 31,
|                                                                                   |                                                  |   |                        
|                                                                                   |                                                  |   | 2001                    |        | 2000 |   | 1999    
|                                                                                   |                                                  |   |                         |        |      |   |         
|Operating Activities:                                                              |                                                  |   |                         |        |      |   |          |        |   |   |          |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Net income (loss)                                                                  |                                                  | $ | 58.5                    |        |      | $ | 124.4    |        |   | $ | (288.7   | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Non-cash acquisition related and unusual costs
and asset impairments               |                                                  |   | 107.0                   |        |      |   | 26.5     |        |   |   | 105.2    |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Non-cash
operating expenses(1)                                                     |                                                  |   | 915.1                   |        |      |   | 892.5    |        |   |   | 318.8    |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Cumulative effect of change in accounting
principle                                |                                                  |   |                        |        |      |   |         |        |   |   | 64.3     |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Gain on sale of assets                                                             |                                                  |   | (13.9                   | )      |      |   | (10.5    | )      |   |   | (5.3     | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Extraordinary loss due to early
extinguishments of debt, net of income tax
benefit |                                                  |   | 12.3                    |        |      |   | 13.3     |        |   |   | 3.2      |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Changes in working capital                                                         |                                                  |   | (30.3                   | )      |      |   | (38.6    | )      |   |   | (87.5    | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Non-recurring acquisition accruals                                                 |                                                  |   | (115.1                  | )      |      |   | (167.5   | )      |   |   | 382.6    |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Closure, post-closure and environmental
expenditures, net of provision             |                                                  |   | (28.4                   | )      |      |   | (36.8    | )      |   |   | (3.6     | )       
|                                                                                   |                                                  |   |                         |        |      |   |          |        |   |   |          |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Cash provided by operating activities            |   |                         | 905.2  |      |   |          | 803.3  |   |   |          | 489.0    |  
|                                                                                   |                                                  |   |                         |        |      |   |          |        |   |   |          |         
|Investing Activities:                                                              |                                                  |   |                         |        |      |   |          |        |   |   |          |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Cost
of acquisitions, net of cash acquired(2)                                      |                                                  |   | (249.5                  | )      |      |   | (802.9   | )      |   |   | (7,589.6 | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Proceeds
from divestitures, net(2)                                                 |                                                  |   | 359.9                   |        |      |   | 1,039.2  |        |   |   | 468.9    |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Accruals for acquisition price and severance
costs                                 |                                                  |   | (1.7                    | )      |      |   | (27.8    | )      |   |   | 15.2     |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Capital expenditures and net contributions to
unconsolidated subsidiaries          |                                                  |   | (500.9                  | )      |      |   | (374.5   | )      |   |   | (356.2   | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Capitalized interest                                                               |                                                  |   | (45.7                   | )      |      |   | (45.4    | )      |   |   | (25.5    | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Proceeds from sale of fixed assets                                                 |                                                  |   | 30.9                    |        |      |   | 42.9     |        |   |   | 53.2     |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Change in deferred acquisition costs, notes
receivable and other                   |                                                  |   | (27.1                   | )      |      |   | (41.4    | )      |   |   | (28.5    | )       
|                                                                                   |                                                  |   |                         |        |      |   |          |        |   |   |          |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Cash used for investing activities               |   |                         | (434.1 | )    |   |          | (209.9 | ) |   |          | (7,462.5 | )
|                                                                                   |                                                  |   |                         |        |      |   |          |        |   |   |          |         
|Financing Activities:                                                              |                                                  |   |                         |        |      |   |          |        |   |   |          |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Net proceeds from sale of common stock and
exercise of stock options and warrants  |                                                  |   | 6.4                     |        |      |   | 1.7      |        |   |   | 10.2     |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Net proceeds from sale of Preferred Stock                                          |                                                  |   |                        |        |      |   |         |        |   |   | 973.9    |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Net proceeds from long-term debt, net of
issuance costs                            |                                                  |   | 2,755.8                 |        |      |   | 2,202.0  |        |   |   | 8,672.3  |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Repayments of long-term debt                                                       |                                                  |   | (3,196.6                | )      |      |   | (2,796.4 | )      |   |   | (2,601.2 | )       
|                                                                                   |                                                  |   |                         |        |      |   |          |        |   |   |          |         
|                                                                                   | Cash provided by (used for) financing activities |   |                         | (434.4 | )    |   |          | (592.7 | ) |   |          | 7,055.2  |  
|                                                                                   |                                                  |   |                         |        |      |   |          |        |   |   |          |         
|Increase in cash and cash equivalents                                              |                                                  | $ | 36.7                    |        |      | $ | 0.7      |        |   | $ | 81.7     |         
|                                                                                   |                                                  |   |                         |        |      |   |          |        |   |   |          |         



---

|(1) |  | Consists principally of provisions for depreciation and amortization, undistributed earnings of equity
investments, allowance for doubtful accounts, accretion of debt and amortization of debt issuance costs, and
deferred income taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | During 2001, we acquired solid waste operations, representing approximately $150.4 in annual revenues, and
sold operations representing approximately $153.9 million ($146.6 million net of intercompany eliminations) in
annual revenues. During 2000, we acquired solid waste operations, representing approximately $482.6 million
($468.9 million net of intercompany eliminations) in annual revenues and sold operations representing
approximately $814.2 million ($679.4 million net of intercompany eliminations) in annual revenues. During
1999, we acquired solid waste operations, excluding the BFI acquisition, representing approximately $381.2
million in annual revenues ($332.7 million net of intercompany eliminations), and sold operations representing
approximately $372.5 million in annual revenues.

29



---



##### Table of Contents



The following table summarizes the components of our cash flow used to reconcile the beginning of year to end of year total debt balances. The 2002 and future estimates are forecast
numbers and should be read in conjunction with forward looking statements (see Forward Looking Statements). Actual amounts will differ from these estimated amounts. All amounts
exclude the effects of acquisition related and unusual costs.

|                                                                            |                                 |                                                      |       |             |       |              |       |      |       |  
|--------------------------------------------------------------------------- | ------------------------------- | ---------------------------------------------------- | ----- | ----------- | ----- | ------------ | ----- | ---- | ----- | -
|                                                                            |                                 |                                                      |       | Actual 2001 |       | 2002 Outlook
|                                                                            |                                 |                                                      |       |             |       |             
|Free cash flow:                                                             |                                 |                                                      |       |             |       |              |       |     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                 | EBITDA(1)                                            |       | $           | 1,931 |              |       | $    | 1,850 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                 | Other
non-cash items(2)                              |       |             | 77    |              |       |      | 80    |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                 | Cash
interest(3)                                     |       |             | (857  | )            |       |      | (820  | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                 | Cash taxes                                           |       |             | (53   | )            |       |      | (85   | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                 | Closure, post-closure and
environmental expenditures |       |             | (96   | )            |       |      | (125  | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                 | Capital expenditures, excluding
acquisitions         |       |             | (501  | )            |       |      | (550  | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                 | Changes in working capital                           |       |             | (21   | )            |       |      |      |  
|                                                                            |                                 |                                                      |       |             |       |              |       |      |       |  
|Free cash flow                                                              |                                 |                                                      | 480   |             |       |              | 350   |     
|                                                                            |                                 |                                                      |       |             |       |              |       |      |       |  
|                                                                            |                                 |                                                      |       |             |       |              |       |     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Expenditures against non-recurring
acquisition accruals and severance costs |                                 |                                                      | (117  | )           |       |              | (75   | )   
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Divestitures, net of acquisitions and other
investing activities            |                                 |                                                      | 114   |             |       |              |      |     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Debt issuance costs                                                         |                                 |                                                      | (42   | )           |       |              |      |     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Increases in cash                                                           |                                 |                                                      | (37   | )           |       |              |      |     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Accretion
and other(3)                                                      |                                 |                                                      | (9    | )           |       |              |      |     
|                                                                            |                                 |                                                      |       |             |       |              |       |      |       |  
|Cash available to pay down debt                                             |                                 | $                                                    | 389   |             |       | $            | 275   |     
|                                                                            |                                 |                                                      |       |             |       |              |       |      |       |  
|                                                                            |                                 |                                                      |       |             |       |              |       |     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Beginning debt balance                                                      |                                 | $                                                    | 9,649 |             |       | $            | 9,260 |     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Cash available to pay down debt |                                                      |       | (389        | )     |              |       | (275 | )    
|                                                                            |                                 |                                                      |       |             |       |              |       |      |       |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Ending debt balance                                                         |                                 | $                                                    | 9,260 |             |       | $            | 8,985 |     
|                                                                            |                                 |                                                      |       |             |       |              |       |      |       |  



---

|(1) |  | Projected EBITDA for 2002 assumes the continued use of our asset base in substantially its current manner and does not include assumptions of asset sales in
excess of acquisitions as discussed in our Financing Plan.                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes closure and post-closure provisions, allowance for doubtful accounts and net gain on sale of fixed assets.                                                                                                                                                                                                                             
|   
|   
|   
|   
|(3) |  | Cash interest in 2001 excludes the non-recurring receipt of $27.2 million related to the unwind of a fair value interest rate swap. The proceeds were
recorded as a deferred gain and will be amortized into interest income through October 2003, which was the original term of the swap. The cash impact is
reflected in accretion and other.

Over time, cash interest is anticipated to continue to decrease with planned reductions in our debt balance. Cash taxes should increase due to decreasing net
operating loss carryforwards and improved profitability. We anticipate that future cash taxes could exceed 60% of the total income tax provision. We anticipate
expenditures for closure and post-closure costs to remain relatively stable over the near term. We anticipate capital expenditures to be approximately 9% to 10% of
our revenues, in accordance with our strategic initiatives to maintain a fleet age of approximately seven years and landfill build out of 12 to 18 months. Payments
against acquisition accruals are estimated at $210 million over the next five years.

30



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##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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).These statements describe the Companys
future plans, objectives or goals. These statements include: (a) statements regarding EBITDA in 2002 of approximately $1.85 billion; (b) statements regarding the generation of approximately $350 million of adjusted free cash flow in 2002 and the components thereof; and
(c) statements relating to reduction of the Companys debt balance to under $9.0 billion by the end of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | These forward-looking statements involve risks and uncertainties which could cause actual results to differ materially including, without limitation, (1) continuing weakness in the U.S. economy in 2002 may cause a decline in the demand for the Companys services
(particularly in the commercial and industrial sectors), a decline in the price of commodities sold by the Company, increased competitive pressure on pricing and generally make it more difficult for the Company to predict economic trends; (2) the Company may be impeded in
the successful integration of acquired businesses and its market development efforts; (3) a change in interest rates or a reduction in the Companys cash flow could impair the Companys ability to service and reduce its debt obligations; (4) volatility in interest rates
may, among other things, affect earnings due to possible mark to market changes on certain interest rate hedges; (5) divestitures by the Company may not raise funds exceeding financing needed for acquisitions in 2002; and (6) severe weather conditions could impair the
Companys operating results.
|
| | Such important factors that could cause actual results to differ materially from our expectations are disclosed in this section, in the section titled Risk Factors and elsewhere in this report. All subsequent written and oral Forward Looking Statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by such important factors described below that could cause actual results to differ from our expectations. Shareholders, potential investors and other readers are urged to consider these factors in
evaluating Forward Looking Statements and are cautioned not to place undue reliance on Forward Looking Statements. The Forward-Looking Statements made herein are only made as of the date of this filing and we undertake no obligation to publicly update such Forward-Looking
Statements to reflect subsequent events or circumstances.                                                                                                                                                                                                                                    

Obligations and Commitments

As of December 31, 2001, we had cash and cash equivalents of $158.8 million. Our debt structure consisted primarily of $3.1 billion outstanding under the 1999 Credit Facility, $1.4 billion of the senior notes issued in 2001, $2.0 billion of the senior subordinated notes, $1.7 billion of senior
notes issued in 1998 and $1.1 billion of debt assumed in connection with the BFI acquisition. As of December 31, 2001 there was aggregate availability under the revolving credit facility of the 1999 Credit Facility of approximately $792 million to be used for working capital, letters of credit,
acquisitions and other general corporate purposes. The 1999 Credit Facility and the indentures relating to the senior subordinated notes and the senior notes issued in 1998 contain financial and operating covenants and restrictions on our ability to complete acquisitions, pay dividends, incur
indebtedness, make investments and take certain other corporate actions.

The following table outlines what we regard as our significant contractual obligations and commitments, their payment dates and expirations. It does not represent the universe of our contractual commitments entered into in the ordinary course of business.

|                                                       |  |                                      |        |      |  |      |         |      |  |      |         |            |  |       |         |  |  |   |           |  |  |   |           |  |  |   |           | 
|------------------------------------------------------ |  | ------------------------------------ | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---------- |  | ----- | ------- |  |  | - | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                                       |  | Payments Due by Period, in thousands
|                                                       |  |                                     
|Selected Significant                                   |  |                                      |        |      |  |      |         |      |  |      |         |            |  |       |         |  |  |   |           |  |  |   |           |  |  |   |           | 
|Contractual Obligations                                |  | Current                              |        | 2003 |  | 2004 |         | 2005 |  | 2006 |         | Thereafter |  | Total
|                                                       |  |                                      |        |      |  |      |         |      |  |      |         |            |  |      
|Long-term debt                                         |  | $                                    | 22,130 |      |  | $    | 357,622 |      |  | $    | 689,671 |            |  | $     | 619,544 |  |  | $ | 1,493,839 |  |  | $ | 6,182,350 |  |  | $ | 9,365,156 | 
|                                                      
|                                                      
|                                                      
|                                                      
|Capital lease obligations (included in
long-term debt) |  |                                      | 5,494  |      |  |      | 3,157   |      |  |      | 2,443   |            |  |       | 1,102   |  |  |   | 311       |  |  |   | 152       |  |  |   | 12,659    | 
|                                                      
|                                                      
|                                                      
|                                                      
|Operating leases (included in
operating expenses)      |  |                                      | 29,390 |      |  |      | 27,531  |      |  |      | 23,437  |            |  |       | 19,479  |  |  |   | 16,956    |  |  |   | 52,295    |  |  |   | 169,088   | 

31



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##### Table of Contents



The 1999 Credit Facility has certain provisions, calculated annually, which accelerate repayments of principal under the term loans if we generate cash flow in excess of certain levels. This could result in usage of the revolving loan facility to accommodate cash timing
differences. Factors primarily causing excess cash flow, as defined, could include increases in operating cash flow, lower capital expenditures and working capital requirements, net divestitures or other favorable cash generating activities. The company experienced several of
these factors in 2001 and as a result will retire approximately $187 million of term debt in the first quarter of 2002, which otherwise would have likely been paid later in the year. Adequate capacity for this payment exists through 2002 operating cash flow and capacity on the
revolver.

We have no off-balance sheet debt or similar obligations, other than financial assurance instruments. We have no transactions or obligations with related parties that are not disclosed, consolidated into or reflected in our reported results of operations or financial position.

We are required to provide financial assurance to governmental agencies under applicable environmental regulations relating to our landfill operations and collection contracts. These financial assurance requirements are satisfied by our providing performance bonds, letters of
credit, insurance policies or trust deposits to secure our obligations as they relate to landfill closure and post-closure costs and performance under certain collection contracts. At December 31, 2001, we had outstanding approximately $1.6 billion in financial assurance
instruments relating to our landfill operations, represented by $407.2 million of surety bonds, $1,026.8 million of insurance policies, $49.2 million of trust deposits and $97.5 million of letters of credit. During calendar year 2002, we expect no material increase in financial
assurance obligations relating to our landfill operations and collection contracts. The mix of financial assurance instruments may change in the future. Additionally we have approximately $460 million in operational performance bonds with various municipalities and approximately
$95 million of financial guarantee bonds for self insurance.

Subtitle D and other regulations that apply to the non-hazardous waste disposal industry have required us, 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 us to spend sums in addition to those presently reserved for such purposes. These factors, together with the other factors discussed above, could substantially increase our
operating costs and our ability to invest in our facilities.

Our ability to meet future capital expenditure and working capital requirements, to make scheduled payments of principal, to pay interest, or to refinance our indebtedness, to provide financial assurance and to fund capital amounts required for the expansion of the existing
business depends on our future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations,
that future financings will be available to us in amounts sufficient to enable us to service our indebtedness or to make necessary capital expenditures, or that any refinancing would be available on commercially reasonable terms, if at all. Further, depending on the timing, amount
and structure of any possible future acquisitions and the availability of funds under the 1999 Credit Facility, we may need to raise additional capital. We may raise such funds through additional bank financings or public or private offerings of our debt and equity securities. We
cannot assure you that we will be able to secure such funding, if necessary, on favorable terms, or at all. If we are not successful in securing such funding, our ability to pursue our business strategy may be impaired and results of operations for future periods may be negatively
affected.

Significant Financing Events in 2001

During 2001, through the separate issuance of $600 million and $750 million of senior secured notes, we refinanced approximately $1.326 billion of our 1999 Credit Facility with fixed rate bonds. In connection with the closing of each issuance of notes, we amended our 1999 Credit Facility to
revise certain financial covenants to provide us with greater operating flexibility. Such revisions were necessitated in part by the declining economic conditions experienced throughout 2001, which caused reductions in certain earnings measures defined under the 1999 Credit Facility. The cost
to us was $23.6 million for debt issuance and an amendment fee paid to lenders of approximately $5.3 million.

32



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##### Table of Contents



The amendments increased the amount of the revolving credit facility that could be used to support the issuance of letters of credit from $800 million to $1.3 billion. The amendments changed our total debt to EBITDA ratio covenant and our interest coverage ratio covenant, both as defined in
the 1999 Credit Facility, as follows:

|                      |  |              |       |      |  |      |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|--------------------- |  | ------------ | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|                      |  | December 31,
|                      |  |             
|                      |  | 2001         |       | 2002 |  | 2003 |       | 2004 |  | 2005 |       | 2006
|                      |  |              |       |      |  |      |       |      |  |      |       |     
|Total Debt/EBITDA     |  |              |       |      |  |      |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|                     
|                     
|                     
|                     
|Current               |  |              | 5.75x |      |  |      | 5.75x |      |  |      | 5.25x |      |  |  | 4.50x |  |  |  | 4.25x |  |  |  | 3.50x | 
|                     
|                     
|                     
|                     
|Prior                 |  |              | 4.50x |      |  |      | 4.00x |      |  |      | 3.50x |      |  |  | 3.50x |  |  |  | 3.50x |  |  |  | 3.50x | 
|                     
|                     
|                     
|                     
|                      |  |              |       |      |  |      |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|                     
|                     
|                     
|                     
|EBITDA/Total Interest |  |              |       |      |  |      |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|                     
|                     
|                     
|                     
|Current               |  |              | 2.00x |      |  |      | 2.00x |      |  |      | 2.25x |      |  |  | 2.50x |  |  |  | 2.75x |  |  |  | 3.00x | 
|                     
|                     
|                     
|                     
|Prior                 |  |              | 2.50x |      |  |      | 2.75x |      |  |      | 3.00x |      |  |  | 3.00x |  |  |  | 3.00x |  |  |  | 3.00x | 

At December 31, 2001, we were in compliance with all financial covenants. At December 31, 2001 our debt to EBITDA ratio, as defined by the loan agreement was 5.02:1 and our EBITDA to total interest ratio was 2.29:1.

Financing Plan

We currently intend to use our free cash flow to repay debt in 2002, 2003 and 2004. We intend to do this while continuing to reinvest in our business through capital expenditures and tuck-in acquisitions. We think that without new sources of funding we can repay from internally generated cash
flow about $275 million of our debt in 2002. We do not believe the current state of the economy will worsen during 2002, but this is possible and if it does, our internally generated cash flows could be less. Depending on the strength and timing of an economic recovery, we think we could
repay debt in 2003 and in 2004 at amounts above the 2002 estimated levels. These amounts could increase if economic recovery occurs sooner than we anticipate. They could also increase if we sell assets for proceeds that exceed the cost of assets we acquire. Further reductions in debt could
occur if we raise equity funds in the capital markets.

Significant elements of the 1999 Credit Facility expire in July 2005. In late 2003 or early 2004 we intend to re-finance the 1999 Credit Facility. The total amount of the 1999 Credit Facility was $4.358 billion at December 31, 2001. At December 31, 2001, we had $3.058 billion in funded term
loans outstanding. We had no cash draws outstanding on the $1.3 billion revolving credit facility. We had $508 million in letters of credit drawn on the revolving line of credit that support financial assurance purposes, leaving $792 million remaining available. We believe that between
December 31, 2001 and the time we refinance the 1999 Credit Facility, we will reduce its size by about $1.5 billion. We believe we have several alternatives available to us that will allow this reduction to occur. The alternatives include cash flow from operating activities, possible asset
divestitures in excess of acquisitions and potential capital market transactions. Capital market transactions could involve either new capital for us or refinancing short-term maturities for longer-term maturities or some combination of both. Our course of action is subject to ongoing analysis
and is dependent on a favorable economic environment. The exact size, combination or timing of these events has not yet been determined, and we cannot assume that we will be able to secure a refinancing on terms we regard as favorable, or at all.

Effects of Finance Plan on our Interest Rate Swap Portfolio Accounting

Consistent with our risk management policy, we enter into floating-rate to fixed-rate swap agreements for the purpose of hedging variability of interest expense and interest payments on our long-term variable rate bank debt. Our strategy is to use floating to fixed interest rate swap
agreements when such transactions will serve to reduce our aggregate exposure. We enter into these contracts solely for the purpose of reducing risk; positions are not taken for trading purposes. Our risk management policy requires that we evaluate the credit of our counterparties and that we
monitor counterparty exposure. At December 31, 2001, counterparties for 83% of our interest rate swap portfolio were rated either AA or AA-. The counterparties for the remaining 17% were rated from A+ to A.

33



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##### Table of Contents



Our interest rate swap portfolio continues to fix a significant portion of our variable rate interest payment obligation, protecting us from cash flow variations arising from changes in short term interest rates. We believe this is prudent given our capital structure. At December 31, 2001, we
had $2.887 billion of notional amount of interest rate swap contracts with a weighted average 24 months to maturity. These contracts expire 15% during 2002, 28% during 2003, 48% during 2004 and 9% during 2005. Our 1999 Credit Facility requires that 50% of our outstanding credit facility
remain hedged through July 2002 and our corporate policy is that at least 75% of our total debt must be effectively fixed, either directly or through interest rate swap agreements. At December 31, 2001, approximately 96% of our debt was fixed, 64% directly, and 32% through interest rate swap
agreements. The average interest rate paid under swap contracts at December 31, 2001 was 6.29% compared to LIBOR of 1.88%.

Upon adoption of Statement of Financial Account Standards 133, Accounting for Derivative and Hedging Activitiesas amended by SFAS 138, Accounting for Certain Derivative and Hedging Activities, on January 1, 2001, and subsequently throughout the first three quarters of 2001, business plan
assumptions were analyzed and evaluated in relation to the amount of anticipated floating rate bank debt outstanding. We analyzed the amount, scheduled repayment dates and terms of the bank debt. Based on this analysis, we maintained a hedge portfolio with expiration dates not exceeding the
anticipated repayment dates of the variable rate bank debt. Accordingly, we achieved an effective hedging relationship with our bank debt and our swap portfolio.

For a swap to be accounted for as an effective hedge, at its inception and on an ongoing basis the forecasted transaction must be likely to occur  in our case, our swap portfolio may not exceed the amount or term of the bank debt outstanding.

The updated Financing Plan, which is based on new circumstances not anticipated at the time we entered into the interest rate swap agreements, contemplates the possibility of refinancing or prepaying variable rate debt before the expiration of some interest rate swap contracts, and as a result,
in accordance with SFAS 133 we are required to re-characterize certain interest rate swap contracts from designated hedges to de-designated hedges. This is because it is possible that future interest rate payments on the underlying variable rate debt may cease prior to the expiration of the
related hedge contract portfolio. Nonetheless, until the underlying variable rate debt is paid, the de-designated contracts will remain in force to protect us from cash flow variability.

For contracts which remain designated as hedges, settlement payments in each period are included as part of our interest expense. Periodic changes in the market value of those contracts will remain in shareholders equity in Accumulated Other Comprehensive Income (AOCI). The liability will
fluctuate with market interest rate changes, but will reduce to zero over the terms of each of our interest rate swap instruments.

For de-designated contracts, settlement payments and periodic changes in market values of the contracts will be presented on the face of the income statement as a gain or loss on derivative contracts. Periodic changes in market value for de-designated contracts previously were deferred in
AOCI. These changes will now be recorded in the income statement as a gain or loss on a derivative contract. For de-designated contracts the total amount of loss in AOCI at December 31, 2001 (the time of de-designation) was approximately $65 million ($40 million, net of income tax benefit).
The gross amount will be amortized into interest expense over the remaining terms of the de-designated contracts.

The following table outlines our debt and interest rate swap contract maturities as of December 31, 2001 (in thousands):

|                             |  |      |         |      |  |      |         |      |  |      |           |            |  |               |         |       |  |   |           |  |  |   |           |  |  |   |          |   |  |   |           | 
|---------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | --------- | ---------- |  | ------------- | ------- | ----- |  | - | --------- |  |  | - | --------- |  |  | - | -------- | - |  | - | --------- | 
|                             |  | 2002 |         | 2003 |  | 2004 |         | 2005 |  | 2006 |           | Thereafter |  | Discount, net |         | Total
|                             |  |      |         |      |  |      |         |      |  |      |           |            |  |               |         |      
|Debt                        
|Bank Debt                    |  | $    |        |      |  | $    | 182,785 |      |  | $    | 450,000   |            |  | $             | 525,000 |       |  | $ | 864,018   |  |  | $ | 1,036,822 |  |  | $ |         |   |  | $ | 3,058,625 | 
|                            
|                            
|                            
|                            
|All Other                    |  |      | 22,130  |      |  |      | 174,837 |      |  |      | 239,671   |            |  |               | 94,544  |       |  |   | 629,821   |  |  |   | 5,145,528 |  |  |   | (105,523 | ) |  |   | 6,201,008 | 
|                             |  |      |         |      |  |      |         |      |  |      |           |            |  |               |         |       |  |   |           |  |  |   |           |  |  |   |          |   |  |   |           | 
|Total                        |  | $    | 22,130  |      |  | $    | 357,622 |      |  | $    | 689,671   |            |  | $             | 619,544 |       |  | $ | 1,493,839 |  |  | $ | 6,182,350 |  |  | $ | (105,523 | ) |  | $ | 9,259,633 | 
|                             |  |      |         |      |  |      |         |      |  |      |           |            |  |               |         |       |  |   |           |  |  |   |           |  |  |   |          |   |  |   |           | 
|Interest rate swap
contracts
|                            
|                            
|                            
|                            
|Designated                   |  | $    | 436,822 |      |  | $    | 250,000 |      |  | $    | 475,000   |            |  | $             | 250,000 |       |  | $ |          |  |  | $ |          |  |  | $ |         |   |  | $ | 1,411,822 | 
|                            
|                            
|                            
|                            
|De-designated                |  |      |        |      |  |      | 550,000 |      |  |      | 925,000   |            |  |               |        |       |  |   |          |  |  |   |          |  |  |   |         |   |  |   | 1,475,000 | 
|                             |  |      |         |      |  |      |         |      |  |      |           |            |  |               |         |       |  |   |           |  |  |   |           |  |  |   |          |   |  |   |           | 
|Total                        |  | $    | 436,822 |      |  | $    | 800,000 |      |  | $    | 1,400,000 |            |  | $             | 250,000 |       |  | $ |          |  |  | $ |          |  |  | $ |         |   |  | $ | 2,886,822 | 
|                             |  |      |         |      |  |      |         |      |  |      |           |            |  |               |         |       |  |   |           |  |  |   |           |  |  |   |          |   |  |   |           | 

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New Accounting Standards

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS 143,
Accounting for Asset Retirement Obligations(SFAS 143), which outlines standards for
accounting for an obligation associated with the retirement of a long-lived tangible
asset. This standard will apply to our accounting for landfill closure and post-closure
obligations. We are required to adopt SFAS 143 by January 1, 2003 and are currently
assessing the impact, if any, that this statement will have on our consolidated financial
statements.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets(SFAS 144), which supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of(SFAS 121). SFAS
144 provides a single accounting model for impairment of long-lived assets held for use
and for long-lived assets that are to be disposed of by sale (including discontinued
operations). SFAS 144 does not cover impairment of goodwill. We adopted SFAS 144 on
January 1, 2002. There was no impact on our consolidated financial statements.

In July 2001, the FASB issued SFAS No. 141, Business Combinations(SFAS 141) and SFAS No.
142, Goodwill and Other Intangible Assets(SFAS 142).SFAS 141 requires the purchase
method of accounting for business combinations initiated after June 30, 2001, and
eliminates the pooling-of-interest method standard. Adoption did not have a material
impact on our consolidated financial statements. The effective date for SFAS 142 was
fiscal years beginning after December 15, 2001.

SFAS 142, among other things, eliminates the amortization of goodwill and instead
requires an annual assessment of goodwill impairment by applying a fair value based test.
SFAS 142 requires that any goodwill recorded in connection with an acquisition
consummated on or after July 1, 2001 not be amortized and that no goodwill be amortized
after January 1, 2002. Accordingly, we have not amortized any goodwill for assets
acquired subsequent to July 1, 2001 and beginning January 1, 2002, we no longer amortize
goodwill. During the years ended December 31, 2001 and 2000, we recorded goodwill
amortization of $226.7 million and $223.2 million, respectively. We have evaluated the
impact of this statement and tested our existing goodwill for realizability and
determined that we have no impairment of our goodwill and therefore no impact upon
adoption to our consolidated financial statements effective January 1, 2002. However, in
the past, we have incurred non-cash losses on sales of assets when it was determined that
re-deployment of the proceeds from the sale of such assets improved operational strategy
and was economically beneficial. If such decisions are made in the future, we could
incur additional non-cash losses on asset sales. This is because, under SFAS 142 we
evaluate goodwill impairment based on a fair value approach at an overall reporting unit
level, which aggregates several business units with similar operational characteristics.
A divestiture of any individual asset below the reporting unit level could result in a
loss. Total net unamortized goodwill at December 31, 2001 is approximately $8.6 billion,
of which approximately $6.9 billion is not deductible for income tax purposes. Following
is the calculation of our estimated diluted earnings per share for the years ended
December 31, 2001 and 2000 without the impact of goodwill amortization (in thousands,
except per share amounts, unaudited):

|                                                                                       |  |              |         |      |  |   |         | 
|-------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                                                                       |  | Year Ended  
|                                                                                       |  | December 31,
|                                                                                       |  |             
|                                                                                       |  | 2001         |         | 2000
|                                                                                       |  |              |         |     
|Income before income taxes
(before extraordinary loss and including minority
interest) |  | $            | 266,293 |      |  | $ | 375,193 | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Add: goodwill amortization                                                             |  |              | 226,713 |      |  |   | 223,244 | 
|                                                                                       |  |              |         |      |  |   |         | 
|Income before goodwill amortization                                                    |  |              | 493,006 |      |  |   | 598,437 | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Less: income tax provision                                                             |  |              | 212,332 |      |  |   | 257,953 | 
|                                                                                       |  |              |         |      |  |   |         | 
|Net income                                                                             |  |              | 280,674 |      |  |   | 340,484 | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Less: dividends                                                                        |  |              | 73,012  |      |  |   |        | 
|                                                                                       |  |              |         |      |  |   |         | 
|Net income available to common shareholders                                            |  | $            | 207,662 |      |  | $ | 340,484 | 
|                                                                                       |  |              |         |      |  |   |         | 
|                                                                                       |  |              |         |      |  |   |         | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Weighted average common and
common equivalent shares                                   |  |              | 194,906 |      |  |   | 249,618 | 
|                                                                                       |  |              |         |      |  |   |         | 
|                                                                                       |  |              |         |      |  |   |         | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Diluted EPS, without goodwill
amortization                                             |  | $            | 1.07    |      |  | $ | 1.36    | 
|                                                                                       |  |              |         |      |  |   |         | 

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Risk Factors

Leverage and Ability to Service Debt.We have had and will likely continue to have a substantial
amount of outstanding indebtedness with significant debt service requirements. At December 31, 2001,
our consolidated debt was approximately $9.3 billion. The degree to which we are leveraged could
have important consequences. For example it could:

     make it more difficult for us to satisfy our obligations with respect to our debt;

     require us to dedicate a substantial portion of our cash flow from operations to payments on
our indebtedness, which would reduce the availability of our cash flow to fund working
capital, capital expenditures and for other general corporate purposes;

     increase our vulnerability to economic downturns in our industry;

     increase our vulnerability to interest rate increases to the extent any of our variable rate
debt is not hedged;

     place us at a competitive disadvantage compared to our competitors that have less debt in
relation to cash flow;

     limit our flexibility in planning for or reacting to changes in our business and our
industry;

     limit, among other things, our ability to borrow additional funds or obtain other credit
based financing capacity; and

     subject us to a greater risk of noncompliance with financial and other restrictive covenants
in our indebtedness. The failure to comply with these covenants could result in an event of
default which, if not cured or waived, could have a material negative effect on us.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To service our indebtedness, we will require a significant amount of cash. Our ability to
generate cash depends on many factors beyond our control. Our ability to make payment on our
indebtedness will depend on our ability to generate cash flow in the future. This, to a
certain extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Based on our current level of
operations, we believe our cash flow from operations, available cash and available borrowings
under our 1999 Credit Facility will be adequate to meet our liquidity needs for the
foreseeable future.

We cannot assure you, however, that our business will generate sufficient cash flow from operations,
or that future borrowings will be available to us under our 1999 Credit Facility in an amount
sufficient to enable us to pay our indebtedness or to fund other liquidity needs. We may need to
refinance all or a portion of our indebtedness before maturity. We cannot assure you that we will be
able to refinance any of our indebtedness, including our 1999 Credit Facility, on commercially
reasonable terms or at all.

Our 1999 Credit Facility, and certain of the agreements governing our other indebtedness contain
covenants that restrict our ability to make distributions or other payment to our investors and
creditors unless certain financial tests or other criteria are satisfied. We must also comply with
certain specified financial ratios and tests. In some cases, our subsidiaries are subject to similar
restrictions which may restrict their ability to make distributions to us. In addition, our credit
facility and these other agreements contain additional affirmative and negative covenants, including
limitation on our ability to incur additional indebtedness and to make acquisitions and capital
expenditures. All of these restrictions could affect our ability to operate our business and may
limit our ability to take advantage of potential business opportunities as they arise.

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If we do not comply with these covenants and restrictions, we could be in default under those
agreements, and the debt, together with accrued interest, could then be declared immediately due and
payable. If we default under our 1999 Credit Facility, the lenders could cause all of our
outstanding debt obligations under that credit facility to become due and payable, require us to
apply all of our cash to repay the indebtedness or prevent us from making debt service payments on
any other indebtedness we owe. If we are unable to repay any borrowings when due, the lenders under
our 1999 Credit Facility could proceed against their collateral, which includes most of the assets
we own, including the stock and assets of our subsidiaries. In addition, any default under our 1999
Credit Facility or agreements governing our other indebtedness could lead to an acceleration of debt
under other debt instruments that contain cross acceleration or cross-default provisions. Our
ability to comply with these provisions of our 1999 Credit Facility and other agreements governing
our other indebtedness may be affected by changes in the economic or business conditions or other
events beyond our control.

Competition. The non-hazardous waste collection and disposal industry is highly competitive. We
compete with large companies and municipalities which may have greater financial and operations
resources. We also compete with the use of alternatives to landfill disposal because of state
requirements to reduce landfill disposal and we can not ensure that our landfills will continue to
operate at full capacity. The non-hazardous waste collection and disposal industry is led by three
large national waste management companies: Allied, Waste Management, Inc., and Republic Services,
Inc. It also includes numerous regional and local companies. Many counties and municipalities that
operate their own waste collection and disposal facilities have the benefits of tax-exempt financing
and may control the disposal of waste collected within their jurisdictions.

We encounter competition due to the use of alternatives to landfill disposal, such as recycling and
incineration. Further, most of the states in which we operate landfills have adopted plans or
requirements that require counties to adopt comprehensive plans within the next few years to reduce
the volume of solid waste deposited in landfills through waste planning, composting and recycling or
other programs. State and local governments are increasingly mandating waste reduction at the source
and prohibiting the disposal of certain types of wastes, such as yard wastes, at landfills. These
trends may reduce the volume of waste going to landfills in certain areas. If this occurs, we cannot
assure that we will be able to operate our landfills at their full operating capacity or charge
current prices for landfill disposal services due to the decrease in demand for services. We also
encounter competition in our acquisition of landfills and collection operations. This competition is
due to our competitors interest in acquiring solid waste assets.

Business Strategy. Over the long term, our ability to continue to sustain our current vertical
integration strategy will depend on our ability to maintain appropriate landfill capacity,
collection operations and transfer stations. We cannot assure you that we will be able to replace
such assets either timely or cost effectively or integrate acquisition candidates effectively or
profitably. Further, we cannot assure you that we will be successful in expanding the permitted
capacity of our current landfills once our landfill capacity is full. In such event, we may have to
dispose collected waste at landfills operated by our competitors or haul the waste long distances at
a higher cost to another of our landfills, which could significantly increase our waste disposal
expenses.

In the past, we have incurred non-cash losses on sales of assets when it was determined that
re-deployment of the proceeds from the sale of such assets either to pay down debt or to purchase
other assets that improve our integrated operation strategy was economically beneficial. If such
decisions are made in the future, we could incur additional non-cash losses on asset sales.

Acquisitions may increase our capital requirements because acquisitions require sizable amounts of
capital, and competition with other solid waste companies that have a similar acquisition strategy
may increase prices. In addition, we cannot assure that we will successfully obtain the permits we
require to operate our business because permits to operate non-hazardous solid waste landfills and
to expand the permitted capacity of existing landfills have become increasingly difficult and
expensive to obtain. Permits often take years to obtain as a result of numerous hearings and
compliance with zoning, environmental and other regulatory measures. These permits are also often
subject to resistance from citizen or other groups. A failure to obtain the required permits to
operate non-hazardous solid waste landfills could have a material negative effect on our future
results of operations.

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Limited Operating History with Regard to Recently Acquired Businesses. During 1998, 1999 and 2000,
we acquired companies, including BFI, with annualized revenues of approximately $5.9 billion and
sold operations with annualized revenues of approximately $1.2 billion. Thus, we have only a limited
history of operating a significant portion of our business. It is also possible that we will acquire
landfills, collection operations and transfer stations in the future. Although we believe we have
substantially completed the integration of BFI, future acquisitions may pose integration problems
and expected financial benefits and operational efficiencies may not be realized. Our failure to
effectively integrate acquired operations could have a material negative effect on our future
results of operations and financial position.

Ongoing Capital Requirements. Our ability to remain competitive, sustain growth and expand
operations largely depends on our cash flow from operations and access to capital. We intend to fund
our cash needs through cash flow from operations and borrowings under our 1999 Credit Facility, if
necessary. However, we may require additional equity and/or debt financing for debt repayment
obligations and to fund our growth. We spent approximately $596.5 million for capital expenditures
and closure and post-closure and remediation expenditures related to our landfill operations during
2001, and we expect to spend approximately $760 million for these purposes in 2002. If we undertake
more acquisitions or further expand our operations, the amount we expend on capital, closure and
post-closure and remediation expenditures will increase. The increase in expenditures may result in
low levels of working capital or require us to finance working capital deficits.

Our cash needs will increase if the expenditures for closure and post-closure monitoring increase
above the current reserves taken for these costs. Expenditures for these costs may increase as a
result of any federal, state or local government regulatory action. These factors, together with
those discussed above, could substantially increase our operating costs and therefore impair our
ability to invest in our existing facilities or new facilities.

We are required to provide certain financial assurances to governmental agencies under applicable
environmental regulations relating to our landfill and collection operations. We are required to
provide approximately $1.6 billion in financial assurance obligations relating to our landfill
operations. Additionally we have approximately $460 million in operational performance bonds with
various municipalities and approximately $95 million of financial guarantee bonds for
self-insurance. These financial assurances include surety bonds, letters of credit, insurance
policies and trust deposits required principally to secure our estimated landfill closure and
post-closure obligations and collection contracts. The mix of financial assurance instruments may
change in the future, which may result in an increased use of letters of credit as financial
assurance instruments. Letters of credit provided as financial assurance are issued under the 1999
Credit Facility and as such are a use of borrowing availability.

Our ability to pay our debt obligations or to refinance our indebtedness depends on our future
performance. Our future performance may be affected by general economic, financial, competitive,
legislative, regulatory and other factors beyond our control. We believe that our current available
cash flow and borrowings available under our 1999 Credit Facility and other sources of liquidity
will be sufficient to meet our anticipated future requirements for working capital, letters of
credit, closure, post-closure and remediation expenditures, acquisition related expenditures and
capital expenditures.

We may need to refinance our 2001 senior notes, the 1999 Credit Facility, the 1999 senior
subordinated notes, the assumed BFI debt, the 1998 senior notes, and/or other indebtedness to pay
the principal amounts due at maturity. In addition, we may need additional capital to fund future
acquisitions and the integration of solid waste businesses. We cannot assure that our business will
generate sufficient cash flow or that we will be able to obtain sufficient funds to enable us to pay
our debt obligations and capital expenditures. In addition, we may be unable to refinance our debt
obligation on commercially reasonably terms or at all.

At December 31, 2001, approximately 96% of our debt was fixed, 64% directly, and 32% through
interest rate swap agreements. The amount of this swap contract portfolio was $2.887 billion.
Upon the de-designation of $1.475 billion of this portfolio, non-cash mark to market gains and
losses based on changes in future yield curves will be recorded in the statement of operations.
Decreases in the yield curves could result in non-cash losses being recorded in the statement of
operations.

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Economic Conditions.Our business is affected by general economic conditions. The weakening in the
U. S. economy has had a negative effect on our operating results, including decreases in revenues
and EBITDA. Additionally, as is expected in a down-cycle economic environment, we have experienced
the negative effects of reductions in the rate of volume growth at our landfills, as well as
increased competitive pricing pressure and customer turnover. The events of September 11th further
exacerbated difficult conditions in the U.S. economy and our industry generally. If economic
conditions continue to deteriorate, that will continue to put pressure on the volume of waste being
disposed at our facilities and the pricing that we are able to achieve for our services. In
addition, worsening economic conditions may lead to further negative effects of customer turnover.
There can be no assurance that worsening economic conditions or a prolonged or recurring recession
will not have a significant adverse impact on our operating results.

Seasonal Weather Conditions.Our collection and landfill operations could be adversely affected by
long periods of inclement weather which interfere with collection and landfill operations, delay the
development of landfill capacity and/or reduce the volume of waste generated by our customers. In
addition, certain of our operations may be temporarily suspended as a result of particularly harsh
weather conditions. Severe weather can negatively affect the costs of collection and disposal. Long
periods of inclement weather could have an adverse effect on our results of operations.

Dependence on Senior Management.We depend highly upon our senior management team. We will continue
to require operations management personnel with waste industry experience. We do not know the
availability of such experienced management personnel or how much it may cost to attract and retain
such personnel. The loss of the services of any member of senior management or the inability to hire
experienced operations management personnel could materially adversely affect our operations and
financial condition.

Influence of Government Regulation and Other Third Party Actions.Our equipment, facilities, and
operations are subject to extensive and changing federal, state, and local environmental laws and
regulations relating to environmental protection and occupational health and safety. These include,
among other things, laws and regulations governing the use, treatment, storage, and disposal of
solid and hazardous wastes and materials, air quality, water quality and the remediation of
contamination associated with the release of hazardous substances.

Our compliance with regulatory requirements is costly. We are often required to enhance or replace
our equipment and to modify landfill operations or initiate final closure of a landfill. We cannot
assure you that we will be able to implement price increases sufficient to offset the cost of
complying with these standards. In addition, environmental regulatory changes could accelerate or
increase expenditures for closure and post-closure monitoring at solid waste facilities and obligate
us to spend sums in addition to those presently accrued for such purposes.

In addition to the costs of complying with environmental regulations, we incur costs to defend
against litigation brought by government agencies and private parties who allege we are in violation
of our permits. As a result, we may be required to pay fines or may lose certain permits and
licenses. We are, and also may be in the future, defendants in lawsuits brought by governmental
agencies and surrounding landowners who assert claims alleging environmental damage, personal
injury, property damage and/or violations of permits and licenses by us. A significant judgment
against us, the loss of a significant permit or license or the imposition of a significant fine
could have a material negative effect on our financial condition.

Certain of our waste disposal operations traverse state and county boundaries. In the future, our
collection, transfer and landfill operations may also be affected by proposed federal legislation
that authorizes the states to enact legislation governing interstate shipments of waste. Such
proposed federal legislation may allow individual states to prohibit or limit importing out-of-state
waste to be disposed of and may require states, under certain circumstances, to reduce the amount of
waste exported to other states. If this or similar legislation is enacted in states in which we
operate landfills that receive a significant portion of waste originating from out-of-state, our
operations could be negatively affected. We believe that several states have proposed or have
considered adopting legislation that would regulate the interstate transportation and disposal of
waste in the states landfills. Our collection, transfer and landfill operations may also be
affected by flow control legislation which may be proposed in the United States Congress. This
proposed federal legislation may allow states and local governments to direct waste generated within
their jurisdiction to a specific facility for disposal or processing. If this or similar legislation
is enacted, state or local governments with jurisdiction over our landfills could act to limit or
prohibit disposal or processing of waste in our landfills.

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Potential Environmental Liability.We may incur liabilities for the deterioration of the environment
as a result of our operations. Any substantial liability for environmental damage could materially
adversely affect our operating results and financial condition. Due to the limited nature of our
insurance coverage of environmental liability, if we were to incur substantial financial liability
for environmental damage, our business and financial condition could be materially adversely
affected.

Hazardous Substances Liability.We are a potentially responsible party at many sites under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or CERCLA,
and analogous state laws. CERCLA has been interpreted to impose strict, joint and several liability
on current and former owners or operators of a facility at which there has been a release or a
threatened release of a hazardous substance, on persons who arrange for the disposal of such
substances at the facility and on persons who transport such substances to facilities selected by
such persons. Hundreds of substances are defined as hazardous under CERCLA and their presence,
even in minute amounts, can result in substantial liability. As used in this report, non-hazardous
waste means substances that are not defined as hazardous waste under federal regulations. The
statute provides for the remediation of contaminated facilities and imposes costs on the responsible
parties. The expense of conducting such a cleanup can be significant. We have significant
liabilities under these laws, primarily due to acquired businesses and properties and their former
operations. Notwithstanding our efforts to comply with applicable regulations and to avoid
transporting and receiving hazardous substances, we may have additional liability because such
substances may be present in waste collected by us or disposed of in our landfills, or in waste
collected, transported or disposed of in the past by acquired companies. In addition, actual costs
for these liabilities could be significantly greater than amounts presently accrued for these
purposes.

Potential Undisclosed Liabilities Associated with our Acquisitions. In connection with any
acquisition made by us, there may be liabilities that we fail to discover or are unable to discover
including liabilities arising from non-compliance with environmental laws by prior owners and for
which we, as successor owner, may be responsible. Similarly, we incur capitalized costs associated
with acquisitions or other business ventures, which may never be consumated, resulting in a
potential charge to earnings.

Inflation and Prevailing Economic Conditions

To date, inflation has not had a significant impact on our operations. Consistent with industry
practice, most of our contracts provide for a pass through of certain costs, including increases in
landfill tipping fees and, in some cases, fuel costs. We therefore believe we should be able to
implement price increases sufficient to offset most cost increases resulting from inflation.
However, competitive factors may require us to absorb cost increases resulting from inflation. We
are unable to determine the future impact of a sustained economic slowdown.

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Item 7A.Quantitative and Qualitative Disclosures About Market Risk

We are subject to interest rate risk on our variable rate long-term debt. To moderate the risk from interest rate
fluctuations, we enter into hedging transactions that have been authorized pursuant to our policies and procedures. We
do not use financial instruments for trading purposes and are not a party to any leveraged derivatives.

We have effectively converted a significant portion of our long-term debt, which required payment at variable rates of
interest, to fixed rate obligations through interest rate swap transactions. These transactions required us to pay
fixed rates of interest on notional amounts of principal to counter-parties. The counter-parties, in turn, paid to us
variable rates of interest on the same notional amounts of principal. Increases or decreases in short-term market rates
did not materially impact earnings and cash flow in 2001 as a significant portion of variable rate debt had been
swapped for fixed rates. The following interest rate table summarizes all interest rate swaps that were in effect and
their fair value as of December 31, 2001:

|                   |  |                     |  |               |      |                        |  |                                    |  |                |  |   |          |   |  |       |  |             |  | 
|------------------ |  | ------------------- |  | ------------- | ---- | ---------------------- |  | ---------------------------------- |  | -------------- |  | - | -------- | - |  | ----- |  | ----------- |  | 
|                   |  |                     |  |               |      |                        |  |                                    |  |                |  |   |          |   |  |       |  | Fair Market
|Notional Principal |  |                     |  |               |      |                        |  |                                    |  |                |  |   |          |   |  | Value
|(in thousands)     |  | Maturity            |  | Interest Paid |      | Underlying Obligations |  | Interest Received                  |  | (in thousands)
|                   |  |                     |  |               |      |                        |  |                                    |  |               
|$2,886,822         |  | May 2002-March 2005 |  |               | 6.29 | %                      |  | Credit
AgreementTerm Loan Facility |  | Libor          |  | $ | (140,693 | )

At December 31, 2001, 96% of our debt was fixed either directly or through interest rate swap agreements. Accordingly,
any changes in interest rates would have a minimal impact on our net income. See Notes 1 and 6 to our Consolidated
Financial Statements in Item 8 of this Form 10-K for additional information regarding how we manage interest rate risk.

41



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##### Table of Contents






Item 8.Financial Statements and Supplementary Data

Report of Independent Public Accountants.

Consolidated Balance Sheets as of December 31, 2001 and 2000.

Consolidated Statements of Operations for the Three Years Ended December 31, 2001.

Consolidated Statements of Stockholders Equity for the Three Years Ended December 31, 2001.

Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2001.

Notes to Consolidated Financial Statements.

42



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##### Table of Contents



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,
2001 and 2000, and the related consolidated statements of operations,
stockholders equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements and the schedule referred
to below 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 auditing standards generally
accepted in the United States. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

As explained in Note 1 to the financial statements, effective January 1, 1999,
the Company changed its method of accounting for the capitalization of
interest, and effective January 1, 2001, the Company changed its method for
accounting for derivatives.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II listed in Item 14 of Part IV
herein is presented for purposes of complying with the Securities and Exchange
Commissions rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Phoenix, Arizona
February 8, 2002

43



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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

|                                                                                                                                                                                  |                                            |   |              |            |      |   |           |            | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------------ | ---------- | ---- | - | --------- | ---------- | 
|                                                                                                                                                                                  |                                            |   | December 31,
|                                                                                                                                                                                  |                                            |   |             
|                                                                                                                                                                                  |                                            |   | 2001         |            | 2000
|                                                                                                                                                                                  |                                            |   |              |            |     
|ASSETS                                                                                                                                                                            |                                            |   |              |            |      |   |           |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Current Assets                                                                                                                                                                   |                                            |   |              |            |      |   |           |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Cash and cash equivalents                                                                                                                                                         |                                            | $ | 158,841      |            |      | $ | 122,094   |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accounts receivable, net of allowance of $31,876 and $43,099                                                                                                                      |                                            |   | 751,416      |            |      |   | 823,259   |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Prepaid and other current assets                                                                                                                                                  |                                            |   | 132,026      |            |      |   | 119,483   |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Deferred income taxes, net                                                                                                                                                        |                                            |   | 156,203      |            |      |   | 206,867   |           
|                                                                                                                                                                                  |                                            |   |              |            |      |   |           |           
|                                                                                                                                                                                  | Total current assets                       |   |              | 1,198,486  |      |   |           | 1,271,703  | 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Property and equipment, net                                                                                                                                                       |                                            |   | 4,010,886    |            |      |   | 3,860,538 |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Goodwill, net                                                                                                                                                                     |                                            |   | 8,556,877    |            |      |   | 8,717,438 |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Other assets, net                                                                                                                                                                 |                                            |   | 580,844      |            |      |   | 663,955   |           
|                                                                                                                                                                                  |                                            |   |              |            |      |   |           |           
|                                                                                                                                                                                  | Total assets                               |   | $            | 14,347,093 |      |   | $         | 14,513,634 | 
|                                                                                                                                                                                  |                                            |   |              |            |      |   |           |           
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                              |                                            |   |              |            |      |   |           |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Current Liabilities                                                                                                                                                              |                                            |   |              |            |      |   |           |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Current portion of long-term debt                                                                                                                                                 |                                            | $ | 22,130       |            |      | $ | 13,997    |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accounts payable                                                                                                                                                                  |                                            |   | 456,063      |            |      |   | 476,333   |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accrued closure, post-closure and environmental costs                                                                                                                             |                                            |   | 126,885      |            |      |   | 153,226   |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accrued interest                                                                                                                                                                  |                                            |   | 192,872      |            |      |   | 165,954   |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Other accrued liabilities                                                                                                                                                         |                                            |   | 402,816      |            |      |   | 564,154   |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Unearned revenue                                                                                                                                                                  |                                            |   | 232,769      |            |      |   | 226,088   |           
|                                                                                                                                                                                  |                                            |   |              |            |      |   |           |           
|                                                                                                                                                                                  | Total current liabilities                  |   |              | 1,433,535  |      |   |           | 1,599,752  | 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Long-term debt, less current portion                                                                                                                                              |                                            |   | 9,237,503    |            |      |   | 9,635,124 |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Deferred income taxes                                                                                                                                                             |                                            |   | 418,836      |            |      |   | 358,637   |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accrued closure, post-closure and environmental costs                                                                                                                             |                                            |   | 878,006      |            |      |   | 880,580   |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Other long-term obligations                                                                                                                                                       |                                            |   | 624,390      |            |      |   | 271,882   |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Commitments
and contingencies
Series A senior convertible preferred stock, 1,000 shares
authorized, issued and outstanding, liquidation
preference of $1,169 and $1,096 per share |                                            |   | 1,169,044    |            |      |   | 1,096,046 |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Stockholders Equity                                                                                                                                                            
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Common stock                                                                                                                                                                      |                                            |   | 1,962        |            |      |   | 1,961     |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Additional paid-in capital                                                                                                                                                        |                                            |   | 1,055,353    |            |      |   | 1,114,554 |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accumulated other comprehensive loss                                                                                                                                              |                                            |   | (85,120      | )          |      |   |          |           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Retained deficit                                                                                                                                                                  |                                            |   | (386,416     | )          |      |   | (444,902  | )         
|                                                                                                                                                                                  |                                            |   |              |            |      |   |           |           
|                                                                                                                                                                                  | Total stockholders equity                 |   |              | 585,779    |      |   |           | 671,613    | 
|                                                                                                                                                                                  |                                            |   |              |            |      |   |           |           
|                                                                                                                                                                                  | Total liabilities and stockholders equity |   | $            | 14,347,093 |      |   | $         | 14,513,634 | 
|                                                                                                                                                                                  |                                            |   |              |            |      |   |           |           

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

44



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##### Table of Contents



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

|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | - | ----------------------- | --------- | ---- | - | --------- | --------- |  | - | --------- | -------- | -
|                                                                                                                                                            |                                                                                                 |   | Year Ended December 31,
|                                                                                                                                                            |                                                                                                 |   |                        
|                                                                                                                                                            |                                                                                                 |   | 2001                    |           | 2000 |   | 1999     
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |          
|Revenues                                                                                                                                                    |                                                                                                 | $ | 5,565,260               |           |      | $ | 5,707,485 |           |  | $ | 3,341,071 |         
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Cost of operations excluding acquisition related and unusual costs                                                                                          |                                                                                                 |   | 3,195,209               |           |      |   | 3,280,027 |           |  |   | 1,948,964 |         
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Selling, general and administrative expenses excluding acquisition
related and unusual costs                                                                |                                                                                                 |   | 438,744                 |           |      |   | 417,558   |           |  |   | 231,366   |         
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Depreciation and amortization                                                                                                                               |                                                                                                 |   | 466,323                 |           |      |   | 450,794   |           |  |   | 273,368   |         
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Goodwill amortization                                                                                                                                       |                                                                                                 |   | 226,713                 |           |      |   | 223,244   |           |  |   | 110,726   |         
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Acquisition related and unusual costs                                                                                                                       |                                                                                                 |   | 27,785                  |           |      |   | 100,841   |           |  |   | 588,855   |         
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Non-cash loss on asset sale                                                                                                                                 |                                                                                                 |   | 107,011                 |           |      |   | 26,486    |           |  |   |          |         
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|                                                                                                                                                            | Operating income                                                                                |   |                         | 1,103,475 |      |   |           | 1,208,535 |  |   |           | 187,792  |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Equity in earnings of unconsolidated affiliates                                                                                                             |                                                                                                 |   | (14,072                 | )         |      |   | (50,788   | )         |  |   | (20,785   | )       
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Interest income                                                                                                                                             |                                                                                                 |   | (6,072                  | )         |      |   | (4,127    | )         |  |   | (7,212    | )       
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Interest expense                                                                                                                                            |                                                                                                 |   | 853,653                 |           |      |   | 882,282   |           |  |   | 443,044   |         
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|                                                                                                                                                            | Income (loss) before income taxes                                                               |   |                         | 269,966   |      |   |           | 381,168   |  |   |           | (227,255 | )
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Income tax expense (benefit)                                                                                                                                |                                                                                                 |   | 190,834                 |           |      |   | 237,540   |           |  |   | (8,756    | )       
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Minority interest                                                                                                                                           |                                                                                                 |   | 3,673                   |           |      |   | 5,975     |           |  |   | 2,751     |         
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|                                                                                                                                                            | Income (loss) before extraordinary loss and cumulative effect of
change in accounting principle |   |                         | 75,459    |      |   |           | 137,653   |  |   |           | (221,250 | )
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Extraordinary loss, net of income tax benefit                                                                                                               |                                                                                                 |   | 16,973                  |           |      |   | 13,266    |           |  |   | 3,223     |         
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Cumulative effect of change in accounting principle, net of income
tax benefit                                                                              |                                                                                                 |   |                        |           |      |   |          |           |  |   | 64,255    |         
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|                                                                                                                                                            | Net income (loss)                                                                               |   |                         | 58,486    |      |   |           | 124,387   |  |   |           | (288,728 | )
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Dividends on preferred stock                                                                                                                                |                                                                                                 |   | 73,012                  |           |      |   | 68,452    |           |  |   | 27,789    |         
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|                                                                                                                                                            | Net income (loss) available to common shareholders                                              |   | $                       | (14,526   | )    |   | $         | 55,935    |  |   | $         | (316,517 | )
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|Basic EPS:                                                                                                                                                  |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Income (loss) available to common shareholders before extraordinary
loss and cumulative effect of change in accounting principle, net
of income tax benefit |                                                                                                 | $ | 0.01                    |           |      | $ | 0.37      |           |  | $ | (1.33     | )       
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Extraordinary loss, net of income tax benefit                                                                                                               |                                                                                                 |   | (0.08                   | )         |      |   | (0.07     | )         |  |   | (0.02     | )       
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Cumulative effect of change in accounting principle, net of income
tax benefit                                                                              |                                                                                                 |   |                        |           |      |   |          |           |  |   | (0.34     | )       
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|                                                                                                                                                            | Net income (loss) available to common shareholders                                              |   | $                       | (0.07     | )    |   | $         | 0.30      |  |   | $         | (1.69    | )
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|Weighted average common shares                                                                                                                              |                                                                                                 |   | 189,583                 |           |      |   | 188,814   |           |  |   | 187,801   |         
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|Diluted EPS:                                                                                                                                                |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Income (loss) available to common shareholders before extraordinary
loss and cumulative effect of change in accounting principle, net
of income tax benefit |                                                                                                 | $ | 0.01                    |           |      | $ | 0.36      |           |  | $ | (1.33     | )       
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Extraordinary loss, net of income tax benefit                                                                                                               |                                                                                                 |   | (0.08                   | )         |      |   | (0.07     | )         |  |   | (0.02     | )       
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Cumulative effect of change in accounting principle, net of income
tax benefit                                                                              |                                                                                                 |   |                        |           |      |   |          |           |  |   | (0.34     | )       
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|                                                                                                                                                            | Net income (loss) available to common shareholders                                              |   | $                       | (0.07     | )    |   | $         | 0.29      |  |   | $         | (1.69    | )
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         
|Weighted average common and common equivalent shares                                                                                                        |                                                                                                 |   | 194,906                 |           |      |   | 191,122   |           |  |   | 187,801   |         
|                                                                                                                                                            |                                                                                                 |   |                         |           |      |   |           |           |  |   |           |         

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

45



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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)

|                                |                                                                   |                                                                |       |        |   |                    |           |                    |   |          |         |               |         |              |          |          |   |   |         |          |         |                     |          |               |         |  
|------------------------------- | ----------------------------------------------------------------- | -------------------------------------------------------------- | ----- | ------ | - | ------------------ | --------- | ------------------ | - | -------- | ------- | ------------- | ------- | ------------ | -------- | -------- | - | - | ------- | -------- | ------- | ------------------- | -------- | ------------- | ------- | -
|                                |                                                                   |                                                                |       |        |   |                    |           |                    |   |          |         |               |         |              |          |          |   |   |         |          |         |                     |          | Comprehensive
|                                |                                                                   |                                                                |       |        |   |                    |           |                    |   |          |         |               |         |              |          |          |   |   |         | Total    |         | Loss for the Twelve
|                                |                                                                   |                                                                |       | Common |   | Additional Paid-In |           | Accumulated        |   | Retained |         | Stockholders' |         | Months Ended
|                                |                                                                   |                                                                |       | Stock  |   | Capital            |           | Comprehensive Loss |   | Deficit  |         | Equity        |         | December 31,
|                                |                                                                   |                                                                |       |        |   |                    |           |                    |   |          |         |               |         |             
|                               
|                               
|                               
|                               
|                                | Common stock issued, net                                          |                                                                | $     | 2      |   |                    | $         | 220                |   |          | $       |              |         |              | $        |         |   |   | $       | 222      |         |                     |          |               |        
|                               
|                               
|                               
|                               
|                                | Stock options, net                                                |                                                                |       | 14     |   |                    |           | 20,480             |   |          |         |              |         |              |          |         |   |   |         | 20,494   |         |                     |          |               |        
|                               
|                               
|                               
|                               
|                                | Dividends declared on Series A
senior convertible preferred
stock |                                                                |       |       |   |                    |           | (27,789            | ) |          |         |              |         |              |          |         |   |   |         | (27,789  | )       |                     |          |               |        
|                               
|                               
|                               
|                               
|                                | Net loss                                                          |                                                                |       |       |   |                    |           |                   |   |          |         |              |         |              |          | (288,728 | ) |   |         | (288,728 | )       |                     | $        | (288,728      | )      
|                               
|                               
|                               
|                               
|                                | Equity transactions of pooled
Companies                           |                                                                |       | 24     |   |                    |           | 3,582              |   |          |         |              |         |              |          | 117      |   |   |         | 3,723    |         |                     |          |               |        
|                               
|                               
|                               
|                               
|                                | Other comprehensive income, net
of tax                            |                                                                |       |       |   |                    |           |                   |   |          |         |              |         |              |          |         |   |   |         |         |         |                     |          |              |        
|                                |                                                                   |                                                                |       |        |   |                    |           |                    |   |          |         |               |         |              |          |          |   |   |         |          |         |                     |          |               |        
|Balance as of December 31, 1999 |                                                                   | $                                                              | 1,885 |        |   | $                  | 1,179,181 |                    |   | $        |        |               |         | $            | (569,289 | )        |   | $ | 611,777 |          |         | $                   | (288,728 | )            
|                                |                                                                   |                                                                |       |        |   |                    |           |                    |   |          |         |               |         |              |          |          |   |   |         |          |         |                     |          |               |        
|                               
|                               
|                               
|                               
|                                | Common stock issued, net                                          |                                                                |       | 73     |   |                    |           | 2,670              |   |          |         |              |         |              |          |         |   |   |         | 2,743    |         |                     |          |               |        
|                               
|                               
|                               
|                               
|                                | Stock options, net                                                |                                                                |       | 3      |   |                    |           | 1,155              |   |          |         |              |         |              |          |         |   |   |         | 1,158    |         |                     |          |               |        
|                               
|                               
|                               
|                               
|                                | Dividends declared on Series A
senior convertible preferred
stock |                                                                |       |       |   |                    |           | (68,452            | ) |          |         |              |         |              |          |         |   |   |         | (68,452  | )       |                     |          |               |        
|                               
|                               
|                               
|                               
|                                | Net income                                                        |                                                                |       |       |   |                    |           |                   |   |          |         |              |         |              |          | 124,387  |   |   |         | 124,387  |         |                     | $        | 124,387       |        
|                               
|                               
|                               
|                               
|                                | Other comprehensive income, net
of tax                            |                                                                |       |       |   |                    |           |                   |   |          |         |              |         |              |          |         |   |   |         |         |         |                     |          |              |        
|                                |                                                                   |                                                                |       |        |   |                    |           |                    |   |          |         |               |         |              |          |          |   |   |         |          |         |                     |          |               |        
|Balance as of December 31, 2000 |                                                                   | $                                                              | 1,961 |        |   | $                  | 1,114,554 |                    |   | $        |        |               |         | $            | (444,902 | )        |   | $ | 671,613 |          |         | $                   | 124,387  |              
|                                |                                                                   |                                                                |       |        |   |                    |           |                    |   |          |         |               |         |              |          |          |   |   |         |          |         |                     |          |               |        
|                                | Common stock issued, net                                          |                                                                |       | (6     | ) |                    |           | 5,477              |   |          |         |              |         |              |          |         |   |   |         | 5,471    |         |                     |          |               |        
|                               
|                               
|                               
|                               
|                                | Stock options, net                                                |                                                                |       | 7      |   |                    |           | 8,334              |   |          |         |              |         |              |          |         |   |   |         | 8,341    |         |                     |          |               |        
|                               
|                               
|                               
|                               
|                                | Dividends declared on Series A
senior convertible preferred
stock |                                                                |       |       |   |                    |           | (73,012            | ) |          |         |              |         |              |          |         |   |   |         | (73,012  | )       |                     |          |               |        
|                               
|                               
|                               
|                               
|                                | Net income                                                        |                                                                |       |       |   |                    |           |                   |   |          |         |              |         |              |          | 58,486   |   |   |         | 58,486   |         |                     | $        | 58,486        |        
|                               
|                               
|                               
|                               
|                                | Other comprehensive loss, net of
tax:                             |                                                                |       |        |   |                    |           |                    |   |          |         |               |         |              |          |          |   |   |         |          |         |                     |          |               |        
|                               
|                               
|                               
|                               
|                                |                                                                   | Cumulative effect of change in
accounting principle            |       |        |  |                    |           |                    |  |          |         |               | (45,193 | )            |          |          |  |   |         |          | (45,193 | )                   |          |               | (45,193 | )
|                               
|                               
|                               
|                               
|                                |                                                                   | Net loss deferred on hedging
derivatives                       |       |        |  |                    |           |                    |  |          |         |               | (89,194 | )            |          |          |  |   |         |          | (89,194 | )                   |          |               | (89,194 | )
|                               
|                               
|                               
|                               
|                                |                                                                   | Less: Net loss on hedging
derivatives reclassified to
earnings |       |        |  |                    |           |                    |  |          |         |               | 49,267  |              |          |          |  |   |         |          | 49,267  |                     |          |               | 49,267  |  
|                                |                                                                   |                                                                |       |        |   |                    |           |                    |   |          |         |               |         |              |          |          |   |   |         |          |         |                     |          |               |        
|Balance as of December 31, 2001 |                                                                   | $                                                              | 1,962 |        |   | $                  | 1,055,353 |                    |   | $        | (85,120 | )             |         | $            | (386,416 | )        |   | $ | 585,779 |          |         | $                   | (26,634  | )            
|                                |                                                                   |                                                                |       |        |   |                    |           |                    |   |          |         |               |         |              |          |          |   |   |         |          |         |                     |          |               |        

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

46



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##### Table of Contents



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

|                                                                                            |                                                                                             |   |                         |            |      |   |          |            |   |   |            |            |  
|------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | - | ----------------------- | ---------- | ---- | - | -------- | ---------- | - | - | ---------- | ---------- | -
|                                                                                            |                                                                                             |   | Year Ended December 31,
|                                                                                            |                                                                                             |   |                        
|                                                                                            |                                                                                             |   | 2001                    |            | 2000 |   | 1999    
|                                                                                            |                                                                                             |   |                         |            |      |   |         
|Operating activities                                                                       |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Net income (loss)                                                                           |                                                                                             | $ | 58,486                  |            |      | $ | 124,387  |            |   | $ | (288,728   | )         
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Adjustments to reconcile net income (loss) to cash provided by operating
activities        |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Provisions for:                                                                             |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Depreciation and amortization                                                               |   |                         | 693,036    |      |   |          | 674,038    |   |   |            | 384,094    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Non-cash acquisition related and unusual costs and loss on asset sales                      |   |                         | 107,011    |      |   |          | 26,486     |   |   |            | 105,186    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Cumulative effect of change in accounting principle, net of income tax benefit              |   |                         |           |      |   |          |           |   |   |            | 64,255     |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Undistributed earnings of equity investment in unconsolidated affiliates                    |   |                         | (14,072    | )    |   |          | (38,190    | ) |   |            | 13,217     |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Doubtful accounts                                                                           |   |                         | 23,937     |      |   |          | 19,463     |   |   |            | 10,305     |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Accretion of debt and amortization of debt issuance costs                                   |   |                         | 42,658     |      |   |          | 44,219     |   |   |            | 27,155     |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Deferred income tax provision (benefit)                                                     |   |                         | 169,533    |      |   |          | 193,054    |   |   |            | (115,964   | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Gain on sale of fixed assets                                                                |   |                         | (13,862    | )    |   |          | (10,513    | ) |   |            | (5,346     | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Extraordinary loss due to early extinguishments of debt, net of income tax
benefit          |   |                         | 12,348     |      |   |          | 13,266     |   |   |            | 3,223      |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Change in operating assets and liabilities, excluding the effects of purchase
acquisitions |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Accounts receivable, prepaid expenses, inventories and other                                |   |                         | (8,376     | )    |   |          | 3,238      |   |   |            | (100,586   | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Accounts payable, accrued liabilities, unearned income, stock option tax
benefits and other |   |                         | (21,951    | )    |   |          | (41,859    | ) |   |            | 13,099     |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Non-recurring acquisition accruals                                                          |   |                         | (115,106   | )    |   |          | (167,542   | ) |   |            | 382,643    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Closure and post-closure provision                                                          |   |                         | 67,202     |      |   |          | 61,727     |   |   |            | 35,242     |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Closure, post-closure and environmental expenditures                                        |   |                         | (95,630    | )    |   |          | (98,458    | ) |   |            | (38,784    | )
|                                                                                            |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|Cash provided by operating activities                                                       |                                                                                             |   | 905,214                 |            |      |   | 803,316  |            |   |   | 489,011    |           
|                                                                                            |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|Investing activities                                                                       |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Cost of acquisitions, net of cash acquired                                                  |   |                         | (249,462   | )    |   |          | (802,876   | ) |   |            | (7,589,597 | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Proceeds from divestitures, net of cash divested                                            |   |                         | 359,866    |      |   |          | 1,039,182  |   |   |            | 468,880    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Accruals for acquisition price and severance costs                                          |   |                         | (1,668     | )    |   |          | (27,820    | ) |   |            | 15,171     |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Net distributions from (contributions to) unconsolidated affiliates                         |   |                         |           |      |   |          | 15,372     |   |   |            | (17,011    | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Capital expenditures, excluding acquisitions                                                |   |                         | (500,912   | )    |   |          | (389,918   | ) |   |            | (339,192   | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Capitalized interest                                                                        |   |                         | (45,704    | )    |   |          | (45,352    | ) |   |            | (25,474    | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Proceeds from sale of fixed assets                                                          |   |                         | 30,879     |      |   |          | 42,874     |   |   |            | 53,246     |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Change in deferred acquisition costs, notes receivable and other                            |   |                         | (27,047    | )    |   |          | (41,413    | ) |   |            | (28,555    | )
|                                                                                            |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|Cash used for investing activities                                                          |                                                                                             |   | (434,048                | )          |      |   | (209,951 | )          |   |   | (7,462,532 | )         
|                                                                                            |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|Financing activities                                                                       |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Net proceeds from sale of common stock and exercise of stock options
and warrants           |   |                         | 6,401      |      |   |          | 1,724      |   |   |            | 10,198     |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Net proceeds from sale of preferred stock                                                   |   |                         |           |      |   |          |           |   |   |            | 973,881    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Proceeds from long-term debt, net of issuance costs                                         |   |                         | 2,755,829  |      |   |          | 2,202,000  |   |   |            | 8,672,295  |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Repayments of long-term debt                                                                |   |                         | (3,196,649 | )    |   |          | (2,796,400 | ) |   |            | (2,601,190 | )
|                                                                                            |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|Cash provided by (used for) financing activities                                            |                                                                                             |   | (434,419                | )          |      |   | (592,676 | )          |   |   | 7,055,184  |           
|                                                                                            |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|Increase in cash and cash equivalents                                                       |                                                                                             |   | 36,747                  |            |      |   | 689      |            |   |   | 81,663     |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Cash and cash equivalents, beginning of year                                                |                                                                                             |   | 122,094                 |            |      |   | 121,405  |            |   |   | 39,742     |           
|                                                                                            |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           
|Cash and cash equivalents, end of year                                                      |                                                                                             | $ | 158,841                 |            |      | $ | 122,094  |            |   | $ | 121,405    |           
|                                                                                            |                                                                                             |   |                         |            |      |   |          |            |   |   |            |           

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

47



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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Organization and Summary of Significant Accounting Policies

Allied Waste Industries, Inc., (Allied, we or the Company), a Delaware
corporation, is the second largest, non-hazardous solid waste management
company in the United States, as measured by revenues. We provide non-hazardous
waste collection, transfer, recycling and disposal services in 39 states
geographically identified as the Atlantic, Central, Great Lakes, Midwest,
Northeast, Southeast, Southwest and West regions of the United States.

On July 30, 1999, we completed the acquisition of Browning-Ferris Industries,
Inc. (BFI) for approximately $7.7 billion of cash and the assumption of
approximately $1.9 billion of BFI debt. Prior to the acquisition, BFI was the
second largest non-hazardous solid waste company in North America and provided
integrated solid waste management services, including residential, commercial
and industrial collection, transfer, disposal and recycling.

Principles of consolidation and presentation 

The Consolidated Financial Statements include the accounts of Allied and our
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation.

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

Cash and cash equivalents 

The Company utilizes a cash management system under which a book balance cash
overdraft exists for the Companys primary disbursement accounts. This
overdraft represents uncleared checks in excess of cash balances in bank
accounts. The Companys funds are transferred on an as-needed basis to pay for
clearing checks. At December 31, 2001 and 2000, cash overdrafts of $147.0
million and $149.5 million, respectively, were included in accounts payable.
The Company considers any liquid investments with an original maturity of three
months or less to be cash equivalents. Amounts are stated at quoted market
prices.

Concentration of credit risk 

Financial instruments that potentially subject us to concentrations of credit
risk consist of cash and cash equivalents and trade receivables. We place our
cash and cash equivalents with high quality financial institutions and manage
the amount of credit exposure with any one financial institution.

We provide services to approximately 10 million residential, commercial and
industrial customers throughout the United States. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers comprising our customer base. We perform ongoing credit evaluations
of our customers, but do not require collateral to support customer
receivables. We establish an allowance for doubtful accounts based on payment
performance factors, historical trends and other information.

48



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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill

Goodwill is the cost in excess of fair value of identifiable assets in business
combinations accounted for using the purchase method of accounting and has been
amortized on a straight-line basis over 40 years. We have not amortized any
goodwill for assets acquired subsequent to June 30, 2001 and beginning January
1, 2002, we no longer amortize any goodwill in accordance with the adoption of
Statement of Financial Accounting Standards No. 142, (SFAS 142), Goodwill and
Other Intangible Assets. See recently issued accounting pronouncements. We
have allocated goodwill when appropriate, to the operating assets based on a
percentage of acquired assets earnings before interest, taxes, depreciation
and amortization (EBITDA) to the total acquired EBITDA. We review goodwill
for impairment whenever events or changes in circumstances indicate that the
remaining estimated useful life of goodwill might warrant revision or that the
balance may not be recoverable. We evaluate possible impairment by comparing
estimated future cash flows, before interest expense and on an undiscounted
basis, to the net book value of assets including goodwill. If undiscounted cash
flows are insufficient to recover assets, further analysis is performed in
order to determine the amount of the impairment. We record an impairment loss
equal to the amount by which the carrying amount of the assets exceeds their
fair market value. Fair market value is usually determined based on the present
value of estimated expected future cash flows using a discount rate
commensurate with the risks involved. In instances where goodwill is identified
with assets that are subject to an impairment loss, the carrying amount of the
identified goodwill is reduced before making any reduction to the carrying
amounts of impaired tangible long-lived assets. Goodwill amortization of
$226.7 million, $223.2 million and $110.7 million was recorded for the years
ended December 31, 2001, 2000 and 1999, respectively. Accumulated goodwill
amortization was $635.2 million and $408.5 million at December 31, 2001 and
2000, respectively.

Other assets 

At December 31, 2001 and 2000, respectively, other assets include investments
in unconsolidated affiliates of $179.9 million and $238.3 million, deferred
financing costs of $175.0 million and $189.2 million, prepaid pension asset of
$100.0 million and $80.1 million, landfill closure deposits of $36.6 million
and $32.7 million, deferred contract costs of $21.9 million and $13.2 million
and other miscellaneous non-current assets. Deferred finance and deferred
contract charges include costs incurred to obtain financing and to acquire
businesses. Upon funding of debt offerings, deferred financing costs are
capitalized as debt issuance costs and amortized using the effective interest
method over the life of the related debt. Direct costs related to acquisitions
under evaluation are capitalized and reviewed for realization on a periodic
basis. Miscellaneous assets include consulting and non-competition agreements,
which are amortized in accordance with the terms of the respective agreements
and contracts, generally not exceeding five years.

Other current liabilities 

At December 31, 2001 and 2000, respectively, other liabilities include the
current portion of non-recurring acquisition accruals of
approximately $75.0 million and $165.2 million, accrued payroll of
$49.8 million and $48.9 million, and other miscellaneous current liabilities.

Accrued closure and post-closure costs 

Accrued closure and post-closure costs represent an estimate of the present
value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills we currently own and/or
operate or have retained upon divestiture. Site specific closure and
post-closure engineering cost estimates are prepared annually for landfills
owned and/or operated by us for which we are responsible for closure and
post-closure. For active landfills, the impact of changes determined to be
changes in estimates, based on the annual update, are accounted for on a
prospective basis except for instances where the cost expenditure will occur
within 12 months. The present value of estimated future costs are accrued on a
per unit basis as landfill disposal capacity is consumed. Discounting of
future costs is applied where we believe that both the amounts and timing of
related payments are reliably determinable. Changes in estimates for closed
landfill sites are recognized when determined.

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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Environmental costs 

We accrue for costs associated with environmental remediation obligations when
such costs are probable and reasonably estimable. 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, as the timing of cash payments is not reliably
determinable. Recoveries of environmental remediation costs from other parties
are recorded when their receipts are deemed probable. Environmental liabilities
and apportionment of responsibility among potentially responsible parties are
accounted for in accordance with the guidance provided by the American
Institute of Certified Public Accountants Statement of Position 96-1 (SOP
96-1) Environmental Remediation Liabilities.

Self-Insurance 

We are partially self-insured for general liability, automobile and workers
compensation insurance with varying loss thresholds up to $1 million and fully
self-insured for employee group health claims. The liability for unpaid claims
and associated expenses, including claims incurred but not reported, is
determined using actuarial valuations provided by independent companies. We
use a third party to track and evaluate actual claims experience for
consistency of data used in the annual actuarial valuation. At December 31,
2001 and 2000, we had self-insurance reserves totaling $88.1 million and $22.4
million, respectively.

Other long-term obligations 

At December 31, 2001 and 2000, respectively, other long-term obligations
include the minority interest in consolidated subsidiaries of $182.3 million
and $3.3 million (see note 3), the non-current portion of non-recurring acquisition
accruals of $217.6 million and $196.9 million, derivative liabilities for
interest rate swap contracts of $140.7 million and none (see
note 6) and other obligations not expected to be paid within the following year.

Revenue 

Our revenues result primarily from fees charged to customers for waste
collection, transfer, recycling and disposal services. We generally provide
collection services under direct agreements with our customers or pursuant to
contracts with municipalities. Commercial and municipal contract terms
generally range from one to five years and commonly have renewal options. Our
landfill operations include both company-owned landfills and landfills that we
operate on behalf of municipalities.

Advance billings are recorded as unearned revenue, and revenue is recognized
when services are provided, usually within 90 days.

Loss contracts

We review our revenue producing contracts in the ordinary course of business to
determine if the direct costs, exclusive of any non-variable costs, to service
the contractual arrangements exceed the revenues to be produced by the
contract. Any resulting excess direct costs over the life of the contract are
expensed at the time of such determination.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Change in accounting principle  capitalized interest

In 1999, we evaluated our capitalized interest policy to assess the
comparability of the calculation with the change in the business strategy
resulting from the acquisition of BFI. Previously our strategy was focused on
the acquisition and development of waste disposal capacity. Through the BFI
acquisition, we substantially achieved our previous strategy and are now
focusing on the increased utilization of landfill capacity. As a result of this
assessment, we changed the method of calculating capitalization of interest
under SFAS No. 34, Capitalization of Interest Cost. Previously, interest was
capitalized using a method that defined the area of a landfill under
development as all acreage considered available for development. Actual
acquisition, permitting and construction costs incurred related to the area
under development qualified for interest capitalization. Any costs incurred
related to areas already developed and accepting waste no longer qualified for
interest capitalization. Under the new methodology, the area of a landfill
under development was defined as only the portion of the permitted acreage
currently undergoing active cell development. The effect of this change in
definition is to substantially reduce the acreage qualifying for interest
capitalization. The costs upon which interest is capitalized continue to
include the actual acquisition, permitting and construction costs incurred for
cell development. Consistent with the prior policy, as construction of an area
is completed and the area becomes available for use, the cell no longer
qualifies for interest capitalization.

The impact of the change in accounting principle was a cumulative charge of
approximately $64.3 million net of income taxes for the year ended December 31,
1999.

Change in accounting principle  derivatives

Effective January 1, 2001, we changed our method of accounting for derivative
financial instruments in accordance with the adoption of SFAS 133, Accounting
for Derivatives Instruments and Hedging Activities, as amended by SFAS 138,
Accounting for Certain Derivative Instruments and Hedging Activities. See note
6 on Derivative Instruments and Hedging Activities.

Non-recurring acquisition accruals and acquisition related and unusual costs 

At the time of an acquisition accounted for under the purchase method of
accounting, we evaluate and adjust existing accruals to represent our estimate
of the future costs to settle the assumed liabilities. Assumed liabilities are
considered in the allocation of purchase price and goodwill valuation.
Liabilities related to restructuring and abandonment activities, loss contracts
or changes in estimates of environmental, litigation and regulatory compliance
costs are charged to acquisition related and unusual costs in the period in
which the acquisition is completed. Any subsequent changes to these estimates
are also charged to acquisition related and unusual costs. At December 31,
2001 and 2000, we had approximately $292.6 million and $362.1 million,
respectively, of non-recurring acquisition accruals remaining on our
consolidated balance sheets, consisting primarily of loss contract, litigation,
insurance liabilities and other commitments associated with the acquisition of
BFI. Expenditures against non-recurring acquisition accruals, including
severance costs in 2001 and 2000 were $116.8 million and $195.4 million,
respectively.

During 2001, we recorded approximately $27.8 million of acquisition related and
unusual costs primarily related to the billing system conversion associated
with the acquisition of BFI. These non-recurring costs are decreasing as
transition efforts are substantially complete at December 31, 2001.

During 2000, we recorded approximately $100.8 million of acquisition related
and unusual costs primarily associated with the acquisition of BFI. These costs
are comprised primarily of approximately $75.2 million of transition costs
related to transitional employees, duplicative facilities and operations, and
the billing system conversion which were expensed as incurred. Additionally,
we charged $30.2 million related to changes in estimated loss contract
provisions, restructuring and abandonment liabilities, litigation liabilities
and environmental related matters and reversed approximately $4.6 million of
accruals established in connection with the acquisition of BFI.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 1999, we recorded $524.3 million of acquisition related and unusual
costs associated with the $9.6 billion acquisition of BFI in July 1999. These
costs are comprised of approximately $267.0 million related to changes in
estimates of environmental liabilities as a result of assessments performed by
third-party and in-house engineers and legal counsel; $93.5 million related to
changes in estimates of litigation liabilities for employee-related, regulatory
and other commercial litigation matters; $77.4 million for costs related to
transitional employees and duplicative facilities and operations; $33.8 million
related to commitment fees for financing which was ultimately not required;
$32.6 million related to future anticipated losses on specifically-identified
contracts; and $20.0 million for changes to self-insurance accruals based upon
third-party actuarial reviews.

Also during 1999, we recorded approximately $43.5 million for non-cash asset
impairments for Allied assets held for sale; $26.1 million representing the
write off of deferred charges for previously targeted acquisitions no longer
pursued; $1.8 million for non-cash asset impairments related to duplicative
facilities; and $0.4 million in restructuring and abandonment costs related to
other 1999 acquisitions. In addition, $7.2 million of accrued acquisition
related costs associated with 1998 acquisitions were reversed to acquisition
related and unusual costs.

Non-cash loss on asset sale 

In February 2001, we decided to accept an offer and
sold certain non-integrated operations in the
Northeast region for approximately $53 million. In
connection with our strategic business model and
ongoing review of the operations, we determined that
the sale of such assets would allow us to deploy
proceeds from the sale to purchase more productive
assets in other markets that improve our market
density and internalization. We initially used the
proceeds to repay debt, and subsequently redeployed
the proceeds to purchase other assets. The carrying
value of the assets sold was approximately $160
million at the time of the sale. In connection with
this sale, we recorded a non-cash loss of
approximately $107 million ($65 million, net of
income tax benefit). Revenues and net operating
income of the sold operations represent less than 1%
of our consolidated revenue and net operating income
for the period prior to the sale during 2001. The
assets were held for use and were not previously
impaired based on the criteria and analysis under
SFAS 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be
Disposed of.

During 2000, we recorded $26.5 million of non-cash
impairment related to divestitures of certain
operations.

If we have changes in events or circumstances
including the determination to divest of certain
assets, we could incur other non-cash charges to
earnings.

Extraordinary losses

In November 2001, we repaid $736.9 million of the
tranche A, B and C term loan facility prior to its
maturity date, with net proceeds from the issuance
of $750 million senior notes. In connection with
this repayment, we recognized an extraordinary
charge for the early extinguishment of the debt of
approximately $12.4 million ($7.5 million, net of
income tax benefit) related to the write-off of
deferred debt issuance costs.

In January 2001, we repaid $589.5 million of the tranche A, B and C term loan
facility prior to its maturity date, with net proceeds from the issuance of
$600 million senior notes. In connection with this repayment, we recognized an
extraordinary charge for the early extinguishment of the debt of approximately
$15.6 million ($9.5 million, net of income tax benefit) related to the
write-off of deferred debt issuance costs.

During 2000, we repaid the asset sale term loan and tranche D term loan
facilities prior to the respective maturity date. In connection with these
repayments, we recognized extraordinary charges for the early extinguishment of
the debt of approximately $21.9 million ($13.3 million, net of income tax
benefit) related to the write-off of deferred debt issuance costs.

In July 1999, we repaid our credit facility prior to its maturity date. In
connection with this repayment, we recognized a non-cash extraordinary charge
for the early extinguishment of the debt of approximately $5.3 million ($3.2
million net of income tax benefit) related to the write-off of deferred debt
issuance costs.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statements of cash flows

The supplemental cash flow disclosures and non-cash transactions for the three years
ended December 31, 2001 are as follows (in thousands):

|                                                                                                           |                                                 |   |                         |         |      |   |         |        |  |   |         |           |  
|---------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | - | ----------------------- | ------- | ---- | - | ------- | ------ |  | - | ------- | --------- | -
|                                                                                                           |                                                 |   | Year Ended December 31,
|                                                                                                           |                                                 |   |                        
|                                                                                                           |                                                 |   | 2001                    |         | 2000 |   | 1999   
|                                                                                                           |                                                 |   |                         |         |      |   |        
|Supplemental
Disclosures -
Interest paid (net of amounts capitalized)                                      |                                                 | $ | 784,423                 |         |      | $ | 853,770 |        |  | $ | 312,623 |          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                           | Income taxes paid (refunds received)            |   |                         | 56,914  |      |   |         | 27,876 |  |   |         | (74,855   | )
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|Non-Cash
Transactions -
Common stock, preferred stock or warrants issued in
acquisitions or as commissions |                                                 | $ |                        |         |      | $ |        |        |  | $ | 1,573   |          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                           | Debt incurred or assumed in acquisitions        |   |                         | 2,146   |      |   |         | 5,326  |  |   |         | 1,801,053 |  
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                           | Liabilities incurred or assumed in acquisitions |   |                         | 176,632 |      |   |         | 88,142 |  |   |         | 49,109    |  
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                          
|                                                                                                           | Dividends on preferred stock                    |   |                         | 73,012  |      |   |         | 68,452 |  |   |         | 27,789    |  

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Final settlement
amounts could differ from those estimates.

Fair value of financial instruments 

The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS 107, Disclosures About Fair Value
of Financial Instruments(SFAS 107). Our financial instruments as defined by SFAS
107 include cash, money market funds, accounts receivable, accounts payable and
long-term debt. We have determined the estimated fair value amounts at December 31,
2001 using available market information and valuation methodologies. 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 (See notes 5 and 6 for fair value of debt and derivative instruments).

Stock-based compensation plans

We account for our stock-based compensation plans under Accounting Principles Board
Opinion No. 25, (APB 25) Accounting for Stock Issued to Employeesand the related
interpretations, which does not require a charge to the statement of operations for
the estimated fair value of stock options issued with an exercise price equal to the
fair value of the common stock on the date of grant. SFAS 123, Accounting for
Stock-based Compensation(SFAS 123), requires that companies, which do not elect to
account for stock-based compensation as prescribed by this statement, disclose the
pro forma effects on earnings and earnings per share as if SFAS 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 123
(see note 11).

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently issued accounting pronouncements

In August 2001, the Financial Accounting Standards Board
(FASB) issued SFAS 143, Accounting for Asset Retirement
Obligations(SFAS 143), which outlines standards for
accounting for an obligation associated with the retirement
of a long-lived tangible asset. This standard will apply
to our accounting for landfill closure and post-closure
obligations. We are required to adopt SFAS 143 by January
1, 2003 and are currently assessing the impact, if any,
that this statement will have on our consolidated financial
statements.

In August 2001, the FASB issued SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets(SFAS
144), which supercedes SFAS 121. SFAS 144 provides a
single accounting model for impairment of long-lived assets
held for use and for long-lived assets that are to be
disposed of by sale (including discontinued operations).
SFAS 144 does not cover impairment of goodwill. We adopted
SFAS 144 on January 1, 2002. There was no impact on our
consolidated financial statements.

In July 2001, the FASB issued SFAS 141, Business
Combinations(SFAS 141) and SFAS 142, Goodwill and Other
Intangible Assets(SFAS 142).SFAS 141 requires the
purchase method of accounting for business combinations
initiated after June 30, 2001, and eliminates the
pooling-of-interest method. Adoption of this standard did
not have a material impact on our consolidated financial
statements. The effective date for SFAS 142 was fiscal
years beginning after December 15, 2001.

SFAS 142, among other things, eliminates the amortization
of goodwill and instead requires an annual assessment of
goodwill impairment by applying a fair value based test.
SFAS 142 required that any goodwill recorded in connection
with an acquisition consummated on or after July 1, 2001
not be amortized. During the years ended December 31,
2001 and 2000, the Company recorded goodwill amortization
of $226.7 million and $223.2 million, respectively. We have
evaluated the impact of this statement and tested our
existing goodwill for realizability and determined that we
have no impairment of our goodwill and therefore no impact
upon adoption to our results of operation or financial
position effective January 1, 2002. Total net unamortized
goodwill at December 31, 2001 is approximately $8.6
billion, of which approximately $6.9 billion is not
deductible for income tax purposes.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     Business Combinations

Acquisitions accounted for under the poolings-of-interests method are reflected
in the results of operations as if the acquisition occurred on the first day of
the earliest year presented. Acquisitions accounted for under the purchase
method are reflected in the results of operations since the effective date of
the acquisition. For those acquisitions accounted for using the purchase method,
we allocate the cost of the acquired business to the assets acquired and
liabilities assumed based upon their estimated fair values. These estimates are
revised during the allocation period as necessary when, and if, information
regarding contingencies becomes available to further define and quantify assets
acquired and liabilities assumed. The allocation period generally does not
exceed one year. To the extent contingencies are resolved or settled during the
allocation period, such items are included in the revised allocation of the
purchase price. Purchase accounting adjustments, acquisition related costs and
other possible charges that may arise from the acquisitions may materially
impact our future Consolidated Balance Sheets and Statements of Operations.

The following table summarizes acquisitions for the three years ended December
31, 2001, excluding the acquisition of BFI:

|                                                |  |      |       |      |  |      |       |  |  |   |       | 
|----------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                |  | 2001 |       | 2000 |  | 1999
|                                                |  |      |       |      |  |     
|Number of businesses acquired accounted for as: |  |      |       |      |  |      |       |  |  |   |       | 
|                                               
|                                               
|                                               
|                                               
|Poolings-of-interests                           |  |      |      |      |  |      |      |  |  |   | 2     | 
|                                               
|                                               
|                                               
|                                               
|Purchases                                       |  |      | 53    |      |  |      | 50    |  |  |   | 52    | 
|                                                |  |      |       |      |  |      |       |  |  |   |       | 
|Total acquisitions                              |  |      | 53    |      |  |      | 50    |  |  |   | 54    | 
|                                               
|                                               
|                                               
|                                               
|Total consideration (in millions)               |  | $    | 264.4 |      |  | $    | 853.9 |  |  | $ | 467.5 | 
|                                               
|                                               
|                                               
|                                               
|Shares of common stock issued (in millions)     |  |      |      |      |  |      |      |  |  |   | 1.6   | 

Unaudited pro forma statement of operations data 

For companies acquired during 2001, the unaudited pro forma effect assuming the
2001 acquisitions were acquired as of January 1, 2000 would have increased
reported consolidated revenues by approximately $95.6 million and $176.7 million
for the years ended December 31, 2001 and 2000, respectively. Our reported net
income and earnings per share, excluding extraordinary losses, for the years
ended December 31, 2001 and 2000 were not significantly impacted by the proforma
effect of these acquisitions. These pro forma results do not purport to be
indicative of our Consolidated Statements of Operations that might have
occurred, nor which might occur in the future.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.    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 and improvements
(30-40 years), vehicles and equipment (3-10 years), containers and compactors (5-15 years) and
furniture and office equipment (3-8 years). In accordance with SFAS 121, we evaluate long-lived
assets, such as property and equipment, and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

The cost of landfill airspace, including original acquisition cost and incurred and projected
landfill construction costs, is amortized over the capacity of the landfill based on a per unit basis
as landfill airspace is consumed. We periodically review the realizability of our investment in
operating landfills. Should events and circumstances indicate that any of our landfills be reviewed
for possible impairment, such review for recoverability will be made in accordance with Emerging
Issues Task Force Discussion Issue No. 95-23 (EITF 95-23) The Treatment of Certain Site
Restoration/Environmental Exit Costs When Testing a Long-Lived Asset for Impairment. 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 years ended December 31, 2001, 2000 and 1999, maintenance and repair expenses
charged to cost of operations were $410.6 million, $430.0 million and $275.6 million, respectively.
When property is retired, the related cost and accumulated depreciation are removed from the accounts
and any resulting gain or loss is recognized.

Property and equipment at December 31, 2001 and 2000 is as follows (in thousands):

|                                          |  |      |            |      |  |   |            |  
|----------------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | -
|                                          |  | 2001 |            | 2000
|                                          |  |      |            |     
|Land and improvements                     |  | $    | 432,875    |      |  | $ | 406,700    |  
|                                         
|                                         
|                                         
|                                         
|Land
held for permitting as landfills(1)  |  |      | 131,445    |      |  |   | 127,778    |  
|                                         
|                                         
|                                         
|                                         
|Landfills                                 |  |      | 2,269,407  |      |  |   | 1,997,733  |  
|                                         
|                                         
|                                         
|                                         
|Buildings and improvements                |  |      | 443,149    |      |  |   | 444,348    |  
|                                         
|                                         
|                                         
|                                         
|Vehicles and equipment                    |  |      | 1,563,394  |      |  |   | 1,411,068  |  
|                                         
|                                         
|                                         
|                                         
|Containers and compactors                 |  |      | 731,186    |      |  |   | 672,175    |  
|                                         
|                                         
|                                         
|                                         
|Furniture and office equipment            |  |      | 42,232     |      |  |   | 39,578     |  
|                                          |  |      |            |      |  |   |            |  
|                                          |  |      | 5,613,688  |      |  |   | 5,099,380  |  
|                                         
|                                         
|                                         
|                                         
|Accumulated depreciation and amortization |  |      | (1,602,802 | )    |  |   | (1,238,842 | )
|                                          |  |      |            |      |  |   |            |  
|                                          |  | $    | 4,010,886  |      |  | $ | 3,860,538  |  
|                                          |  |      |            |      |  |   |            |  



---

|(1) |  | These properties have been approved for use as landfills, and we are currently in the process of obtaining the
necessary permits.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------

On April 30, 2001, four subsidiaries were created to purchase fixed assets including vehicles, equipment, containers and compactors employed in
our business. We own 1% of these subsidiaries and the remaining 99% is owned by subsidiaries of American Ref-Fuel Company LLC. However, since we
exercise full operational control of these entities, their assets, liabilities and results from operations are included in our consolidated
financial statements. The Consolidated Balance Sheets include the fixed assets purchased by these entities and related debt to fund these
purchases. Additionally, we have a recorded minority interest liability of approximately $180 million related to the outside ownership interest,
which is included in other long-term obligations on the Consolidated Balance Sheets. The Consolidated Statements of Operations include the
depreciation expense related to the fixed assets purchased and interest expense related to the debt. Additionally, the Consolidated Statements of
Cash Flows reflect all purchases of equipment by these entities as capital expenditures.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.     Investments In Unconsolidated Affiliates

On April 30, 2001, American Ref-Fuel Company LLC, a joint venture of Duke Energy North America and United American Energy Corporation,
acquired our 100% ownership interest in the Ref-Fuel Chester, Pennsylvania facility; our 50% interest in the Rochester, Massachusetts
facility; and our 51% interest in Ref-Fuels marketing company. The ownership structure of the four remaining Ref-Fuel facilities located in
New York, New Jersey, and Connecticut was modified to give American Ref-Fuel Company LLC operational control of those entities. This
transaction allowed us to reduce our debt requirements by approximately $300 million and reduced our letter of credit requirements by $200
million. In 2000, these operations generated approximate annual revenues, operating income and equity earnings of $70 million, $15 million,
and $50 million, respectively.

In connection with the modification of the ownership structure of the Ref-Fuel facilities on April 30, 2001, we retained a minority
ownership interest in these entities. Our equity investment in these entities was approximately $180 million at December 31, 2001 and is
included in other assets, net on the Consolidated Balance Sheets. As part of the ownership modification, we had an option to exchange our
minority interest in the Ref-Fuel facilities for Ref-Fuels 99% interest in our equipment purchasing subsidiaries. The Company has
exercised this option and this exchange is scheduled to take place in April 2002. This exchange will have no impact on our results of
operations. After the exchange, we will no longer have any interest in the Ref-Fuel entities and we will own 100% of the equipment
purchasing subsidiaries.

We used the equity method of accounting for investments in unconsolidated subsidiaries over which we exercised control. The Summarized
Combined Balance Sheet Data and the Statement of Operations Data presented in the table below indicate amounts related to the following
equity investees in which we exercised control through a 50% ownership interest at December 31, 2000 and 1999: American Ref-Fuel Company,
American Ref-Fuel Company of Hempstead, American Ref-Fuel Company of Essex, American Ref-Fuel Company of Southeastern Connecticut, American
Ref-Fuel Company of Niagara, LP, and American Ref-Fuel Company of SEMASS, LP (American Ref-Fuel).

Summarized Combined Balance Sheet Data
(in thousands, unaudited)

|                                                        |  |                      |         |                   |  |                   |           |  |  |   |           | 
|------------------------------------------------------- |  | -------------------- | ------- | ----------------- |  | ----------------- | --------- |  |  | - | --------- | 
|                                                        |  | December 31, 2001(1) |         | December 31, 2000 |  | December 31, 1999
|                                                        |  |                      |         |                   |  |                  
|Current assets                                          |  | $                    | 115,768 |                   |  | $                 | 162,799   |  |  | $ | 147,863   | 
|                                                       
|                                                       
|                                                       
|                                                       
|Property and equipment, net of accumulated
depreciation |  |                      | 764,496 |                   |  |                   | 1,086,470 |  |  |   | 1,116,711 | 
|                                                       
|                                                       
|                                                       
|                                                       
|Other non-current assets                                |  |                      | 194,002 |                   |  |                   | 245,836   |  |  |   | 248,378   | 
|                                                       
|                                                       
|                                                       
|                                                       
|Current liabilities                                     |  |                      | 114,848 |                   |  |                   | 120,964   |  |  |   | 127,989   | 
|                                                       
|                                                       
|                                                       
|                                                       
|Long-term debt, net of current portion                  |  |                      | 707,243 |                   |  |                   | 1,098,605 |  |  |   | 1,123,414 | 
|                                                       
|                                                       
|                                                       
|                                                       
|Other long-term liabilities                             |  |                      | 178,246 |                   |  |                   | 216,597   |  |  |   | 199,828   | 
|                                                       
|                                                       
|                                                       
|                                                       
|Retained earnings                                       |  |                      | (13,147 | )                 |  |                   | 58,939    |  |  |   | 61,721    | 

Summarized Combined Statement of Operations Data
(in thousands, unaudited)

|                 |  |              |         |              |  |              |         |  |  |   |         | 
|---------------- |  | ------------ | ------- | ------------ |  | ------------ | ------- |  |  | - | ------- | 
|                 |  | For the      |         | For the      |  | For the Five
|                 |  | Year Ended   |         | Year Ended   |  | Months Ended
|                 |  | December 31, |         | December 31, |  | December 31,
|                 |  | 2001(1)      |         | 2000         |  | 1999        
|                 |  |              |         |              |  |             
|Total revenue    |  | $            | 250,023 |              |  | $            | 363,719 |  |  | $ | 146,940 | 
|                
|                
|                
|                
|Operating income |  |              | 116,816 |              |  |              | 159,113 |  |  |   | 52,216  | 
|                
|                
|                
|                
|Net income       |  |              | 59,383  |              |  |              | 95,118  |  |  |   | 27,328  | 



---

|(1) |  | These amounts exclude the results of Semass, LP and American Ref-Fuel Company, for which our ownership interest was divested on April 30, 2001.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our investments in and advances to equity investees approximated $240.0 million
and $274.7 million at December 31, 2000 and 1999, respectively consisted of
investments in excess of underlying equity of $134.3 million and $170.1
million, a subordinated note and other receivables of $76.2 million and $73.7
million, and our proportional share of net assets of $29.5 million and $30.9
million, respectively.

For the four months ended April 30, 2001, prior to the modification of the
ownership structure the year ended December 31, 2000, and for the five months
ended December 31, 1999, our equity in earnings of equity investees were
approximately $14.1 million, $50.8 million and $20.8 million and dividends
received from equity investees were approximately $12.6 million and $34.0
million, respectively for the year ended December 31, 2000 and for the five
months ended December 31, 1999. There were no dividends received during 2001.

Differences between the equity in earnings we reported and our proportionate
share of the combined earnings of the related investees result principally from
differences in the recognition of expenses, goodwill amortization and the
elimination of intercompany transactions.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.     Long-term Debt

Long-term debt at December 31, 2001 and 2000 consists of the following (in thousands):

|                                                                                                                                                                                                                                                              |  |      |           |      |  |   |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                                                                                                                                                                                                                                              |  | 2001 |           | 2000
|                                                                                                                                                                                                                                                              |  |      |           |     
|Revolving credit facility, effective rate of 10.46%                                                                                                                                                                                                           |  | $    |          |      |  | $ | 435,000   | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Tranche A term loan facility, effective rate of 9.48% and 9.19%, respectively                                                                                                                                                                                 |  |      | 1,157,785 |      |  |   | 1,675,000 | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Tranche B term loan facility, effective rate of 9.37% and 9.52%, respectively                                                                                                                                                                                 |  |      | 864,018   |      |  |   | 1,250,000 | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Tranche C term loan facility, effective rate of 9.94% and 9.73%, respectively                                                                                                                                                                                 |  |      | 1,036,822 |      |  |   | 1,500,000 | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Senior subordinated notes, interest at 10.00%, effective rate of 10.18%, including
unamortized premium of $6,425 and $7,272, respectively                                                                                                                     |  |      | 2,006,425 |      |  |   | 2,007,272 | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Senior notes, interest at 7.88%, effective rate of 8.14%, net of unamortized
discount of $1,188 and $1,310, respectively                                                                                                                                      |  |      | 873,812   |      |  |   | 873,690   | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Senior notes, interest at 7.63%, effective rate of 7.97%                                                                                                                                                                                                      |  |      | 600,000   |      |  |   | 600,000   | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Senior notes, interest at 7.38%, effective rate of 7.89%, net of unamortized
discount of $150 and $216, respectively                                                                                                                                          |  |      | 224,850   |      |  |   | 224,784   | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Senior notes, interest at 8.88%, effective rate of 9.14%                                                                                                                                                                                                      |  |      | 600,000   |      |  |   |          | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Senior notes, interest at 8.50%, effective rate of 8.59%                                                                                                                                                                                                      |  |      | 750,000   |      |  |   |          | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Debentures, interest at 7.40%, effective rate of 10.25%, net of unamortized
discount of $76,969 and $79,251, respectively                                                                                                                                     |  |      | 283,031   |      |  |   | 280,749   | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Senior notes, interest at 6.10%, effective rate of 8.54%, net of unamortized
discount of $3,679 and $7,194, respectively                                                                                                                                      |  |      | 153,010   |      |  |   | 149,495   | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Senior notes, interest at 6.38%, effective rate of 9.52%, net of unamortized
discount of $19,141 and $22,305, respectively                                                                                                                                    |  |      | 142,059   |      |  |   | 138,895   | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Debentures, interest at 9.25%, effective rate of 9.92%, net of unamortized
discount of $4,331 and $4,554, respectively                                                                                                                                        |  |      | 95,169    |      |  |   | 94,946    | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Senior notes, interest at 7.88%, effective rate of 9.05%, net of unamortized
discount of $1,999 and $2,622, respectively                                                                                                                                      |  |      | 67,502    |      |  |   | 66,879    | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Solid waste revenue bond obligations, weighted average interest rate of 5.40% and
6.40%, weighted average effective rate of 7.06% and 7.35%, respectively, net of
unamortized discount of $4,491 and $4,810, respectively, and principal payable
through 2031 |  |      | 313,831   |      |  |   | 314,887   | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|2001 subsidiaries line of credit, effective rate of 8.72%, secured by equipment                                                                                                                                                                               |  |      | 65,925    |      |  |   |          | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Notes payable to banks, finance companies, and individuals, interest rates of 0.5% to
11.25%, and principal payable through 2014, secured by vehicles, equipment, real
estate, accounts receivable or stock of certain subsidiaries                           |  |      | 11,553    |      |  |   | 22,931    | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Obligations under capital leases of vehicles and equipment, weighted average
interest of 8.0%                                                                                                                                                                 |  |      | 11,355    |      |  |   | 10,592    | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Notes payable to individuals and a commercial company, interest rates of 5% to 9.5%,
principal payable through 2007, unsecured                                                                                                                                |  |      | 2,486     |      |  |   | 4,001     | 
|                                                                                                                                                                                                                                                              |  |      |           |      |  |   |           | 
|                                                                                                                                                                                                                                                              |  |      | 9,259,633 |      |  |   | 9,649,121 | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Less: Current portion                                                                                                                                                                                                                                         |  |      | 22,130    |      |  |   | 13,997    | 
|                                                                                                                                                                                                                                                              |  |      |           |      |  |   |           | 
|                                                                                                                                                                                                                                                              |  | $    | 9,237,503 |      |  | $ | 9,635,124 | 
|                                                                                                                                                                                                                                                              |  |      |           |      |  |   |           | 

59



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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On November 27, 2001, we issued $750 million of 8.50% Series A senior notes,
due 2008 (together with the $600 million 8.875% notes issued January 30, 2001,
the 2001 Senior Notes), in a private placement under Rule 144A of the
Securities Act of 1933. We registered the $750 million notes within 120 days
of the November offering date. Interest is payable semi-annually on June 1 and
September 1. We used the net proceeds of $736.9 million from the sale of these
notes to ratably repay portions of tranches A, B and C of the term loans under
the 1999 Credit Facility. In connection with the issuance of the notes, we
further amended our credit facility to revise certain financial covenants to
provide us with greater operating flexibility. We, together with substantially
all of our subsidiaries, guarantee the $750 million of senior notes.

On January 30, 2001, we issued $600 million of 8.875% senior notes, due 2008
(the 2001 Senior Notes), in a private placement under Rule 144A of the
Securities Act of 1933. In August 2001, these notes were exchanged for
substantially identical notes registered under the Securities Act of 1933.
Interest is payable semi-annually on April 1 and October 1. We used the net
proceeds of $589.5 million from the sale of these notes to ratably repay
portions of tranches A, B and C of the term loans under the 1999 Credit
Facility. Coincident with the offering we amended our 1999 Credit Facility to
change certain financial covenants to provide us with greater flexibility and
to reduce the total revolving line by $200 million, from $1.5 billion to $1.3
billion. This reduction in the revolver was effective as of June 29, 2001.

During 2001, we also entered into a new line of credit to provide us additional
flexibility for funding capital expenditures made by our subsidiaries for
assets employed in our business. This line of credit bears interest at a
variable rate with principal amortization due quarterly and the final maturity
in 2006. At December 31, 2001, availability on this line of credit was $214.5
million.

In connection with the BFI acquisition in July 1999, we entered into a new
credit facility (the 1999 Credit Facility). The 1999 Credit Facility provided a
$1.5 billion six-year revolving credit facility, due July 2005, which was
reduced to $1.3 billion effective June 29, 2001, a $556 million two-year asset
sale term which was repaid in full in February 2000, a $1.75 billion six-year
Tranche A term due July 2005, a $1.25 billion seven-year Tranche B term loan
due July 2006, a $1.50 billion eight-year Tranche C term loan due July 2007 and
a $500 million eight-year Tranche D term loan. The Tranche D Term Loan was
repaid in full in September 2000.

The 1999 Credit Facility bears interest, at (a) an Alternate Base Rate, or (b)
a Eurodollar Rate, both terms defined in the 1999 Credit Facility, plus, in
either case, an applicable margin and may be used for working capital and other
general corporate purposes, acquisitions, and the issuance of letters of
credit. Of the $1.3 billion available under the Revolving Credit Facility at
December 31, 2001, the entire amount may be used to support the issuance of
letters of credit. As of December 31, 2001, approximately $792 million was
available on this facility.

The 1999 Credit Facility is a funded, amortizing senior secured term loan with
annual principal payments increasing from zero in 2002, to $183 million in
2003, and to $450 million in 2004. Principal under the revolving credit
facility is due upon maturity.

We are required to make prepayments on the 1999 Credit Facility upon completion
of certain asset sales and issuances of debt or equity securities. Proceeds
from asset sales are to be applied first to reduce borrowings under the Tranche
A, B and C term loans on a pro rata basis. Required prepayments are to be made
based on a percentage of the net proceeds of any debt incurrence or equity
issuance.

60



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In July 1999, Allied Waste North America, Inc. (Allied NA; a wholly owned consolidated subsidiary of Allied) issued $2.0 billion of
senior subordinated notes (the 1999 Notes) in a Rule 144A offering. In January 2000, these notes were exchanged for substantially
identical notes registered under the Securities Exchange Act of 1933. Interest accrues on the 1999 Notes at an interest rate of 10% per
annum, payable semi-annually on May 1 and November 1. We used the proceeds from the 1999 Notes as partial financing of the acquisition
of BFI.

In connection with the BFI acquisition on July 30, 1999, we assumed all of BFIs debt securities with the exception of commercial paper
that was paid off in connection with the acquisition. BFIs debt securities were recorded at their fair market values as of the date of
the acquisition in accordance with Emerging Issues Task Force Issue 98-1  Valuation of Debt Assumed in a Purchase Business Combination.
The effect of revaluing the debt securities resulted in an aggregate discount from the historic face amount of $137.0 million. At
December 31, 2001, the remaining unamortized discount related to the debt securities assumed from BFI was $110.6 million.

The 6.10% Senior Notes, 6.375% Senior Notes and 9.25% Debentures are not redeemable prior to maturity and are not subject to any sinking
fund.

The 7.40% Debentures are not subject to any sinking fund and may be redeemed as a whole or in part, at our option at any time. The
redemption price is equal to the greater of (i) the principal amount of the debentures and (ii) the present value of future principal
and interest payments discounted at a rate specified under the terms of the indenture.

In December 1998, Allied NA issued an aggregate of $1.7 billion of senior notes consisting of $225 million
7.375% senior notes due 2004, $600 million 7.625% senior notes due 2006 and $875 million 7.875% senior notes due 2009
(together, the 1998 Senior Notes) in a Rule 144A offering which were subsequently registered for public trading with
the SEC in January 1999. Interest accrued on the 1998 Senior Notes is payable semi-annually on January 1 and July 1. We
used the net proceeds from the 1998 Senior Notes to fund the redemption of certain other borrowings to repay borrowings
outstanding under a credit facility and certain capital lease obligations, and for general corporate purposes.

Substantially all of our subsidiaries are jointly and severally liable for the obligations under the 1998 Senior Notes,
the 1999 Notes, the 2001 Senior Notes, and the 1999 Credit Facility through unconditional guarantees issued by current
and future subsidiaries. In addition, the 1999 Credit Facility is secured by substantially all the personal property
and a pledge of the stock of substantially all of our present and future subsidiaries. The 2001 Senior Notes, 1998
Senior Notes and certain of the debt assumed in connection with the acquisition of BFI are secured by a pledge of the
stock of substantially all of BFI and a security interest in the assets of BFI and its domestic subsidiary.

Future maturities of long term debt

Aggregate future scheduled maturities of long-term debt are as follows (in thousands):

|                |  |                    |           |  
|--------------- |  | ------------------ | --------- | -
|                |  | As of December 31,
|Maturity        |  | 2001              
|                |  |                   
|2002            |  | $                  | 22,130    |  
|               
|               
|               
|               
|2003            |  |                    | 357,622   |  
|               
|               
|               
|               
|2004            |  |                    | 689,671   |  
|               
|               
|               
|               
|2005            |  |                    | 619,544   |  
|               
|               
|               
|               
|2006            |  |                    | 1,493,839 |  
|               
|               
|               
|               
|Thereafter      |  |                    | 6,182,350 |  
|                |  |                    |           |  
|Gross Principal |  |                    | 9,365,156 |  
|               
|               
|               
|               
|Discount, net   |  |                    | (105,523  | )
|                |  |                    |           |  
|Total Debt      |  | $                  | 9,259,633 |  
|                |  |                    |           |  

61



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2001 (in thousands):

|           |  |           |        |          |  |       |       |  |  |   |        | 
|---------- |  | --------- | ------ | -------- |  | ----- | ----- |  |  | - | ------ | 
|Maturity   |  | Principal |        | Interest |  | Total
|           |  |           |        |          |  |      
|2002       |  | $         | 4,831  |          |  | $     | 663   |  |  | $ | 5,494  | 
|          
|          
|          
|          
|2003       |  |           | 2,807  |          |  |       | 350   |  |  |   | 3,157  | 
|          
|          
|          
|          
|2004       |  |           | 2,253  |          |  |       | 190   |  |  |   | 2,443  | 
|          
|          
|          
|          
|2005       |  |           | 1,047  |          |  |       | 55    |  |  |   | 1,102  | 
|          
|          
|          
|          
|2006       |  |           | 293    |          |  |       | 18    |  |  |   | 311    | 
|          
|          
|          
|          
|Thereafter |  |           | 124    |          |  |       | 28    |  |  |   | 152    | 
|           |  |           |        |          |  |       |       |  |  |   |        | 
|           |  | $         | 11,355 |          |  | $     | 1,304 |  |  | $ | 12,659 | 
|           |  |           |        |          |  |       |       |  |  |   |        | 

Fair value of debt and interest rate protection agreements

We have interest rate risk relating to long-term variable rate debt. To manage the potential interest rate volatility, we enter into interest
rate swaps. Interest rate swaps are used to manage the proportion of fixed and variable rate debt based on market conditions. We do not hold or
issue derivative instruments for trading purposes.

The fair value of our debt and hedging instruments are subject to change as a result of potential changes in market rates and prices. The table
below provides information about our long-term debt and interest rate hedges by aggregate principal or notional amounts and weighted average
interest rates for instruments that are sensitive to changes in interest rates. The financial instruments are grouped by market risk exposure
category (in thousands, except percentages).

|                       |                     |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |   |           |  
|---------------------- | ------------------- | --------------------------------- |  | ------------ | --------- | ------------- |  | ------------ | --------- | ------------- |  | - | --------- | - |  | - | --------- | -
|                       |                     |                                   |  | Balance at   |           | Fair Value at |  | Balance at   |           | Fair Value at
|                       |                     |                                   |  | December 31, |           | December 31,  |  | December 31, |           | December 31, 
|                       |                     |                                   |  | 2001         |           | 2001          |  | 2000         |           | 2000         
|                       |                     |                                   |  |              |           |               |  |              |           |              
|Long-Term Debt         |                     |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |  
|                      
|                      
|                      
|                      
|                       | Fixed Rate Debt:    |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |   |          
|                      
|                      
|                      
|                      
|                       |                     | Principal amount                  |  | $            | 6,038,303 |               |  | $            | 6,038,977 |               |  | $ | 4,697,530 |   |  | $ | 4,349,440 |  
|                      
|                      
|                      
|                      
|                       |                     | Weighted average interest
rate    |  |              | 8.71      | %             |  |              |           |               |  |   | 8.74      | % |  |   |           |  
|                      
|                      
|                      
|                      
|                       | Variable Rate Debt: |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |   |          
|                      
|                      
|                      
|                      
|                       |                     | Principal amount                  |  | $            | 3,221,330 |               |  | $            | 3,172,340 |               |  | $ | 4,951,591 |   |  | $ | 4,746,918 |  
|                      
|                      
|                      
|                      
|                       |                     | Weighted average interest
rate(1) |  |              | 4.61      | %             |  |              |           |               |  |   | 9.22      | % |  |   |           |  
|                      
|                      
|                      
|                      
|                       |                     |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |  
|                      
|                      
|                      
|                      
|Interest Rate Swaps(2) |                     |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |  
|                      
|                      
|                      
|                      
|                       | Cancelable:         |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |   |          
|                      
|                      
|                      
|                      
|                       |                     | Notional amount                   |  | $            |          |               |  | $            |          |               |  | $ | 450,000   |   |  | $ | (2,170    | )
|                      
|                      
|                      
|                      
|                       |                     | Weighted average interest
rate    |  |              |           |               |  |              |           |               |  |   | 6.37      | % |  |   |           |  
|                      
|                      
|                      
|                      
|                       | Non-Cancelable:     |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |   |          
|                      
|                      
|                      
|                      
|                       |                     | Notional amount                   |  | $            | 2,886,822 |               |  | $            | (140,693  | )             |  | $ | 3,550,000 |   |  | $ | (72,496   | )
|                      
|                      
|                      
|                      
|                       |                     | Weighted average interest
rate    |  |              | 6.29      | %             |  |              |           |               |  |   | 7.10      | % |  |   |           |  



|(1) |  | Reflects the rate in effect as of December 31, 2001 and 2000 before the effects of swaps and includes all applicable
margins. Actual future rates may vary.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | All interest rate swaps enable us to pay a fixed interest rate in exchange for receiving variable interest rates at
LIBOR. (See Note 6.)                   

62



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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt covenants

Our 1999 Credit Facility contains certain financial covenants, including, but
not limited to total debt to EBITDA ratio and an interest expense coverage
ratio. Additionally, these covenants limit, among other things, our ability and
our subsidiaries ability to incur additional indebtedness and liens, make
acquisitions and purchase fixed assets above certain amounts, pay dividends,
make optional prepayments on certain subordinated indebtedness, make
investments, loans or advances, enter into certain transactions with affiliates
or consummate a merger, consolidation or sale of all or substantially all of
our assets.

The 1998 Senior Notes, the 1999 Notes, and the 2001 Senior Notes contain
certain financial and operating covenants and restrictions, which may, in
certain circumstances, limit our ability to complete acquisitions, pay
dividends, incur indebtedness, make investments and take certain other
corporate actions.

At December 31, 2001, we were in compliance with all applicable covenants.

6. Derivative Instruments and Hedging Activities

Consistent with our risk management policy, we enter into fixed to floating
swap agreements for the purpose of hedging variability of interest payments on
our long-term variable rate LIBOR-based bank debt and the corresponding
variability in interest expense. Our strategy is to utilize derivatives when
such transactions will serve to reduce our aggregate exposure. We enter these
contracts solely for the purpose of reducing risk; positions are not taken for
trading purposes. Our derivative activities are subject to the management,
direction and control of our Hedging Committee. Our risk management policy
requires that we evaluate the credit of our counterparties and that we monitor
counterparty exposure. At December 31, 2001, counterparties for 83% of our
interest rate swap portfolio were rated either AA or AA-. The counterparties
for the remaining 17% were rated from A+ to A. Risk management practices,
including the use of financial derivative instruments, are presented to the
Audit Committee of the Board of Directors at least annually.

Upon adoption of SFAS 133, at January 1, 2001, and subsequently throughout the
first three quarters of 2001, business plan assumptions were analyzed and
evaluated in relationship to the future level of anticipated bank debt
outstanding. We analyzed the terms and levels of the bank debt and maintained
a hedge portfolio with terms not to exceed the anticipated maturities or
paydowns of the variable rate bank debt  thereby achieving an effective
hedging relationship with our bank debt and our swap portfolio. We designate
our interest rate swap agreements at inception as hedges of the variability of
interest cash flow debt or as hedges of the fair value of a specific fixed rate
liability attributable to changes in market interest rates. We formally
document all relationships between hedging instruments and hedged items, as
well as the risk management objective and strategy for undertaking various
hedge transactions.

Adoption of these new accounting standards had no effect on net income and
resulted in cumulative pre-tax reductions of $74.7 million on January 1, 2001
to Accumulated Other Comprehensive Income, included as a component of reported
stockholders equity. At December 31, 2001, a liability of $140.7 million is
included in the Consolidated Balance Sheets in other long-term obligations
reflecting the market cost of hypothetical settlement of our swap portfolio on
that date. Correspondingly, at December 31, 2001, an after tax amount of $85.1
million is included in Accumulated Other Comprehensive Income (AOCI). The
liability will fluctuate with market interest rates but will reduce to zero
over the terms of each of our interest rate swap instruments. Approximately
$14.5 million of the liability at December 31, 2001 related to hedges maturing
within 12 months. Fair value variations over the life of the swap contracts
arise from changes in interest rates and the time value of money. Our swap
portfolio stabilizes our incurred and reported interest expense with the
consequence of the balance sheet fluctuations caused by changes in market
interest rates.

63



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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our cash flow interest rate swaps are properly designated as and are effective as hedges of our variable rate debt. We
assume 100% effectiveness in our interest rate hedges, as the notional amounts, indices, repricing dates, and all other
significant terms of the swap agreements are matched to the provisions and terms of the variable rate debt being hedged.
Accordingly, all changes in market value of our interest rate swap agreements are reflected in comprehensive income.
Expense or income related to swap settlements are matched against interest expense in earnings for the related variable
rate debt over the term of the agreements. These agreements are recognized on the balance sheet at their fair value. If
significant terms do not match we will then use the hypothetical swap method to assess any ineffectiveness. Any
ineffectiveness is recorded in interest expense in our income statement. Market change gains and losses on interest rate
swap agreements not designated in a hedging relationship would be recorded as a gain or loss on derivative instruments in
our income statement. We had no such gains or losses in 2001. When interest rate swap hedging relationships are
de-designated or terminated, any accumulated gains or losses in AOCI at that time are isolated and amortized over the
remaining original contract term.

Our interest rate swap portfolio continues to fix a significant portion of our variable rate interest payment obligation,
protecting us from cash flow variations arising from changes in short term interest rates. We believe this is prudent
given our capital structure. At December 31, 2001, the notional value of our interest rate swap contracts was $2.887
billion with a weighted average of 24 months to maturity. These contracts expire 15% during 2002, 28% during 2003, 48%
during 2004, and 9% during 2005. Our 1999 Credit Facility requires that 50% of our outstanding credit facility remain
hedged through July 2002, and our corporate policy is that at least 75% of our total debt must be effectively fixed, either
directly or through interest rate swap agreements. At December 31, 2001, approximately 96% of our debt was fixed, 64%
directly, and 32% through interest rate swap agreements.

Significant portions of the 1999 Credit Facility expire in July 2005. Before its expiration, we intend to re-finance the
1999 Credit Facility. Due to recent events that have impacted the capital markets, we now believe that the size of a new
Credit Facility will be smaller than originally anticipated. We believe that between December 31, 2001 and the time we
refinance the 1999 Credit Facility, we will reduce its size by about $1.5 billion. The alternatives available to us to
allow this reduction include, cash flow from operating activities, possible asset sales in excess of acquisitions and
potential capital market transactions. Capital market transactions could involve either new equity capital for our Company
or refinancing short-term maturities for longer-term maturities or some combination of both. This course of action is
subject to ongoing analysis and is dependent on a favorable economic environment. The exact size, combination or timing of
these events has not yet been determined, and we cannot assume that we will be able to secure a refinancing on terms we
regard as favorable, or at all.

These new events and their timing have been considered with respect to our hedge contracts expirations. The updated
business and financing plan, which is based on new circumstances not anticipated at the time we entered into the interest
rate swap agreements, contemplates the possibility of refinancing or prepaying variable rate debt before the expiration of
some interest rate swap contracts. The possibility of these new events occurring changes our prior assertions that the debt
would be outstanding for the duration of all swaps entered into from probable to less certainty.

Thus, in December 2001, we began contemplating the possibility of refinancing or prepaying our variable rate debt before
the expiration of some interest rate swap contracts. Effective December 31, 2001, we de-designated $1.5 billion of
notional amount interest rate swap contracts. Because it was possible that future interest rate payments on the underlying
variable rate debt may cease prior to the expiration of the related hedge contract portfolio.

In determining the amount to de-designate, we considered various business scenarios. Sensitivity analysis was performed to
identify the impact of various alternatives. We then identified only those swap contracts where we could make a clear
determination, based on new and current circumstances, that future interest payments were highly probable, left those
remaining as designated hedge accounting transactions, and de-designated the rest. Until the underlying variable rate debt
is paid, the de-designated contracts will remain in force.

64



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These analyses and results were reviewed and approved by senior management, the Hedging Committee and the Board of
Directors.

For contracts which remain designated as hedges, settlement payments in each period are included as part of our interest
expense. Periodic changes in the market value of those contracts will remain in shareholders equity in AOCI. For
de-designated contracts, settlement payments and periodic changes in market values of the contracts will be presented on
the face of the Consolidated Statements of Operations as a gain or loss of derivative contracts.

For contracts de-designated the total amount of loss in AOCI at December 31, 2001 was approximately $65 million ($40
million, net of income tax benefit). The gross amount will be amortized into interest expense over the remaining terms of
the de-designated contracts. Prospectively, periodic changes in market value for the contracts will be recorded in the
Consolidated Statements of Operations as a gain or loss on a derivative contract.

7. Landfill Accounting

We have a network of 167 owned or operated active landfills with a net book value of approximately $1.8 billion at December
31, 2001. The landfills have operating lives ranging from 1 to over 150 years based on available capacity using current
annual volumes. The average life of our landfills approximates 40 years. We use a life-cycle accounting method for
landfills and the related closure and post-closure liabilities. This method applies the costs associated with acquiring,
developing, closing and monitoring the landfills over the associated landfill capacity and associated consumption. On an
annual basis, we update the development cost estimates (which include the costs to develop the site as well as the
individual cell construction costs), closure and post-closure cost estimates and future capacity estimates (sometimes
referred to as airspace) for each landfill. The cost estimates are prepared by local company and third-party engineers
based on the applicable local, state and federal regulations and site specific permit requirements. Future capacity
estimates are updated using aerial surveys of each landfill to estimate utilized disposal capacity and remaining disposal
capacity. These cost and capacity estimates are reviewed and approved by senior operations management annually.

Landfill assets

We use the units of production method for purposes of calculating the amortization rate at each landfill. This
methodology divides the costs associated with acquiring, permitting and developing the entire landfill by the
total remaining disposal capacity of that landfill. The resulting per unit amortization rate is applied to each
unit disposed at the landfill and is recorded as expense for that period. We expensed approximately $149.2
million and $131.8 million or an average of $2.10 per ton and $1.97 per ton consumed, related to landfill
amortization during the years ended December 31, 2001 and 2000, respectively. The following is a rollforward of
our investment in our landfill assets excluding land held for permitting as landfills (in thousands):

|                  |  |                 |        |             |  |              |         |           |  |                   |          |                   |  |  |        |  |  |   |           | 
|----------------- |  | --------------- | ------ | ----------- |  | ------------ | ------- | --------- |  | ----------------- | -------- | ----------------- |  |  | ------ |  |  | - | --------- | 
|                  |  | Net Book Value  |        |             |  |              |         |           |  |                   |          |                   |  |  |        |  |  |  
|                  |  | of Landfills    |        |             |  |              |         |           |  |                   |          |                   |  |  |        |  |  |  
|                  |  | Acquired During |        | Landfill    |  |              |         |           |  |                   |          |                   |  |  |        | 
|Net Book Value at |  | 2001, net of    |        | Development |  | Landfill     |         |           |  |                   |          | Net Book Value at
|December 31, 2000 |  | Divestitures    |        | Costs       |  | Amortization |         | Other (1) |  | December 31, 2001
|                  |  |                 |        |             |  |              |         |           |  |                  
|$1,649,008        |  |                 | 20,737 |             |  |              | 227,636 |           |  |                   | (149,177 | )                 |  |  | 26,325 |  |  | $ | 1,774,529 | 



|(1) |  | Relates primarily to amounts transferred between land held for permitting as landfills and landfill
resulting from classifying additional disposal capacity as deemed permitted during 2001.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

65



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Costs associated with developing the landfill include direct costs such as excavation, liners, leachate collection systems, engineering and legal fees, and capitalized interest. Estimated
total future development costs for our 167 active landfills is approximately $3.2 billion, excluding capitalized interest, and we expect that this amount will be spent over the remaining
operating lives of the landfills. We have available disposal capacity of approximately 2.54 billion tons, or 3.17 billion cubic yards as of December 31, 2001. We classify this total disposal
capacity as either permitted (having received the final permit from the governing authorities) or deemed permitted. Our internal requirements to classify disposal capacity as deemed
permitted are as follows:



| | 1. |  | We have control of and access to the land where the expansion permit is being sought.                                                                                                
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | All geologic and other technical siting criteria for a landfill have been met, or a variance from such requirements has been received (or can reasonably be expected to be
achieved).
|
| | 3. |  | The political process has been assessed and there are no identified impediments that cannot be resolved.                                                                             
|
| | 4. |  | We are actively pursuing the expansion permit and have an expectation that the final local, state and federal permits will be received within the next five years.                   
|
| | 5. |  | Senior operations management approval has been obtained.                                                                                                                             

Upon successfully meeting the preceding criteria, the costs associated with developing, constructing, closing and monitoring the total additional future disposal capacity are considered in
the calculation of the amortization and closure and post-closure rates. At December 31, 2001, we had 1.92 billion tons, or 2.40 billion cubic yards of permitted disposal capacity, and at 41
of our landfills, 618.8 million tons, or 773.5 million cubic yards of deemed permitted disposal capacity.

The following table reflects disposal capacity activity for active landfills we owned or operated for the twelve months ended December 31, 2001 (disposal capacity in millions of
tons):

| |                             |  |          |         |                  |  |          |     |           |  |              |       |             |  |          |       |   |  |  |       |   |  |  |       |   |  |  |         | 
| | --------------------------- |  | -------- | ------- | ---------------- |  | -------- | --- | --------- |  | ------------ | ----- | ----------- |  | -------- | ----- | - |  |  | ----- | - |  |  | ----- | - |  |  | ------- | 
| |                             |  |          |         |                  |  |          |     |           |  | Additions to |       | Additions   |  |          |       |   |  |  |       |   |  |  |       |  
| |                             |  |          |         |                  |  |          |     |           |  | Permitted    |       | To          |  |          |       |   |  |  |       |   |  |  |       |  
| |                             |  | Balance  |         | Acquisitions,    |  | Deemed   |     | Permitted |  | Disposal     |       | Changes in  |  | Balance 
| |                             |  | as of    |         | Divestitures and |  | Disposal |     | Disposal  |  | Capacity     |       | Engineering |  | as of   
| |                             |  | 12/31/00 |         | Closures         |  | Capacity |     | Capacity  |  | Consumed     |       | Estimates   |  | 12/31/01
| |                             |  |          |         |                  |  |          |     |           |  |              |       |             |  |         
| | Permitted disposal capacity |  |          | 1,927.3 |                  |  |          | 7.8 |           |  |              |      |             |  |          | 85.8  |   |  |  | (71.0 | ) |  |  | (28.9 | ) |  |  | 1,921.0 | 
|
|
|
|
| | Number of landfills         |  |          | 164     |                  |  |          | 3   |           |  |              |      |             |  |          |      |   |  |  |      |   |  |  |      |   |  |  | 167     | 
|
|
|
|
| |                             |  |          |         |                  |  |          |     |           |  |              |       |             |  |          |       |   |  |  |       |   |  |  |       |   |  |  |        
|
|
|
|
| | Deemed disposal capacity    |  |          | 471.5   |                  |  |          |    |           |  |              | 226.6 |             |  |          | (75.8 | ) |  |  |      |   |  |  | (3.5  | ) |  |  | 618.8   | 
|
|
|
|
| | Number of landfills         |  |          | 43      |                  |  |          |    |           |  |              | 7     |             |  |          | (9    | ) |  |  |      |   |  |  |      |   |  |  | 41      | 
| |                             |  |          |         |                  |  |          |     |           |  |              |       |             |  |          |       |   |  |  |       |   |  |  |       |   |  |  |         | 
| |                             |  |          |         |                  |  |          |     |           |  |              |       |             |  |          |       |   |  |  |       |   |  |  |       |   |  |  |        
|
|
|
|
| | Total disposal capacity     |  |          | 2,398.8 |                  |  |          | 7.8 |           |  |              | 226.6 |             |  |          | 10.0  |   |  |  | (71.0 | ) |  |  | (32.4 | ) |  |  | 2,539.8 | 
|
|
|
|
| | Number of landfills         |  |          | 164     |                  |  |          | 3   |           |  |              |      |             |  |          |      |   |  |  |      |   |  |  |      |   |  |  | 167     | 

We, together with our engineering and legal consultants continually monitor the progress of obtaining local, state and federal approval for each of its expansion permits. If it is
determined that the expansion no longer meets our criteria, the disposal capacity is removed from our total available disposal capacity, the costs to develop that disposal capacity
and the associated closure and post-closure costs are removed from the landfill amortization base, and rates are adjusted prospectively. In addition, any value assigned to deemed
permitted capacity would be written-off to expense during the period in which it is determined that the criteria are no longer met.

The following table reflects the estimated
operating lives of our landfill assets based on available disposal capacity using current annual volumes:

|               |  |                 |     |                  |  |  |     |  
|-------------- |  | --------------- | --- | ---------------- |  |  | --- | -
|               |  | Number of Sites |     | Percent of Total
|               |  |                 |     |                 
|0 to 5 years   |  |                 | 27  |                  |  |  | 16  | %
|              
|              
|              
|              
|6 to 10 years  |  |                 | 22  |                  |  |  | 13  | %
|              
|              
|              
|              
|11 to 20 years |  |                 | 21  |                  |  |  | 13  | %
|              
|              
|              
|              
|21 to 40 years |  |                 | 46  |                  |  |  | 28  | %
|              
|              
|              
|              
|41+ years      |  |                 | 51  |                  |  |  | 30  | %
|               |  |                 |     |                  |  |  |     |  
|Total          |  |                 | 167 |                  |  |  | 100 | %
|               |  |                 |     |                  |  |  |     |  

66



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Closure and post-closure

In addition to our portfolio of 167 active landfills, we own or have responsibility for 107 closed
landfills no longer accepting waste. As individual areas within each landfill reach capacity, we are
required to cap and close the areas in accordance with the landfill site permit. Generally, closure
requirements include the application of compacted clay, geosynthetic liners and vegetative soil
barriers in addition to the construction of drainage channels and methane gas collection systems
among other closure activities. After the entire landfill site has reached capacity and is closed,
we are required to maintain and monitor the site for a post-closure period, which usually extends for
30 years. Post-closure requirements generally include maintenance of the site and monitoring the
methane gas collection systems and groundwater systems, among other post-closure activities. Such
estimated costs for closure and post-closure as required under Subtitle D regulations are compiled
and updated annually for each landfill by local and regional company engineers and reviewed by senior
management. The future estimated closure and post-closure costs are increased at an inflation rate of
2.5%, and discounted at a risk-free capital rate of 7.0%, per annum, based on the timing of the
amounts to be expended. The following table is a summary of the closure and post-closure costs (in
thousands):

|                                                                   |                     |   |                   |           |                   |  |   |           | 
|------------------------------------------------------------------ | ------------------- | - | ----------------- | --------- | ----------------- |  | - | --------- | 
|                                                                   |                     |   | December 31, 2001 |           | December 31, 2000
|                                                                   |                     |   |                   |           |                  
|Discounted Closure and Post-Closure Liability Recorded:            |                     |   |                   |           |                   |  |   |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Current Portion     |   | $                 | 93,218    |                   |  | $ | 90,785    | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Non-Current Portion |   |                   | 516,281   |                   |  |   | 510,568   | 
|                                                                   |                     |   |                   |           |                   |  |   |          
|                                                                   | Total               |   | $                 | 609,499   |                   |  | $ | 601,353   | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   |                     |   |                   |           |                   |  |   |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Estimated Remaining Closure and Post-Closure Costs to
be Expended: |                     |   |                   |           |                   |  |   |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Discounted          |   | $                 | 1,183,101 |                   |  | $ | 1,222,920 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Undiscounted        |   |                   | 3,103,814 |                   |  |   | 3,180,287 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   |                     |   |                   |           |                   |  |   |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Estimated Total Future Payments:                                   |                     |   |                   |           |                   |  |   |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|2002                                                               |                     | $ | 93,218            |           |                   |  |   |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|2003                                                               |                     |   | 63,968            |           |                   |  |   |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|2004                                                               |                     |   | 76,063            |           |                   |  |   |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|2005                                                               |                     |   | 58,147            |           |                   |  |   |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|2006                                                               |                     |   | 91,482            |           |                   |  |   |          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Thereafter                                                         |                     |   | 2,720,936         |           |                   |  |   |          

Our periodic closure and post-closure expense has two components. The first component is the site
specific per unit closure and post-closure expense. The per unit rate is derived by dividing the
estimated total remaining discounted closure and post-closure costs by the remaining disposal
capacity at each landfill (consistent with the disposal capacity used to calculate landfill
amortization rates). We use the resulting site-specific rates to record expense during a given period
based upon the consumption of disposal capacity during that period.

The second component is the accretion expense necessary to increase the accrued closure and
post-closure reserve balance to its future, or undiscounted, value. To accomplish this, we accrete
our closure and post-closure accrual balance using the risk-free capital rate and charge this
accretion as an operating expense in that period.

We charged approximately $67.2 million and $61.7 million, or an average of $0.95 per ton and $0.92
per ton consumed, related to per unit closure and post-closure expense and periodic accretion during
the years ended December 31, 2001 and 2000, respectively. Changes in estimates of costs or disposal
capacity are treated on a prospective basis for operating landfills and are recorded immediately for
closed landfills.

67



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Environmental costs 

In connection with the acquisition of companies, we engage independent environmental consulting firms to assist in
conducting an environmental assessment of companies acquired from third parties. Several contaminated landfills and other
properties were identified during 1999 and 1998 that would require us to incur costs for incremental closure and
post-closure measures, remediation activities and litigation costs in the future. Based on information available, we
recorded provisions of $3.3 million and $267.0 million for environmental matters, in the 2000 and 1999 Consolidated
Statements of Operations, respectively, and expect these amounts to be disbursed over the next 30 years.

The ultimate amounts for environmental liabilities cannot be precisely determined and estimates of such liabilities made
by us, after consultation with our 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 we have concluded that our 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 our assessment to date, the recorded liabilities will be periodically evaluated, as additional information becomes
available to ascertain whether the accrued liabilities are adequate. We have determined that the recorded undiscounted
liability for environmental matters as of December 31, 2001 and 2000 of approximately $395.4 million and $432.5 million,
respectively, represents the most probable outcome of these contingent matters. We do not reduce our estimated obligations
for proceeds from other potentially responsible parties or insurance companies. If receipt is probable, proceeds are
recorded as an offset to environmental expense in operating income. There were no significant recovery receivables
outstanding as of December 31, 2001 or 2000. We do 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 our consolidated
liquidity, financial position or results of operations. However, we believe that it is reasonably possible the ultimate
outcome of environmental matters, excluding closure and post-closure could result in approximately $30 million of
additional liability.

The following table shows the activity and balances related to environmental accruals and for closure and
post-closure accruals related to open and closed landfills from December 31, 1998 through December 31, 2001 (in
thousands):

|                                                |  |            |         |            |  |            |         |          |  |          |         |            |  |   |         |   |  |   |         | 
|----------------------------------------------- |  | ---------- | ------- | ---------- |  | ---------- | ------- | -------- |  | -------- | ------- | ---------- |  | - | ------- | - |  | - | ------- | 
|                                                |  | Balance at |         | Charges to |  | Other      |         |          |  |          |         | Balance at
|                                                |  | 12/31/98   |         | Expense    |  | Charges(1) |         | Payments |  | 12/31/99
|                                                |  |            |         |            |  |            |         |          |  |         
|Environmental costs                             |  | $          | 93,373  |            |  | $          | 267,034 |          |  | $        | 131,909 |            |  | $ | (14,122 | ) |  | $ | 478,194 | 
|                                               
|                                               
|                                               
|                                               
|Open landfills closure and post-closure costs   |  |            | 121,359 |            |  |            | 28,163  |          |  |          | 175,955 |            |  |   | (11,677 | ) |  |   | 313,800 | 
|                                               
|                                               
|                                               
|                                               
|Closed landfills closure and post-closure costs |  |            | 33,188  |            |  |            | 7,079   |          |  |          | 176,266 |            |  |   | (12,985 | ) |  |   | 203,548 | 

|                                                |  |            |         |            |  |            |        |          |  |          |         |            |  |   |         |   |  |   |         | 
|----------------------------------------------- |  | ---------- | ------- | ---------- |  | ---------- | ------ | -------- |  | -------- | ------- | ---------- |  | - | ------- | - |  | - | ------- | 
|                                                |  | Balance at |         | Charges to |  | Other      |        |          |  |          |         | Balance at
|                                                |  | 12/31/99   |         | Expense    |  | Charges(1) |        | Payments |  | 12/31/00
|                                                |  |            |         |            |  |            |        |          |  |         
|Environmental costs                             |  | $          | 478,194 |            |  | $          | 3,331  |          |  | $        | (9,436  | )          |  | $ | (39,636 | ) |  | $ | 432,453 | 
|                                               
|                                               
|                                               
|                                               
|Open landfills closure and post-closure costs   |  |            | 313,800 |            |  |            | 47,134 |          |  |          | (17,727 | )          |  |   | (18,925 | ) |  |   | 324,282 | 
|                                               
|                                               
|                                               
|                                               
|Closed landfills closure and post-closure costs |  |            | 203,548 |            |  |            | 14,593 |          |  |          | 98,827  |            |  |   | (39,897 | ) |  |   | 277,071 | 

|                                                |  |            |         |            |  |            |        |          |  |          |        |            |  |   |         |   |  |   |         | 
|----------------------------------------------- |  | ---------- | ------- | ---------- |  | ---------- | ------ | -------- |  | -------- | ------ | ---------- |  | - | ------- | - |  | - | ------- | 
|                                                |  | Balance at |         | Charges to |  | Other      |        |          |  |          |        | Balance at
|                                                |  | 12/31/00   |         | Expense    |  | Charges(1) |        | Payments |  | 12/31/01
|                                                |  |            |         |            |  |            |        |          |  |         
|Environmental costs                             |  | $          | 432,453 |            |  | $          |       |          |  | $        | (641   | )          |  | $ | (36,420 | ) |  | $ | 395,392 | 
|                                               
|                                               
|                                               
|                                               
|Open landfills closure and post-closure costs   |  |            | 324,282 |            |  |            | 51,136 |          |  |          | (3,357 | )          |  |   | (28,322 | ) |  |   | 343,739 | 
|                                               
|                                               
|                                               
|                                               
|Closed landfills closure and post-closure costs |  |            | 277,071 |            |  |            | 16,066 |          |  |          | 3,511  |            |  |   | (30,888 | ) |  |   | 265,760 | 



|(1) |  | Amounts consist primarily of liabilities related to acquired and divested companies and
changes to estimates of costs for closed landfill liabilities.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Employee Benefit Plans

Defined Benefit Pension Plans 

Effective July 30, 1999, in connection with the acquisition of BFI, we assumed
two defined benefit retirement plans covering substantially all BFI employees
in the United States, except for certain employees subject to collective
bargaining agreements.

These plans are the BFI Retirement Plan (BFI Pension Plan) and the Pension
Plan of San Mateo County Scavenger Company and Affiliated Divisions of
Browning-Ferris Industries of California, Ind. (San Mateo Pension Plan). The
BFI Pension Plan was amended on July 30, 1999 to freeze future credited
service, but interest credits continue to accrue. Certain union participants
continue to receive 2% annual service credits in addition to interest credits
through the duration of the current collective bargaining agreements. The
benefits not frozen for this plan are based on years of service and the
employees compensation

The BFI San Mateo Pension Plan covers substantially all employees of this
location. Benefits are based on the employees years of service and
compensation using the average of earnings over the highest five consecutive
calendar years out of the last fifteen years of service.

Our general funding policy for each pension plan is to make annual
contributions to the plans as determined to be required by the plans actuary.
No contributions were required during 2001, 2000, or 1999. No contributions
are anticipated necessary for 2002.

69



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For both plans, an actuarial valuation report was prepared as of September 30, 2001 and 2000 and used, as permitted by
SFAS 132, Employers Disclosures about Pensions and Other Postretirement Benefits(SFAS 132), for the following
disclosures (in thousands):

|                             |                                                  |  |                    |         |                     |  |   |         |  
|---------------------------- | ------------------------------------------------ |  | ------------------ | ------- | ------------------- |  | - | ------- | -
|                             |                                                  |  | For the Period     |         | For the Period from
|                             |                                                  |  | from September     |         | September 30, 1999 
|                             |                                                  |  | 30, 2000 through   |         | through            
|                             |                                                  |  | September 30, 2001 |         | September 30, 2000 
|                             |                                                  |  |                    |         |                    
|Change in Benefit Obligation |                                                 
|                             | Benefit obligation at beginning of period        |  | $                  | 236,973 |                     |  | $ | 249,110 |  
|                            
|                            
|                            
|                            
|                             | Service cost                                     |  |                    | 771     |                     |  |   | 1,094   |  
|                            
|                            
|                            
|                            
|                             | Interest cost                                    |  |                    | 17,697  |                     |  |   | 17,965  |  
|                            
|                            
|                            
|                            
|                             | Actuarial (gain) loss                            |  |                    | 29,573  |                     |  |   | (10,665 | )
|                            
|                            
|                            
|                            
|                             | Benefits paid                                    |  |                    | (15,425 | )                   |  |   | (20,531 | )
|                             |                                                  |  |                    |         |                     |  |   |         |  
|                             | Benefit obligation at end of period              |  | $                  | 269,589 |                     |  | $ | 236,973 |  
|                            
|                            
|                            
|                            
|                             |                                                  |  |                    |         |                     |  |   |        
|                            
|                            
|                            
|                            
|Change in Plan Assets        |                                                  |  |                    |         |                     |  |   |        
|                            
|                            
|                            
|                            
|                             | Fair value of plan assets at beginning of period |  | $                  | 354,207 |                     |  | $ | 304,274 |  
|                            
|                            
|                            
|                            
|                             | Actual return on plan assets                     |  |                    | (33,358 | )                   |  |   | 70,464  |  
|                            
|                            
|                            
|                            
|                             | Benefits paid                                    |  |                    | (15,425 | )                   |  |   | (20,531 | )
|                             |                                                  |  |                    |         |                     |  |   |         |  
|                             | Fair value of plan assets at end of period       |  |                    | 305,424 |                     |  |   | 354,207 |  
|                            
|                            
|                            
|                            
|                             |                                                  |  |                    |         |                     |  |   |        
|                            
|                            
|                            
|                            
|                             | Funded Status                                    |  |                    | 35,835  |                     |  |   | 117,234 |  
|                            
|                            
|                            
|                            
|                             | Unrecognized net actuarial (gain) loss           |  |                    | 64,225  |                     |  |   | (34,333 | )
|                             |                                                  |  |                    |         |                     |  |   |         |  
|                             | Prepaid benefit cost                             |  | $                  | 100,060 |                     |  | $ | 82,901  |  
|                             |                                                  |  |                    |         |                     |  |   |         |  



---

|                                                      |  |                   |         |                   |  |   |        | 
|----------------------------------------------------- |  | ----------------- | ------- | ----------------- |  | - | ------ | 
|                                                      |  | December 31, 2001 |         | December 31, 2000
|                                                      |  |                   |         |                  
|Amounts Recognized in the Consolidated Balance Sheets | 
|Prepaid benefit cost                                  |  | $                 | 100,060 |                   |  | $ | 82,901 | 



---

|                                                            |                                       |                   |                    |                   |                    |          |                  |         |   |  |                     |         |  
|----------------------------------------------------------- | ------------------------------------- | ----------------- | ------------------ | ----------------- | ------------------ | -------- | ---------------- | ------- | - |  | ------------------- | ------- | -
|                                                            |                                       |                   |                    |                   |                    |          |                  |         |   |  | For the Period from
|                                                            |                                       |                   |                    |                   |                    |          |                  |         |   |  | July 30, 1999      
|                                                            |                                       |                   | For the Year Ended |                   | For the Year Ended |          | through December
|                                                            |                                       | December 31, 2001 |                    | December 31, 2000 |                    | 31, 1999
|                                                            |                                       |                   |                    |                   |                    |         
|Components of Net Periodic Benefit Cost                     |                                      
|                                                            | Service cost                          |                   | $                  | 771               |                    |          | $                | 1,094   |   |  | $                   | 496     |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest cost                         |                   |                    | 17,697            |                    |          |                  | 17,965  |   |  |                     | 7,945   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Expected return on plan assets        |                   |                    | (35,422           | )                  |          |                  | (34,630 | ) |  |                     | (13,155 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Recognized net actuarial gain         |                   |                    | (205              | )                  |          |                  | (1,398  | ) |  |                     |        |  
|                                                            |                                       |                   |                    |                   |                    |          |                  |         |   |  |                     |        
|                                                            | Net periodic benefit cost             |                   | $                  | (17,159           | )                  |          | $                | (16,969 | ) |  | $                   | (4,714  | )
|                                                            |                                       |                   |                    |                   |                    |          |                  |         |   |  |                     |        
|                                                            |                                       |                   |                    |                   |                    |          |                  |         |   |  |                     |        
|                                                           
|                                                           
|                                                           
|                                                           
|Weighted-Average
Assumptions at September 30,
2001 and 2000 |                                       |                   |                    |                   |                    |          |                  |         |   |  |                     |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Discount rate                         |                   |                    | 7.25              | %                  |          |                  | 7.75    | % |  |                     | 7.75    | %
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Expected return on plan assets        |                   |                    | 9.75              | %                  |          |                  | 10.25   | % |  |                     | 10.25   | %
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Average rate of compensation increase |                   |                    | 4.00              | %                  |          |                  | 4.00    | % |  |                     | 4.00    | %

70



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

401k Plan 

The Company sponsors the Allied Waste Industries, Inc. 401(k) Plan (401(k)
Plan) a defined contribution plan, which is available to all eligible employees
except those represented by collective bargaining agreements. Eligible
employees may contribute up to 15% (25% effective February 1, 2002) of their
annual compensation on a pre-tax basis. Participants contributions are subject
to certain restrictions as set forth in the Internal Revenue Code. The Company
matches 50% of employee contributions, up to the first 5% of the employees
compensation which is deferred. Participants contributions vest immediately
and the employer contributions vest in increments of 20% based upon years of
service. The Companys matching contributions totaled $9.5 million, $7.2
million, and $1.0 million for fiscal years 2001, 2000, and 1999, respectively.

Effective July 30, 1999, in connection with the acquisition of BFI, the Company
assumed the BFI Employee Stock Ownership and Savings Plan (BFI 401(k)) which
covers substantially all BFI employees in the United States, except for certain
employees subject to collective bargaining agreements. The BFI 401(k) was
amended on April 1, 2000 to freeze contributions in anticipation of the merger
of the BFI 401(k) Plan into the Allied 401(k) Plan. The Board of Directors of
the Company approved the merger effective January 1, 2001 resulting in the
merger of assets totaling $382.1 million to the Allied 401(k) Plan.

9. Redeemable Preferred Stock

In connection with the BFI acquisition, our Board of
Directors adopted a resolution creating a series of
one million shares of preferred stock having a par
value of $0.10 per share. These shares were
designated as Series A Senior Convertible Preferred
Stock (Preferred Stock) and are entitled to vote on,
among other things, all matters on which the holders
of Common Stock are entitled to vote. Each share of
Preferred Stock has the number of votes equal to the
number of shares of Common Stock then issuable upon
conversion. Shares of Preferred Stock will be
entitled to cumulative quarterly dividends in an
amount equal to 6.5% per annum of the sum of the
liquidation preference plus accrued but unpaid
dividends for prior quarters. If dividends are not
paid in cash, the liquidation preference of the
Preferred Stock increases by any accrued and unpaid
dividends.

The Preferred Stock has a redemption price of its
then liquidation preference per share, together with
any accrued and unpaid dividends. Redemption of the
Preferred Stock is at our option in whole, but not
in part, at any time on or after July 30, 2004.
After July 30, 2002, we have the right to redeem the
Preferred Stock in whole, but not in part, at the
redemption price only if the then current market
price of our Common Stock exceeds $27 per share.

The preferred shareholders, who are also members of
the board and holders of Common Stock, have the
right to convert each share of Preferred Stock into
the number of shares of Common Stock obtained by
dividing the redemption price plus any accrued and
unpaid dividends on the conversion date by the
conversion price of $18 per share, subject to
customary anti-dilution adjustments. Upon a change
in control, we are required to make an offer to
purchase for cash all shares of Preferred Stock at
101% of liquidation preference plus accrued but
unpaid dividends.

From its inception through December 31, 2001,
approximately $169.0 million or $169 per share have
been added to the liquidation preference of the
preferred stock for accrued but unpaid dividends.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stockholders Equity

Our authorized, issued and outstanding shares of common stock are as follows (in thousands, except per share data):

|                                                    |  |            |         |      |  |                        |         |  |  |  |         | 
|--------------------------------------------------- |  | ---------- | ------- | ---- |  | ---------------------- | ------- |  |  |  | ------- | 
|                                                    |  |            |         |      |  | Issued and Outstanding
|                                                    |  |            |         |      |  | At December 31,       
|                                                    |  |            |         |      |  |                       
|                                                    |  | Authorized |         |      |  |                        |         |  |  | 
|                                                    |  | Shares     |         | 2001 |  | 2000                  
|                                                    |  |            |         |      |  |                       
|Common stock, $0.01 par, net of 603 treasury shares |  |            | 300,000 |      |  |                        | 196,236 |  |  |  | 196,109 | 

Warrants to purchase common stock

Warrants to purchase common shares at December 31, 2001 and 2000 are summarized as follows:

|                         |  |      |         |      |  |   |         | 
|------------------------ |  | ---- | ------- | ---- |  | - | ------- | 
|                         |  | 2001 |         | 2000
|                         |  |      |         |     
|Number of shares         |  |      | 347,827 |      |  |   | 347,827 | 
|                        
|                        
|                        
|                        
|Purchase price per share |  | $    | 4.60    |      |  | $ | 4.60    | 
|                        
|                        
|                        
|                        
|Expiration dates         |  |      | 2003    |      |  |   | 2003    | 

11.     Stock Plans

Option plans 

The 1991 Incentive Stock Plan (1991 Plan), the 1993 Incentive Stock Plan (1993 Plan) and the 1994 Incentive Stock Plan (1994 Plan, collectively the Plans) provide for
the grant of non-qualified stock options, incentive stock options, shares of restricted stock, shares of phantom stock and stock bonuses. During 2001, the 1991 Plan
was amended so that the maximum number of shares that may be granted may not exceed 10.5% of the number of fully diluted shares of common stock on the date of grant of
an award. The amendment also limits awards under the 1991 Plan in the form of restricted stock, stock bonuses, performance awards and phantom stock made after the
effective date of the amendment to not more than 25% of the aggregate shares available to be awarded or granted under the plan and limits the maximum number of options
granted to any employee under the Plan to 500,000 per year. An additional maximum number of shares of 500,000 and 2,000,000 common shares may be granted under the
1993 Plan and the 1994 Plan, respectively. After taking into account previously granted awards, awards covering approximately 7,584,924 shares of common stock were
available under the Plans after the amendment. The Compensation Committee of the Board of Directors (the Compensation Committee) generally determines the exercise
price, term and other conditions applicable to each option granted.

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 our employee, 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 1,150,000 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.

72



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the status of our stock option plans at December 31, 2001, 2000 and 1999 and for the years then ended is presented in the table and narrative below:

|                                                           |  |                          |            |       |  |          |       |       |  |         |            |          |  |   |       |  |  |          |            |   |  |   |       | 
|---------------------------------------------------------- |  | ------------------------ | ---------- | ----- |  | -------- | ----- | ----- |  | ------- | ---------- | -------- |  | - | ----- |  |  | -------- | ---------- | - |  | - | ----- | 
|                                                           |  | Years Ended December 31,
|                                                           |  |                         
|                                                           |  | 2001                     |            | 2000  |  | 1999    
|                                                           |  |                          |            |       |  |         
|                                                           |  |                          |            |       |  | Weighted |       |       |  |         |            | Weighted |  |   |       |  |  | Weighted
|                                                           |  |                          |            |       |  | Average  |       |       |  |         |            | Average  |  |   |       |  |  | Average 
|                                                           |  |                          |            |       |  | Exercise |       |       |  |         |            | Exercise |  |   |       |  |  | Exercise
|                                                           |  | Options                  |            | Price |  | Options  |       | Price |  | Options |            | Price   
|                                                           |  |                          |            |       |  |          |       |       |  |         |            |         
|Options outstanding,
beginning of year                     |  |                          | 15,451,642 |       |  | $        | 12.82 |       |  |         | 15,415,129 |          |  | $ | 13.37 |  |  |          | 10,786,000 |   |  | $ | 12.97 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Options granted                                            |  |                          | 2,401,250  |       |  |          | 13.41 |       |  |         | 2,203,800  |          |  |   | 11.65 |  |  |          | 6,085,000  |   |  |   | 13.11 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Options exercised                                          |  |                          | (690,969   | )     |  |          | 9.52  |       |  |         | (375,927   | )        |  |   | 5.90  |  |  |          | (1,231,771 | ) |  |   | 7.97  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Options forfeited                                          |  |                          | (441,241   | )     |  |          | 14.45 |       |  |         | (1,791,360 | )        |  |   | 17.57 |  |  |          | (224,100   | ) |  |   | 16.88 | 
|                                                           |  |                          |            |       |  |          |       |       |  |         |            |          |  |   |       |  |  |          |            |   |  |   |       | 
|Options outstanding, end
of year                           |  |                          | 16,720,682 |       |  |          | 12.77 |       |  |         | 15,451,642 |          |  |   | 12.82 |  |  |          | 15,415,129 |   |  |   | 13.37 | 
|                                                           |  |                          |            |       |  |          |       |       |  |         |            |          |  |   |       |  |  |          |            |   |  |   |       | 
|Options exercisable, end
of year                           |  |                          | 10,031,008 |       |  |          | 14.57 |       |  |         | 7,832,176  |          |  |   | 14.44 |  |  |          | 6,628,574  |   |  |   | 12.52 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Weighted average fair
value of options granted
in the year |  |                          |            |       |  |          | 7.43  |       |  |         |            |          |  |   | 6.24  |  |  |          |            |   |  |   | 6.45  | 

We account for our stock-based compensation plans under APB 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 our Common Stock upon the date of grant. 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,
|                        |  |                                 
|                        |  | 2001                             |   | 2000         |  | 1999        
|                        |  |                                  |   |              |  |             
|Risk free interest rate |  | 4.8% to 5.2%                     |   | 5.3% to 6.9% |  | 5.2% to 6.3%
|                       
|                       
|                       
|                       
|Expected life           |  | 5 years                          |   | 5 years      |  | 5 years     
|                       
|                       
|                       
|                       
|Dividend rate           |  |                                  | 0 | %            |  |              | 0 | % |  |  | 0 | %
|                       
|                       
|                       
|                       
|Expected volatility     |  | 55% to 61%                       |   | 52% to 55%   |  | 47% to 50%  

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 resulting pro forma net income (loss), and pro forma net income (loss) per share is as follows (in thousands, except per share data):

|                                   |  |             |  |                                  |          |      |  |      |        |  |  |   |          |  
|---------------------------------- |  | ----------- |  | -------------------------------- | -------- | ---- |  | ---- | ------ |  |  | - | -------- | -
|                                   |  |             |  | For the Years Ended December 31,
|                                   |  |             |  |                                 
|                                   |  |             |  | 2001                             |          | 2000 |  | 1999
|                                   |  |             |  |                                  |          |      |  |     
|Net income (loss):                 |  | As reported |  | $                                | (14,526) |      |  | $    | 55,935 |  |  | $ | (316,517 | )
|                                  
|                                  
|                                  
|                                  
|                                   |  | Pro forma   |  |                                  | (30,618) |      |  |      | 41,984 |  |  |   | (326,793 | )
|                                  
|                                  
|                                  
|                                  
|                                   |  |             |  |                                  |          |      |  |      |        |  |  |   |          |  
|                                  
|                                  
|                                  
|                                  
|Diluted earnings (loss) per share: |  | As reported |  | $                                | (0.07)   |      |  | $    | 0.29   |  |  | $ | (1.69    | )
|                                  
|                                  
|                                  
|                                  
|                                   |  | Pro forma   |  |                                  | (0.16)   |      |  |      | 0.22   |  |  |   | (1.74    | )

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize information about stock options outstanding at December 31, 2001, which are fully vested,
partially vested and non-vested:

Fully Vested:

|                                    |  |                    |           |                |  |                |  |                  |       |                  |  |  |  | 
|----------------------------------- |  | ------------------ | --------- | -------------- |  | -------------- |  | ---------------- | ----- | ---------------- |  |  |  | 
|Options Outstanding and Exercisable
|                                   
|                                    |  |                    |           |                |  |                |  | Weighted Average |       | Weighted Average
|Range of Exercise Prices            |  | Number Outstanding |           | Remaining Life |  | Exercise Price
|                                    |  |                    |           |                |  |               
|$4.27-$8.38                         |  |                    | 1,848,807 |                |  | 4 years        |  | $                | 5.43  |                 
|                                   
|                                   
|                                   
|                                   
|$8.50-$12.25                        |  |                    | 1,442,105 |                |  | 5 years        |  | $                | 9.73  |                 
|                                   
|                                   
|                                   
|                                   
|$16.44-$21.97                       |  |                    | 1,642,404 |                |  | 7 years        |  | $                | 20.41 |                 
|                                   
|                                   
|                                   
|                                   
|$22.84-$27.27                       |  |                    | 140,349   |                |  | 7 years        |  | $                | 26.26 |                 

Partially Vested:

|                         |  |                    |           |                |  |                |                  |   |                  |  |  |  | 
|------------------------ |  | ------------------ | --------- | -------------- |  | -------------- | ---------------- | - | ---------------- |  |  |  | 
|Options Outstanding     
|                        
|                         |  |                    |           |                |  |                | Weighted Average |   | Weighted Average
|Range of Exercise Prices |  | Number Outstanding |           | Remaining Life |  | Exercise Price
|                         |  |                    |           |                |  |               
|$7.31-$10.00             |  |                    | 2,424,852 |                |  | 7 years        |                  | $ | 9.28             | 
|                        
|                        
|                        
|                        
|$12.94-$15.00            |  |                    | 5,951,750 |                |  | 8 years        |                  | $ | 13.51            | 
|                        
|                        
|                        
|                        
|$15.88-$21.06            |  |                    | 905,000   |                |  | 6 years        |                  | $ | 20.37            | 

|                         |  |                    |           |                |  |                |                  |   |                  |  |  |  | 
|------------------------ |  | ------------------ | --------- | -------------- |  | -------------- | ---------------- | - | ---------------- |  |  |  | 
|Options Exercisable     
|                        
|                         |  |                    |           |                |  |                | Weighted Average |   | Weighted Average
|Range of Exercise Prices |  | Number Outstanding |           | Remaining Life |  | Exercise Price
|                         |  |                    |           |                |  |               
|$7.31-$10.00             |  |                    | 1,679,926 |                |  | 7 years        |                  | $ | 9.42             | 
|                        
|                        
|                        
|                        
|$12.94-$15.00            |  |                    | 2,710,417 |                |  | 8 years        |                  | $ | 13.56            | 
|                        
|                        
|                        
|                        
|$15.88-$21.06            |  |                    | 567,000   |                |  | 6 years        |                  | $ | 20.18            | 

Non Vested:

|                         |  |                    |           |                |  |                |                  |   |                  |  |  |  | 
|------------------------ |  | ------------------ | --------- | -------------- |  | -------------- | ---------------- | - | ---------------- |  |  |  | 
|Options Outstanding     
|                        
|                         |  |                    |           |                |  |                | Weighted Average |   | Weighted Average
|Range of Exercise Prices |  | Number Outstanding |           | Remaining Life |  | Exercise Price
|                         |  |                    |           |                |  |               
|$6.06-$8.00              |  |                    | 51,665    |                |  | 9 years        |                  | $ | 6.94             | 
|                        
|                        
|                        
|                        
|$10.00-$13.31            |  |                    | 2,056,750 |                |  | 10 years       |                  | $ | 12.86            | 
|                        
|                        
|                        
|                        
|$15.00-$16.92            |  |                    | 257,000   |                |  | 10 years       |                  | $ | 16.40            | 

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholder rights plan 

During May 2000, our Board of Directors adopted a
Stockholder Rights Plan (the Plan). The Plan provides for
the distribution of one preferred stock purchase right on
each share of our Common Stock and approximately 65 rights
on each share of our Preferred Stock. Initially, the rights
will trade with the Common Stock and Preferred Stock and
will not be represented by separate certificates. The rights
represent the right to purchase one ten-thousandth of a
share of a newly created series of our junior preferred
stock at an exercise price of $85, but will not be
exercisable until certain events occur.

The rights will be exercisable only if a person or group
acquires 15% or more of our voting stock or announces a
tender offer which, if consummated, would result in such an
acquisition. Following an acquisition of 15% or more of our
voting stock, each right will entitle its holder, at the
rights then current exercise price, to purchase a
fractional number of junior preferred shares having a market
value of twice the exercise price.

In addition, if we are acquired in a merger or other
business combination transaction after a person has acquired
15% or more of our voting stock, each right will entitle its
holder to purchase, at the rights then current exercise
price, a number of the acquiring companys common shares
having a market value of twice such price.

Prior to the acquisition by a person or group of 15% or more
of our voting stock, the rights are redeemable at the option
of the Board of Directors.

The stock ownership of the holders of our Preferred Stock
and related parties will not cause the rights to become
exercisable or otherwise be treated as the acquisition of
15% or more of our voting power for purposes of the rights
plan. The rights expire in 2010.

Restricted stock plan 

In April 2000, we amended and restated the 1991 Plan,
whereby the Committee may award restricted stock to certain
individuals. Restricted stock is common shares of Allied
that cannot be sold or transferred and that remain subject
to being forfeited until the individual becomes vested.
Generally, if the individual terminates employment prior to
vesting, the unvested shares are forfeited.

The Committee has awarded restricted stock to certain
individuals pursuant to a Performance-Accelerated Restricted
Stock Agreement (PARSAP) and may make similar awards in the
future. Under the terms of the PARSAP, an individual is
fully vested after 10 years, but may become vested sooner if
certain performance goals are met.

The performance goals are based on a targeted implied equity
value per share being met. Targets are set for three, four,
and five years after the date the restricted stock is
awarded with provisions for accelerated vesting for up to
100% of the shares of restricted stock by the fifth year if
the targets are met.

Vesting also may be accelerated if certain events occur. If
an individuals employment is terminated due to disability
or death, any unvested shares of restricted stock become
fully vested at that time. If the individuals employment
is terminated in or after the sixth year, either by Allied
without cause or due to retirement, a portion of unvested
shares may become fully vested. The portion is determined
with reference to the number of months worked since the date
of grant and the total number of months in the original 10
year vesting period.

Vesting also may be accelerated in the case of a change in
control. Vesting will be accelerated under circumstances
whereby a change in control occurs in combination with
certain set market prices per share of stock.

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2000, the Compensation Committee approved grants of approximately 7.0 million shares of restricted stock to
approximately 60 key management employees under this plan. The weighted average grant-date fair value of shares granted
during 2000 was $6.10 per share. At December 31, 2001, 0.8 million shares, with a weighted average grant-date fair value
of $5.88 have been forfeited. None of the shares are vested at December 31, 2001. During 2001, we recognized approximately
$3.6 million recorded for compensation expense. At December 31, 2001 we have $32.3 million of deferred compensation
related to this plan.

12. 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. The computation of basic earnings per share
and diluted earnings per share is as follows (in thousands, except per share data):

|                                                                                                                                                            |  |                                  |         |      |  |      |         |  |  |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | ---- |  | ---- | ------- |  |  | - | -------- | -
|                                                                                                                                                            |  | For the Years Ended December 31,
|                                                                                                                                                            |  |                                 
|                                                                                                                                                            |  | 2001                             |         | 2000 |  | 1999
|                                                                                                                                                            |  |                                  |         |      |  |     
|Basic earnings per share computation:                                                                                                                       |  |                                  |         |      |  |      |         |  |  |   |          |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Income (loss) before extraordinary loss and cumulative
effect of change in accounting principle                                                             |  | $                                | 75,459  |      |  | $    | 137,653 |  |  | $ | (221,250 | )
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Less: dividends on preferred stock                                                                                                                          |  |                                  | 73,012  |      |  |      | 68,452  |  |  |   | 27,789   |  
|                                                                                                                                                            |  |                                  |         |      |  |      |         |  |  |   |          |  
|Income (loss) available to common shareholders before
extraordinary loss and cumulative effect of change in
accounting principle, net of income tax benefit |  | $                                | 2,447   |      |  | $    | 69,201  |  |  | $ | (249,039 | )
|                                                                                                                                                            |  |                                  |         |      |  |      |         |  |  |   |          |  
|Weighted average common shares outstanding                                                                                                                  |  |                                  | 189,583 |      |  |      | 188,814 |  |  |   | 187,801  |  
|                                                                                                                                                            |  |                                  |         |      |  |      |         |  |  |   |          |  
|Basic earnings (loss) per share before extraordinary loss
and cumulative effect of change in accounting principle,
net of income tax benefit                |  | $                                | 0.01    |      |  | $    | 0.37    |  |  | $ | (1.33    | )
|                                                                                                                                                            |  |                                  |         |      |  |      |         |  |  |   |          |  
|                                                                                                                                                            |  |                                  |         |      |  |      |         |  |  |   |          |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Diluted earnings per share computation:                                                                                                                     |  |                                  |         |      |  |      |         |  |  |   |          |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Income (loss) before extraordinary loss and cumulative
effect of change in accounting principle                                                             |  | $                                | 75,459  |      |  | $    | 137,653 |  |  | $ | (221,250 | )
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Less: preferred stock dividends                                                                                                                             |  |                                  | 73,012  |      |  |      | 68,452  |  |  |   | 27,789   |  
|                                                                                                                                                            |  |                                  |         |      |  |      |         |  |  |   |          |  
|Income (loss) available to common shareholders before
extraordinary loss and cumulative effect of change in
accounting principle, net of income tax benefit |  | $                                | 2,447   |      |  | $    | 69,201  |  |  | $ | (249,039 | )
|                                                                                                                                                            |  |                                  |         |      |  |      |         |  |  |   |          |  
|Weighted average common shares outstanding                                                                                                                  |  |                                  | 189,583 |      |  |      | 188,814 |  |  |   | 187,801  |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Dilutive effect of stock, stock options, warrants and
contingently issuable shares                                                                          |  |                                  | 5,323   |      |  |      | 2,308   |  |  |   |         |  
|                                                                                                                                                            |  |                                  |         |      |  |      |         |  |  |   |          |  
|Weighted average common and common equivalent
shares outstanding                                                                                            |  |                                  | 194,906 |      |  |      | 191,122 |  |  |   | 187,801  |  
|                                                                                                                                                            |  |                                  |         |      |  |      |         |  |  |   |          |  
|Diluted earnings (loss) per share before extraordinary
losses and cumulative effect of change in accounting
principle, net of income tax benefit            |  | $                                | 0.01    |      |  | $    | 0.36    |  |  | $ | (1.33    | )
|                                                                                                                                                            |  |                                  |         |      |  |      |         |  |  |   |          |  

Conversion has not been assumed for the Preferred Stock into 64,947, 60,891and 57,089 common
shares and stock options of 2,767, 2,683 and 12,468 in 2001, 2000 and 1999, respectively as the
effects would not be dilutive.

76



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Income Taxes

We account 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 non-deductible goodwill,
and liabilities. The differences are measured using the income tax rate in
effect during the year of measurement.

The acquisition of BFI in 1999, which was accounted for as a purchase business
combination, resulted in approximately $6.8 billion of goodwill, $6.5 billion
of which is not amortizable for income tax purposes. The impact of the
non-deductible amortization is reflected in the reconciliation of the federal
statutory tax rate to the effective tax rate.

As of December 31, 2001, approximately $135 million of capital loss
carryforward, with an estimated tax effect of $53 million, remains unused that
will expire if not used by the end of 2003. Anticipated divestitures will
generate capital gains to offset a portion of the capital loss carryforward and
we have established a $49 million valuation allowance against the deferred tax
asset for the amount of the carryforward which may not offset capital gains. We
also have federal net operating losses of $78 million, with an estimated tax
effect of $28 million, available at December 31, 2001. If unused, material
portions of these losses will begin to expire in 2018. Additionally, we have
state net operating loss carryforwards available at December 31, 2001 that we
expect will generate future tax savings of approximately $105 million. The
state net operating losses will expire at various times between 2002 and 2019
if not used. We have established a valuation allowance of $87 million for the
possibility that some of these state carryforwards may not be used. In addition
to the net operating loss carryforwards, we have federal minimum tax credit
carryforwards of approximately $12 million as of December 31, 2001, which are
not subject to expiration and foreign tax credit carryforwards of approximately
$9 million which expire beginning in 2002. We have established a valuation
allowance of $9 million for the possibility that the foreign tax credit
carryforwards may not be used. The net current deferred tax asset includes the
current benefit we expect to receive in 2002 from the use of our net operating
loss, capital loss and minimum tax credit carryforwards.

The balance sheet classification and amount of the tax accounts established
relating to acquisitions are based on certain assumptions that could possibly
change based on the ultimate outcome of certain tax matters. As these tax
accounts were established in purchase accounting, any future changes relating
to these amounts will result in balance sheet reclassifications, which may
include an adjustment to the goodwill. The valuation allowance at December 31,
2001 includes approximately $74 million related to the BFI acquisition, the
subsequent reduction of which would result in an adjustment to goodwill.

77



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

|                             |  |                         |         |      |  |      |         |  |  |   |         |  
|---------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | -
|                             |  | Year Ended December 31,
|                             |  |                        
|                             |  | 2001                    |         | 2000 |  | 1999
|                             |  |                         |         |      |  |     
|Current tax provision        |  | $                       | 21,301  |      |  | $    | 44,486  |  |  | $ | 65,300  |  
|                            
|                            
|                            
|                            
|Deferred provision (benefit) |  |                         | 169,533 |      |  |      | 193,054 |  |  |   | (74,056 | )
|                             |  |                         |         |      |  |      |         |  |  |   |         |  
|Total                        |  | $                       | 190,834 |      |  | $    | 237,540 |  |  | $ | (8,756  | )
|                             |  |                         |         |      |  |      |         |  |  |   |         |  

The reconciliation of the federal statutory tax rate to our effective tax rate is as follows:

|                                                                    |  |                         |      |      |  |      |      |   |  |  |       |   
|------------------------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ----- | --
|                                                                    |  | Year Ended December 31,
|                                                                    |  |                        
|                                                                    |  | 2001                    |      | 2000 |  | 1999
|                                                                    |  |                         |      |      |  |     
|Federal statutory tax rate                                          |  |                         | 35.0 | %    |  |      | 35.0 | % |  |  | (35.0 | )%
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Consolidated state taxes, net of federal benefit                    |  |                         | 8.2  |      |  |      | 7.2  |   |  |  | (0.4  | ) 
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Taxes of pooled companies                                           |  |                         |     |      |  |      |     |   |  |  | (0.1  | ) 
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Amortization of goodwill                                            |  |                         | 22.6 |      |  |      | 16.0 |   |  |  | 11.2  |   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Non-deductible write-off of goodwill and business
combination costs |  |                         | 1.5  |      |  |      | 1.8  |   |  |  | 16.2  |   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Other permanent differences                                         |  |                         | 4.4  |      |  |      | 3.3  |   |  |  | 4.2   |   
|                                                                    |  |                         |      |      |  |      |      |   |  |  |       |   
|Effective tax rate                                                  |  |                         | 71.7 | %    |  |      | 63.3 | % |  |  | (3.9  | )%
|                                                                    |  |                         |      |      |  |      |      |   |  |  |       |   

Tax benefits for the extraordinary items in 2001 and 2000 were based on our ordinary combined federal and state rates of 39.5%. Tax benefit for the cumulative effect of change in
accounting principle in 1999 was based on our ordinary combined federal and state rate of 39.5%.

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

|                                                                                                                                                   |  |              |          |      |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | ---- |  | - | -------- | -
|                                                                                                                                                   |  | December 31,
|                                                                                                                                                   |  |             
|                                                                                                                                                   |  | 2001         |          | 2000
|                                                                                                                                                   |  |              |          |     
|Deferred tax liability relating primarily to property consisting
of landfill and fixed assets and contingencies related to other
basis differences |  | $            | (800,618 | )    |  | $ | (714,529 | )
|                                                                                                                                                   |  |              |          |      |  |   |          |  
|                                                                                                                                                   |  |              |          |      |  |   |          |  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|Deferred Tax Assets Relating To:                                                                                                                   |  |              |          |      |  |   |          |  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|Environmental, closure and post-closure reserves                                                                                                   |  |              | 330,755  |      |  |   | 326,866  |  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|Other reserves                                                                                                                                     |  |              | 145,193  |      |  |   | 141,324  |  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|Net operating loss, capital loss, foreign tax credit and minimum
tax credit carryforwards                                                          |  |              | 206,870  |      |  |   | 179,183  |  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|Valuation allowance                                                                                                                                |  |              | (144,833 | )    |  |   | (84,614  | )
|                                                                                                                                                   |  |              |          |      |  |   |          |  
|Total deferred tax asset                                                                                                                           |  |              | 537,985  |      |  |   | 562,759  |  
|                                                                                                                                                   |  |              |          |      |  |   |          |  
|Net deferred tax liability                                                                                                                         |  | $            | (262,633 | )    |  | $ | (151,770 | )
|                                                                                                                                                   |  |              |          |      |  |   |          |  

Deferred income taxes have not been provided as of December 31, 2001 and 2000, on approximately $37 million and $36 million, respectively, of undistributed earnings of Puerto Rican
affiliates, which are considered to be permanently reinvested.

We are currently under examination by various state and federal taxing authorities for certain tax years. An audit for the years ended December 31, 1998 and 1999, as well as BFI tax
years ended September 30, 1996 through July 30, 1999 is
ongoing. Although no adjustment has been proposed, the IRS may seek to disallow some or all of a capital loss included in BFIs July
30, 1999 tax return. The disallowance of this loss could have a tax effect of up to $360 million. However, our position is well supported and we would vigorously contest any such
disallowance. If the IRS were to disallow some or all of the capital loss claimed, it is likely and anticipated that any resolution of this matter would entail efforts to resolve it
favorably including administrative appeals and litigation extending over several years. An unfavorable result could require future cash expenditures but would have minimal, if any,
impact on our consolidated results of operations.

78



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Commitments and Contingencies

We are subject to extensive and evolving laws and
regulations and have implemented our own environmental
safeguards to respond to regulatory requirements. In the
normal course of conducting our operations, we may
become involved in certain legal and administrative
proceedings. Some of these actions may result in fines,
penalties or judgments against us, which may have an
impact on earnings for a particular period. We accrue
for litigation and regulatory compliance contingencies
when such costs are probable and reasonably estimable.
We expect that matters in process at December 31, 2001,
which have not been accrued in the Consolidated Balance
Sheets, will not have a material adverse effect on our
consolidated liquidity, financial position or results
from operations.

In connection with certain acquisitions, we have entered
into agreements to pay royalties based on waste tonnage
disposed at specified landfills. The payments are
generally payable quarterly and amounts earned, but not
paid, are accrued in the accompanying Consolidated
Balance Sheets.

We have 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, 2001
|           |  |                  
|2002       |  | $                 | 29,390 | 
|          
|          
|          
|          
|2003       |  |                   | 27,531 | 
|          
|          
|          
|          
|2004       |  |                   | 23,437 | 
|          
|          
|          
|          
|2005       |  |                   | 19,479 | 
|          
|          
|          
|          
|2006       |  |                   | 16,956 | 
|          
|          
|          
|          
|Thereafter |  |                   | 52,295 | 

Rental expense under such operating leases was
approximately $26.3 million, $31.0 million and $26.9
million for each of the three years ended December 31,
2001, respectively.

We have entered into employment agreements with certain
of our executive officers for periods up to three years.
We have agreed to pay severance amounts equal to a
multiple of defined compensation under certain
circumstances. In the event of a change in control, as
defined in the employment agreements, we would be
required to make substantial severance payments. If an
Executive Employment Agreement is terminated by an
employee for Good Reason (as defined in the Executive
Employment Agreement), the Company is obligated to pay
an amount equal to the largest annual bonus paid to the
employee for any of the last three years preceding the
date of termination and to continue making base salary
payments through the term of the agreement. If an
Executive Employment Agreement is terminated by an
employee for Good Reason or by the Company without Cause
and a Change in Control (as defined in the Executive
Employment Agreement) has occurred within the two years
preceding or one year following the date of termination,
the Company is obligated to pay an additional amount
equal to two times the sum of the employees base salary
on the date of termination and the bonus paid to the
employee for the previous year.

We carry a broad range of insurance coverage for
protection of our assets and operations from certain
risks, including environmental impairment liability
insurance for certain landfills.

79



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We are also required to provide financial assurances to governmental agencies
under applicable environmental regulations relating to our landfill operations
and collection contracts. These financial assurance requirements are satisfied
by our providing performance bonds, letters of credit, insurance policies or
trust deposits to secure our obligations as they relate to landfill closure and
post-closure costs and performance under certain collection contracts. At
December 31, 2001, we had outstanding approximately $1.6 billion in financial
assurance instruments relating to our landfill operations, represented by
$407.2 million of surety bonds, $1,026.8 million of insurance policies, $49.2
million of trust deposits and $97.5 million of letters of credit. During
calendar year 2002, we expect no material increase in financial assurance
obligations relating to our landfill operations and collection contracts
although the mix of financial assurance instruments may change in the future.
Additionally we have approximately $460 million in operational performance
bonds with various municipalities and approximately $95 million of financial
guarantee bonds for self-insurance.

We have issued bank letters of credit in the aggregate amount of approximately
$508 million at December 31, 2001, including approximately $97.5 million
relating to financial assurances to government agencies. These financial
instruments are issued in the normal course of business and are not reflected
in the accompanying Consolidated Balance Sheets. The underlying obligations of
the financial instruments are valued based on the likelihood of performance
being required. We do not expect any material losses to result from these off
balance sheet instruments based on historical results.

15. Related Party Transactions

Transactions with related parties are entered into only upon approval by a
majority of our independent directors and only upon terms comparable to those
that would be available from unaffiliated parties. We have outstanding employee
loans of approximately $6 million to current or former employees.

80



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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Segment Reporting

We classify our operations into two areas: East and West and the following eight U.S. geographic regions: Atlantic, Central, Great Lakes, Midwest,
Northeast, Southeast, Southwest and West. Our revenues are derived from one industry segment, which includes the collection, transfer, recycling and
disposal of non-hazardous solid waste. We evaluate performance based on several factors, of which the primary financial measure is EBITDA before
acquisition related and unusual costs. The accounting policies of the business segments are the same as those described in the Organization and Summary
of Significant Accounting Policies (See Note 1). The tables below reflect certain geographic information relating to our operations (in thousands):



|                                     |  |          |           |         |  |       |           |         |  |           |           |           |  |           |           |  |  |   |           |  |  |   |           |  |  |   |           | 
|------------------------------------ |  | -------- | --------- | ------- |  | ----- | --------- | ------- |  | --------- | --------- | --------- |  | --------- | --------- |  |  | - | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                     |  |          |           |         |  |       |           |         |  | Great     |           |           |  |           |           |  |  |   |           |  |  |   |           |  |  |  
|                                     |  | Atlantic |           | Central |  | Lakes |           | Midwest |  | Northeast |           | Southeast |  | Southwest
|                                     |  |          |           |         |  |       |           |         |  |           |           |           |  |          
|2001:                                |  |          |           |         |  |       |           |         |  |           |           |           |  |           |           |  |  |   |           |  |  |   |           |  |  |   |           | 
|                                    
|                                    
|                                    
|                                    
|Revenues from external
customers     |  | $        | 575,627   |         |  | $     | 520,095   |         |  | $         | 611,982   |           |  | $         | 479,711   |  |  | $ | 832,004   |  |  | $ | 780,578   |  |  | $ | 792,106   | 
|                                    
|                                    
|                                    
|                                    
|Intersegment revenues                |  |          | 89,850    |         |  |       | 125,228   |         |  |           | 157,452   |           |  |           | 128,043   |  |  |   | 219,381   |  |  |   | 118,122   |  |  |   | 135,427   | 
|                                    
|                                    
|                                    
|                                    
|Depreciation and
amortization        |  |          | 66,042    |         |  |       | 71,306    |         |  |           | 92,732    |           |  |           | 74,726    |  |  |   | 86,454    |  |  |   | 91,089    |  |  |   | 105,134   | 
|                                    
|                                    
|                                    
|                                    
|EBITDA before non-
recurring charges |  |          | 210,090   |         |  |       | 179,959   |         |  |           | 266,708   |           |  |           | 221,635   |  |  |   | 191,019   |  |  |   | 260,925   |  |  |   | 285,751   | 
|                                    
|                                    
|                                    
|                                    
|Total assets                         |  |          | 1,262,315 |         |  |       | 1,326,558 |         |  |           | 1,522,332 |           |  |           | 1,394,440 |  |  |   | 1,843,380 |  |  |   | 1,830,776 |  |  |   | 1,862,702 | 
|                                    
|                                    
|                                    
|                                    
|Capital expenditures                 |  |          | 48,179    |         |  |       | 53,079    |         |  |           | 56,830    |           |  |           | 59,635    |  |  |   | 48,394    |  |  |   | 54,386    |  |  |   | 88,147    | 
|                                    
|                                    
|                                    
|                                    
|2000:                                |  |          |           |         |  |       |           |         |  |           |           |           |  |           |           |  |  |   |           |  |  |   |           |  |  |   |           | 
|                                    
|                                    
|                                    
|                                    
|Revenues from external
customers     |  | $        | 604,334   |         |  | $     | 529,003   |         |  | $         | 638,100   |           |  | $         | 483,240   |  |  | $ | 943,281   |  |  | $ | 772,027   |  |  | $ | 754,432   | 
|                                    
|                                    
|                                    
|                                    
|Intersegment revenues                |  |          | 89,198    |         |  |       | 123,993   |         |  |           | 159,468   |           |  |           | 115,807   |  |  |   | 204,666   |  |  |   | 111,077   |  |  |   | 126,124   | 
|                                    
|                                    
|                                    
|                                    
|Depreciation and
amortization        |  |          | 64,949    |         |  |       | 68,111    |         |  |           | 95,513    |           |  |           | 71,600    |  |  |   | 84,546    |  |  |   | 81,011    |  |  |   | 96,663    | 
|                                    
|                                    
|                                    
|                                    
|EBITDA before non-
recurring charges |  |          | 211,525   |         |  |       | 180,711   |         |  |           | 250,669   |           |  |           | 228,711   |  |  |   | 244,217   |  |  |   | 296,104   |  |  |   | 297,181   | 
|                                    
|                                    
|                                    
|                                    
|Total assets                         |  |          | 1,237,401 |         |  |       | 1,332,753 |         |  |           | 1,708,010 |           |  |           | 1,531,835 |  |  |   | 2,083,952 |  |  |   | 1,627,026 |  |  |   | 1,772,697 | 
|                                    
|                                    
|                                    
|                                    
|Capital expenditures                 |  |          | 38,202    |         |  |       | 47,833    |         |  |           | 46,162    |           |  |           | 33,276    |  |  |   | 36,196    |  |  |   | 39,841    |  |  |   | 60,737    | 
|                                    
|                                    
|                                    
|                                    
|1999:                                |  |          |           |         |  |       |           |         |  |           |           |           |  |           |           |  |  |   |           |  |  |   |           |  |  |   |           | 
|                                    
|                                    
|                                    
|                                    
|Revenues from external
customers     |  | $        | 313,656   |         |  | $     | 405,557   |         |  | $         | 437,978   |           |  | $         | 323,984   |  |  | $ | 516,517   |  |  | $ | 308,742   |  |  | $ | 400,557   | 
|                                    
|                                    
|                                    
|                                    
|Intersegment revenues                |  |          | 56,841    |         |  |       | 94,918    |         |  |           | 119,244   |           |  |           | 72,353    |  |  |   | 94,704    |  |  |   | 49,315    |  |  |   | 79,606    | 
|                                    
|                                    
|                                    
|                                    
|Depreciation and
amortization        |  |          | 38,322    |         |  |       | 43,960    |         |  |           | 64,549    |           |  |           | 45,131    |  |  |   | 47,784    |  |  |   | 35,020    |  |  |   | 58,385    | 
|                                    
|                                    
|                                    
|                                    
|EBITDA before non-
recurring charges |  |          | 105,563   |         |  |       | 124,251   |         |  |           | 182,995   |           |  |           | 139,132   |  |  |   | 124,179   |  |  |   | 101,610   |  |  |   | 159,094   | 
|                                    
|                                    
|                                    
|                                    
|Total assets                         |  |          | 1,467,231 |         |  |       | 1,005,625 |         |  |           | 1,801,617 |           |  |           | 1,464,808 |  |  |   | 2,233,476 |  |  |   | 1,670,626 |  |  |   | 1,928,064 | 
|                                    
|                                    
|                                    
|                                    
|Capital expenditures                 |  |          | 49,363    |         |  |       | 57,931    |         |  |           | 64,966    |           |  |           | 40,381    |  |  |   | 20,821    |  |  |   | 16,784    |  |  |   | 27,593    | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                     |  |      |           |          |  |       |            |   |  |   |            | 
|------------------------------------ |  | ---- | --------- | -------- |  | ----- | ---------- | - |  | - | ---------- | 
|                                     |  | West |           | Other(1) |  | Total
|                                     |  |      |           |          |  |      
|2001:                                |  |      |           |          |  |       |            |   |  |   |            | 
|                                    
|                                    
|                                    
|                                    
|Revenues from external
customers     |  | $    | 933,376   |          |  | $     | 39,781     |   |  | $ | 5,565,260  | 
|                                    
|                                    
|                                    
|                                    
|Intersegment revenues                |  |      | 198,092   |          |  |       |           |   |  |   | 1,171,595  | 
|                                    
|                                    
|                                    
|                                    
|Depreciation and
amortization        |  |      | 98,204    |          |  |       | 7,349      |   |  |   | 693,036    | 
|                                    
|                                    
|                                    
|                                    
|EBITDA before non-
recurring charges |  |      | 371,169   |          |  |       | (55,949    | ) |  |   | 1,931,307  | 
|                                    
|                                    
|                                    
|                                    
|Total assets                         |  |      | 2,375,444 |          |  |       | 12,703,327 |   |  |   | 26,121,274 | 
|                                    
|                                    
|                                    
|                                    
|Capital expenditures                 |  |      | 82,925    |          |  |       | 9,337      |   |  |   | 500,912    | 
|                                    
|                                    
|                                    
|                                    
|2000:                                |  |      |           |          |  |       |            |   |  |   |            | 
|                                    
|                                    
|                                    
|                                    
|Revenues from external
customers     |  | $    | 950,664   |          |  | $     | 32,404     |   |  | $ | 5,707,485  | 
|                                    
|                                    
|                                    
|                                    
|Intersegment revenues                |  |      | 209,361   |          |  |       |           |   |  |   | 1,139,694  | 
|                                    
|                                    
|                                    
|                                    
|Depreciation and
amortization        |  |      | 104,972   |          |  |       | 6,673      |   |  |   | 674,038    | 
|                                    
|                                    
|                                    
|                                    
|EBITDA before non-
recurring charges |  |      | 354,788   |          |  |       | (54,006    | ) |  |   | 2,009,900  | 
|                                    
|                                    
|                                    
|                                    
|Total assets                         |  |      | 2,663,654 |          |  |       | 12,042,318 |   |  |   | 25,999,646 | 
|                                    
|                                    
|                                    
|                                    
|Capital expenditures                 |  |      | 82,431    |          |  |       | 5,240      |   |  |   | 389,918    | 
|                                    
|                                    
|                                    
|                                    
|1999:                                |  |      |           |          |  |       |            |   |  |   |            | 
|                                    
|                                    
|                                    
|                                    
|Revenues from external
customers     |  | $    | 616,799   |          |  | $     | 17,281     |   |  | $ | 3,341,071  | 
|                                    
|                                    
|                                    
|                                    
|Intersegment revenues                |  |      | 104,529   |          |  |       |           |   |  |   | 671,510    | 
|                                    
|                                    
|                                    
|                                    
|Depreciation and
amortization        |  |      | 50,943    |          |  |       |           |   |  |   | 384,094    | 
|                                    
|                                    
|                                    
|                                    
|EBITDA before non-
recurring charges |  |      | 212,204   |          |  |       | 11,713     |   |  |   | 1,160,741  | 
|                                    
|                                    
|                                    
|                                    
|Total assets                         |  |      | 2,065,265 |          |  |       | 11,904,199 |   |  |   | 25,540,911 | 
|                                    
|                                    
|                                    
|                                    
|Capital expenditures                 |  |      | 54,699    |          |  |       | 6,654      |   |  |   | 339,192    | 



|(1) |  | Amounts relate primarily to our subsidiaries which provide services throughout the organization and not on a regional basis.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------

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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reconciliation of reportable segment primary financial measure and assets to operating income and total assets, respectively (in thousands):

|                                                                                  |                  |   |                          |           |      |   |           |           |  |   |           |         | 
|--------------------------------------------------------------------------------- | ---------------- | - | ------------------------ | --------- | ---- | - | --------- | --------- |  | - | --------- | ------- | 
|                                                                                  |                  |   | Years Ended December 31,
|                                                                                  |                  |   |                         
|                                                                                  |                  |   | 2001                     |           | 2000 |   | 1999     
|                                                                                  |                  |   |                          |           |      |   |          
|Operating income:                                                                 |                  |   |                          |           |      |   |           |           |  |   |           |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Total EBITDA before acquisition related and unusual costs
for reportable segments |                  | $ | 1,931,307                |           |      | $ | 2,009,900 |           |  | $ | 1,160,741 |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Depreciation and amortization for reportable segments                             |                  |   | 693,036                  |           |      |   | 674,038   |           |  |   | 384,094   |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Acquisition related and unusual costs                                             |                  |   | 27,785                   |           |      |   | 100,841   |           |  |   | 588,855   |        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Non-cash loss on asset sale                                                       |                  |   | 107,011                  |           |      |   | 26,486    |           |  |   |          |        
|                                                                                  |                  |   |                          |           |      |   |           |           |  |   |           |        
|                                                                                  | Operating income |   | $                        | 1,103,475 |      |   | $         | 1,208,535 |  |   | $         | 187,792 | 
|                                                                                  |                  |   |                          |           |      |   |           |           |  |   |           |        

|                                     |              |   |              |            |      |   |             |            | 
|------------------------------------ | ------------ | - | ------------ | ---------- | ---- | - | ----------- | ---------- | 
|                                     |              |   | December 31,
|                                     |              |   |             
|                                     |              |   | 2001         |            | 2000
|                                     |              |   |              |            |     
|Assets:                              |              |   |              |            |      |   |             |           
|                                    
|                                    
|                                    
|                                    
|Total assets for reportable segments |              | $ | 26,121,274   |            |      | $ | 25,999,646  |           
|                                    
|                                    
|                                    
|                                    
|Elimination of investments           |              |   | (11,774,181  | )          |      |   | (11,486,012 | )         
|                                     |              |   |              |            |      |   |             |           
|                                    
|                                    
|                                    
|                                    
|                                     | Total assets |   | $            | 14,347,093 |      |   | $           | 14,513,634 | 
|                                     |              |   |              |            |      |   |             |           

Amounts and percentages of our total revenue attributable to services provided (in thousands, except percentages):

|             |                   |   |                          |           |      |  |       |   |  |   |            |           |  |  |       |   |  |   |           |           |  |  |       |   | 
|------------ | ----------------- | - | ------------------------ | --------- | ---- |  | ----- | - |  | - | ---------- | --------- |  |  | ----- | - |  | - | --------- | --------- |  |  | ----- | - | 
|             |                   |   | Years Ended December 31,
|             |                   |   |                         
|             |                   |   | 2001                     |           | 2000 |  | 1999 
|             |                   |   |                          |           |      |  |      
|Collection   |                   | $ | 4,203,897                |           |      |  | 62.4  | % |  | $ | 4,227,680  |           |  |  | 61.7  | % |  | $ | 2,422,628 |           |  |  | 60.4  | %
|            
|            
|            
|            
|Disposal(1)  |                   |   | 2,104,467                |           |      |  | 31.3  |   |  |   | 1,993,276  |           |  |  | 29.1  |   |  |   | 1,261,106 |           |  |  | 31.4  |  
|            
|            
|            
|            
|Recycling    |                   |   | 231,995                  |           |      |  | 3.4   |   |  |   | 384,027    |           |  |  | 5.6   |   |  |   | 203,632   |           |  |  | 5.1   |  
|            
|            
|            
|            
|Other        |                   |   | 196,496                  |           |      |  | 2.9   |   |  |   | 242,196    |           |  |  | 3.6   |   |  |   | 125,215   |           |  |  | 3.1   |  
|             |                   |   |                          |           |      |  |       |   |  |   |            |           |  |  |       |   |  |   |           |           |  |  |       |  
|             |                   |   | 6,736,855                |           |      |  | 100.0 | % |  |   | 6,847,179  |           |  |  | 100.0 | % |  |   | 4,012,581 |           |  |  | 100.0 | %
|             |                   |   |                          |           |      |  |       |   |  |   |            |           |  |  |       |   |  |   |           |           |  |  |       |  
|Intercompany |                   |   | (1,171,595               | )         |      |  |       |   |  |   | (1,139,694 | )         |  |  |       |   |  |   | (671,510  | )         |  |  |       |  
|             |                   |   |                          |           |      |  |       |   |  |   |            |           |  |  |       |   |  |   |           |           |  |  |       |  
|             | Reported revenues |   | $                        | 5,565,260 |      |  |       |   |  |   | $          | 5,707,485 |  |  |       |   |  |   | $         | 3,341,071 |  |  |       |   | 
|             |                   |   |                          |           |      |  |       |   |  |   |            |           |  |  |       |   |  |   |           |           |  |  |       |  



|(1) |  | Transfer revenues are included in disposal.
|--- |  | -------------------------------------------

We are expanding our existing organizational structure in 2002, increasing the number of areas, regions and districts. There will be four areas, Eastern, Southern, Central and Western by which we will primarily
manage our business. The areas are further divided into twelve regions: Atlantic, Capitol, Great Lakes, Midwest, Midsouth, Mountain, North Central, Northeast, Northwest, Pacific, Southeast and Southwest. The
number of districts reporting to the regions will increase by twelve overall. These modifications are being implemented to provide our field operators better flexibility to manage profitability by reducing the
amount of revenue for which each is responsible for managing.

82



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. Selected Quarterly Financial Data (unaudited)

The following table summarizes the unaudited consolidated quarterly results of operations as
reported for 2001 and 2000 (in thousands, except per share amounts):

|                                                                           |                                                      |   |           |       |         |   |           |      |         |   |           |   |  |   |           |       |  
|-------------------------------------------------------------------------- | ---------------------------------------------------- | - | --------- | ----- | ------- | - | --------- | ---- | ------- | - | --------- | - |  | - | --------- | ----- | -
|                                                                           |                                                      |   | First     |       | Second  |   | Third     |      | Fourth 
|                                                                           |                                                      |   | Quarter   |       | Quarter |   | Quarter   |      | Quarter
|                                                                           |                                                      |   |           |       |         |   |           |      |        
|2001                                                                       |                                                      |   |           |       |         |   |           |      |         |   |           |   |  |   |           |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Revenues:                                                                  |                                                      | $ | 1,353,838 |       |         | $ | 1,412,865 |      |         | $ | 1,413,400 |   |  | $ | 1,385,157 |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                                                      |   |           |       |         |   |           |      |         |   |           |   |  |   |           |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Gross profit:                                                              |                                                      |   | 573,774   |       |         |   | 613,364   |      |         |   | 607,715   |   |  |   | 575,198   |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                                                      |   |           |       |         |   |           |      |         |   |           |   |  |   |           |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Income (loss) before extraordinary loss:                                   |                                                      |   | (8,998    | )     |         |   | 53,158    |      |         |   | 18,292    |   |  |   | 13,007    |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                                                      |   |           |       |         |   |           |      |         |   |           |   |  |   |           |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Net income (loss) available to common
shareholders:                        |                                                      |   | (36,021   | )     |         |   | 35,108    |      |         |   | (252      | ) |  |   | (13,361   | )    
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                                                      |   |           |       |         |   |           |      |         |   |           |   |  |   |           |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Basic earnings (loss) per common share
available to common stockholders:   |                                                      |   |           |       |         |   |           |      |         |   |           |   |  |   |           |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Before extraordinary loss, net of income
tax benefit |   |           | (0.14 | )       |   |           | 0.19 |         |   |           |  |  |   |           | (0.03 | )
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Net income (loss) available to common
shareholders   |   |           | (0.19 | )       |   |           | 0.19 |         |   |           |  |  |   |           | (0.07 | )
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                                                      |   |           |       |         |   |           |      |         |   |           |   |  |   |           |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Diluted earnings (loss) per common share
available to common stockholders: |                                                      |   |           |       |         |   |           |      |         |   |           |   |  |   |           |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Before extraordinary loss, net of income
tax benefit |   |           | (0.14 | )       |   |           | 0.18 |         |   |           |  |  |   |           | (0.03 | )
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Net income (loss) available to common
shareholders   |   |           | (0.19 | )       |   |           | 0.18 |         |   |           |  |  |   |           | (0.07 | )

|                                                                           |                                                      |   |           |      |         |   |           |      |         |   |           |      |  |   |           |      | 
|-------------------------------------------------------------------------- | ---------------------------------------------------- | - | --------- | ---- | ------- | - | --------- | ---- | ------- | - | --------- | ---- |  | - | --------- | ---- | 
|                                                                           |                                                      |   | First     |      | Second  |   | Third     |      | Fourth 
|                                                                           |                                                      |   | Quarter   |      | Quarter |   | Quarter   |      | Quarter
|                                                                           |                                                      |   |           |      |         |   |           |      |        
|2000                                                                       |                                                      |   |           |      |         |   |           |      |         |   |           |      |  |   |           |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Revenues:                                                                  |                                                      | $ | 1,378,293 |      |         | $ | 1,461,854 |      |         | $ | 1,474,731 |      |  | $ | 1,392,607 |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                                                      |   |           |      |         |   |           |      |         |   |           |      |  |   |           |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Gross profit:                                                              |                                                      |   | 568,337   |      |         |   | 611,733   |      |         |   | 640,608   |      |  |   | 606,780   |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                                                      |   |           |      |         |   |           |      |         |   |           |      |  |   |           |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Income before extraordinary loss:                                          |                                                      |   | 24,957    |      |         |   | 47,696    |      |         |   | 28,740    |      |  |   | 36,260    |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                                                      |   |           |      |         |   |           |      |         |   |           |      |  |   |           |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Net income available to common
shareholders:                               |                                                      |   | 1,863     |      |         |   | 30,817    |      |         |   | 4,618     |      |  |   | 18,637    |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                                                      |   |           |      |         |   |           |      |         |   |           |      |  |   |           |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Basic earnings (loss) per common share
available to common stockholders:   |                                                      |   |           |      |         |   |           |      |         |   |           |      |  |   |           |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Before extraordinary loss, net of income
tax benefit |   |           | 0.04 |         |   |           | 0.16 |         |   |           | 0.06 |  |   |           | 0.10 | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Net income (loss) available to common
shareholders   |   |           | 0.01 |         |   |           | 0.16 |         |   |           | 0.02 |  |   |           | 0.10 | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                                                      |   |           |      |         |   |           |      |         |   |           |      |  |   |           |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Diluted earnings (loss) per common share
available to common stockholders: |                                                      |   |           |      |         |   |           |      |         |   |           |      |  |   |           |     
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Before extraordinary loss, net of income
tax benefit |   |           | 0.04 |         |   |           | 0.16 |         |   |           | 0.06 |  |   |           | 0.10 | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Net income (loss) available to common
shareholders   |   |           | 0.01 |         |   |           | 0.16 |         |   |           | 0.02 |  |   |           | 0.10 | 

83



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Consolidating Financial Statements of Allied Waste Industries, Inc.

As discussed in Note 5, the 1998 Senior Notes, 1999 Notes, 1999
Credit Facility, and the 2001 Senior Notes issued by Allied NA (our
wholly owned subsidiary) and certain debt of BFI (all of which is no
longer registered under the Securities Exchange Act of 1934) are
guaranteed by us. All guarantees (including those of the guarantor
subsidiaries) are full, unconditional and joint and several of Allied
NAs and BFIs debt. Presented below are Condensed Consolidating
Balance Sheets as of December 31, 2001 and 2000 and the related
Condensed Consolidating Statements of Operations and Cash Flows for
the years ended December 31, 2001, 2000 and 1999 of Allied Waste
Industries, Inc. (Parent), Allied NA (Issuer), the guarantor
subsidiaries (Guarantors) and the subsidiaries which are not
guarantors (Non-guarantors) (in thousands):

84



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING BALANCE SHEET
(in thousands)

|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |            | 
|----------------------------------------------------- | ------------------------------------------ | - | ----------------- | ------- | ------ | - | ---------- | --------- | -------------- | - | ------------ | ---------- | ------------ | - | ------- | ------- |  | - | ---------- | ---------- | - | - | --------- | ---------- | 
|                                                      |                                            |   | December 31, 2001
|                                                      |                                            |   |                  
|                                                      |                                            |   | Parent            |         | Issuer |   | Guarantors |           | Non-Guarantors |   | Eliminations |            | Consolidated
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |             
|ASSETS                                                |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|Current Assets                                       |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|Cash and cash equivalents                             |                                            | $ | 149               |         |        | $ | 8,851      |           |                | $ | 115,726      |            |              | $ | 34,115  |         |  | $ |           |            |   | $ | 158,841   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accounts receivable, net                              |                                            |   |                  |         |        |   |           |           |                |   | 734,267      |            |              |   | 17,149  |         |  |   |           |            |   |   | 751,416   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Prepaid and other current assets                      |                                            |   |                  |         |        |   |           |           |                |   | 90,686       |            |              |   | 41,340  |         |  |   |           |            |   |   | 132,026   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Deferred income taxes, net                            |                                            |   |                  |         |        |   |           |           |                |   | 156,203      |            |              |   |        |         |  |   |           |            |   |   | 156,203   |           
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                      | Total current assets                       |   |                   | 149     |        |   |            | 8,851     |                |   |              | 1,096,882  |              |   |         | 92,604  |  |   |            |           |   |   |           | 1,198,486  | 
|                                                     
|                                                     
|                                                     
|                                                     
|Property and equipment, net                           |                                            |   |                  |         |        |   |           |           |                |   | 3,776,651    |            |              |   | 234,235 |         |  |   |           |            |   |   | 4,010,886 |           
|                                                     
|                                                     
|                                                     
|                                                     
|Goodwill, net                                         |                                            |   |                  |         |        |   |           |           |                |   | 8,484,468    |            |              |   | 72,409  |         |  |   |           |            |   |   | 8,556,877 |           
|                                                     
|                                                     
|                                                     
|                                                     
|Investment in subsidiaries                            |                                            |   | 191,400           |         |        |   | 3,900,079  |           |                |   |             |            |              |   |        |         |  |   | (4,091,479 | )          |   |   |          |           
|                                                     
|                                                     
|                                                     
|                                                     
|Other assets, net                                     |                                            |   |                  |         |        |   | 165,320    |           |                |   | 364,553      |            |              |   | 50,971  |         |  |   |           |            |   |   | 580,844   |           
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                      | Total assets                               |   | $                 | 191,549 |        |   | $          | 4,074,250 |                |   | $            | 13,722,554 |              |   | $       | 450,219 |  |   | $          | (4,091,479 | ) |   | $         | 14,347,093 | 
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|LIABILITIES AND STOCKHOLDERS EQUITY                  |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|Current Liabilities                                  |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|Current portion of long-term debt                     |                                            | $ |                  |         |        | $ |           |           |                | $ | 11,780       |            |              | $ | 10,350  |         |  | $ |           |            |   | $ | 22,130    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accounts payable                                      |                                            |   |                  |         |        |   |           |           |                |   | 447,143      |            |              |   | 8,920   |         |  |   |           |            |   |   | 456,063   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accrued closure, post-closure
and environmental costs |                                            |   |                  |         |        |   |           |           |                |   | 126,885      |            |              |   |        |         |  |   |           |            |   |   | 126,885   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accrued interest                                      |                                            |   |                  |         |        |   | 165,601    |           |                |   | 27,271       |            |              |   |        |         |  |   |           |            |   |   | 192,872   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Other accrued liabilities                             |                                            |   | 30,723            |         |        |   |           |           |                |   | 293,022      |            |              |   | 79,071  |         |  |   |           |            |   |   | 402,816   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Unearned revenue                                      |                                            |   |                  |         |        |   |           |           |                |   | 230,359      |            |              |   | 2,410   |         |  |   |           |            |   |   | 232,769   |           
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                      | Total current liabilities                  |   |                   | 30,723  |        |   |            | 165,601   |                |   |              | 1,136,460  |              |   |         | 100,751 |  |   |            |           |   |   |           | 1,433,535  | 
|                                                     
|                                                     
|                                                     
|                                                     
|Long-term debt, less current
portion                  |                                            |   |                  |         |        |   | 8,113,711  |           |                |   | 1,068,217    |            |              |   | 55,575  |         |  |   |           |            |   |   | 9,237,503 |           
|                                                     
|                                                     
|                                                     
|                                                     
|Deferred income taxes                                 |                                            |   |                  |         |        |   |           |           |                |   | 418,805      |            |              |   | 31      |         |  |   |           |            |   |   | 418,836   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accrued closure, post-closure
and environmental costs |                                            |   |                  |         |        |   |           |           |                |   | 875,566      |            |              |   | 2,440   |         |  |   |           |            |   |   | 878,006   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Due to/(from) parent                                  |                                            |   | (2,160,136        | )       |        |   | (3,021,973 | )         |                |   | 5,235,576    |            |              |   | (53,467 | )       |  |   |           |            |   |   |          |           
|                                                     
|                                                     
|                                                     
|                                                     
|Other long-term obligations                           |                                            |   | 14,000            |         |        |   |           |           |                |   | 609,905      |            |              |   | 485     |         |  |   |           |            |   |   | 624,390   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Commitments and contingencies                         |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|Series A Senior Convertible
Preferred Stock           |                                            |   | 1,169,044         |         |        |   |           |           |                |   |             |            |              |   |        |         |  |   |           |            |   |   | 1,169,044 |           
|                                                     
|                                                     
|                                                     
|                                                     
|Stockholders Equity                                  |                                            |   | 1,137,918         |         |        |   | (1,183,089 | )         |                |   | 4,378,025    |            |              |   | 344,404 |         |  |   | (4,091,479 | )          |   |   | 585,779   |           
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                      | Total liabilities and stockholders
equity |   | $                 | 191,549 |        |   | $          | 4,074,250 |                |   | $            | 13,722,554 |              |   | $       | 450,219 |  |   | $          | (4,091,479 | ) |   | $         | 14,347,093 | 
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           

85



---



##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING BALANCE SHEET
(in thousands)

|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |            | 
|----------------------------------------------------- | ------------------------------------------ | - | ----------------- | ------- | ------ | - | ---------- | --------- | -------------- | - | ------------ | ---------- | ------------ | - | ------- | ------- |  | - | ---------- | ---------- | - | - | --------- | ---------- | 
|                                                      |                                            |   | December 31, 2000
|                                                      |                                            |   |                  
|                                                      |                                            |   | Parent            |         | Issuer |   | Guarantors |           | Non-Guarantors |   | Eliminations |            | Consolidated
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |             
|ASSETS                                                |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|Current Assets                                       |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|Cash and cash equivalents                             |                                            | $ | 959               |         |        | $ | 2,669      |           |                | $ | 117,840      |            |              | $ | 626     |         |  | $ |           |            |   | $ | 122,094   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accounts receivable, net                              |                                            |   |                  |         |        |   |           |           |                |   | 815,695      |            |              |   | 7,564   |         |  |   |           |            |   |   | 823,259   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Prepaid and other current assets                      |                                            |   |                  |         |        |   |           |           |                |   | 116,184      |            |              |   | 3,299   |         |  |   |           |            |   |   | 119,483   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Deferred income taxes, net                            |                                            |   |                  |         |        |   |           |           |                |   | 206,867      |            |              |   |        |         |  |   |           |            |   |   | 206,867   |           
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                      | Total current assets                       |   |                   | 959     |        |   |            | 2,669     |                |   |              | 1,256,586  |              |   |         | 11,489  |  |   |            |           |   |   |           | 1,271,703  | 
|                                                     
|                                                     
|                                                     
|                                                     
|Property and equipment, net                           |                                            |   |                  |         |        |   |           |           |                |   | 3,837,956    |            |              |   | 22,582  |         |  |   |           |            |   |   | 3,860,538 |           
|                                                     
|                                                     
|                                                     
|                                                     
|Goodwill, net                                         |                                            |   |                  |         |        |   |           |           |                |   | 8,611,185    |            |              |   | 106,253 |         |  |   |           |            |   |   | 8,717,438 |           
|                                                     
|                                                     
|                                                     
|                                                     
|Investment in subsidiaries                            |                                            |   | 176,400           |         |        |   | 3,626,794  |           |                |   |             |            |              |   |        |         |  |   | (3,803,194 | )          |   |   |          |           
|                                                     
|                                                     
|                                                     
|                                                     
|Other assets, net                                     |                                            |   |                  |         |        |   | 188,018    |           |                |   | 475,937      |            |              |   |        |         |  |   |           |            |   |   | 663,955   |           
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                      | Total assets                               |   | $                 | 177,359 |        |   | $          | 3,817,481 |                |   | $            | 14,181,664 |              |   | $       | 140,324 |  |   | $          | (3,803,194 | ) |   | $         | 14,513,634 | 
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|LIABILITIES AND STOCKHOLDERS EQUITY                  |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|Current Liabilities                                  |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|Current portion of long-term debt                     |                                            | $ |                  |         |        | $ | 110,000    |           |                | $ | (96,003      | )          |              | $ |        |         |  | $ |           |            |   | $ | 13,997    |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accounts payable                                      |                                            |   |                  |         |        |   |           |           |                |   | 468,565      |            |              |   | 7,768   |         |  |   |           |            |   |   | 476,333   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accrued closure, post-closure
and environmental costs |                                            |   |                  |         |        |   |           |           |                |   | 153,226      |            |              |   |        |         |  |   |           |            |   |   | 153,226   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accrued interest                                      |                                            |   |                  |         |        |   | 138,481    |           |                |   | 27,473       |            |              |   |        |         |  |   |           |            |   |   | 165,954   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Other accrued liabilities                             |                                            |   | 29,254            |         |        |   |           |           |                |   | 521,906      |            |              |   | 12,994  |         |  |   |           |            |   |   | 564,154   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Unearned revenue                                      |                                            |   |                  |         |        |   |           |           |                |   | 223,661      |            |              |   | 2,427   |         |  |   |           |            |   |   | 226,088   |           
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                      | Total current liabilities                  |   |                   | 29,254  |        |   |            | 248,481   |                |   |              | 1,298,828  |              |   |         | 23,189  |  |   |            |           |   |   |           | 1,599,752  | 
|                                                     
|                                                     
|                                                     
|                                                     
|Long-term debt, less current
portion                  |                                            |   |                  |         |        |   | 8,455,745  |           |                |   | 1,179,379    |            |              |   |        |         |  |   |           |            |   |   | 9,635,124 |           
|                                                     
|                                                     
|                                                     
|                                                     
|Deferred income taxes                                 |                                            |   |                  |         |        |   |           |           |                |   | 358,606      |            |              |   | 31      |         |  |   |           |            |   |   | 358,637   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Accrued closure, post-closure
and environmental costs |                                            |   |                  |         |        |   |           |           |                |   | 877,868      |            |              |   | 2,712   |         |  |   |           |            |   |   | 880,580   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Due to/(from) parent                                  |                                            |   | (2,102,414        | )       |        |   | (4,149,724 | )         |                |   | 6,304,393    |            |              |   | (52,255 | )       |  |   |           |            |   |   |          |           
|                                                     
|                                                     
|                                                     
|                                                     
|Other long-term obligations                           |                                            |   |                  |         |        |   |           |           |                |   | 269,997      |            |              |   | 1,885   |         |  |   |           |            |   |   | 271,882   |           
|                                                     
|                                                     
|                                                     
|                                                     
|Commitments and contingencies                         |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|Series A Senior Convertible
Preferred Stock           |                                            |   | 1,096,046         |         |        |   |           |           |                |   |             |            |              |   |        |         |  |   |           |            |   |   | 1,096,046 |           
|                                                     
|                                                     
|                                                     
|                                                     
|Stockholders Equity                                  |                                            |   | 1,154,473         |         |        |   | (737,021   | )         |                |   | 3,892,593    |            |              |   | 164,762 |         |  |   | (3,803,194 | )          |   |   | 671,613   |           
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           
|                                                      | Total liabilities and stockholders
equity |   | $                 | 177,359 |        |   | $          | 3,817,481 |                |   | $            | 14,181,664 |              |   | $       | 140,324 |  |   | $          | (3,803,194 | ) |   | $         | 14,513,634 | 
|                                                      |                                            |   |                   |         |        |   |            |           |                |   |              |            |              |   |         |         |  |   |            |            |   |   |           |           

86



---



##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)

|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |         |        |  |   |   |   |  |   |           |           |  
|-------------------------------------------------------------------------------------------- | -------------------------------------------------- | - | ---------------------------- | ------- | ------ | - | ---------- | -------- | -------------- | - | ------------ | --------- | ------------ | - | ------- | ------ |  | - | - | - |  | - | --------- | --------- | -
|                                                                                             |                                                    |   | Year Ended December 31, 2001
|                                                                                             |                                                    |   |                             
|                                                                                             |                                                    |   | Parent                       |         | Issuer |   | Guarantors |          | Non-Guarantors |   | Eliminations |           | Consolidated
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |             
|Revenues                                                                                     |                                                    | $ |                             |         |        | $ |           |          |                | $ | 5,363,202    |           |              | $ | 202,058 |        |  | $ |  |   |  | $ | 5,565,260 |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cost of operations excluding
acquisition related and unusual
costs                           |                                                    |   |                             |         |        |   |           |          |                |   | 3,069,018    |           |              |   | 126,191 |        |  |   |  |   |  |   | 3,195,209 |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Selling, general and administrative
expenses excluding acquisition
related and unusual costs |                                                    |   | 10,845                       |         |        |   |           |          |                |   | 421,880      |           |              |   | 6,019   |        |  |   |  |   |  |   | 438,744   |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Depreciation and amortization                                                                |                                                    |   |                             |         |        |   |           |          |                |   | 451,434      |           |              |   | 14,889  |        |  |   |  |   |  |   | 466,323   |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Goodwill amortization                                                                        |                                                    |   |                             |         |        |   |           |          |                |   | 224,613      |           |              |   | 2,100   |        |  |   |  |   |  |   | 226,713   |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Acquisition related and
unusual costs                                                        |                                                    |   |                             |         |        |   |           |          |                |   | 27,785       |           |              |   |        |        |  |   |  |   |  |   | 27,785    |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Non-cash loss on asset sale                                                                  |                                                    |   |                             |         |        |   |           |          |                |   | 107,011      |           |              |   |        |        |  |   |  |   |  |   | 107,011   |          
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |         |        |  |   |   |   |  |   |           |          
|                                                                                             | Operating (loss) income                            |   |                              | (10,845 | )      |   |            |         |                |   |              | 1,061,461 |              |   |         | 52,859 |  |   |   |  |  |   |           | 1,103,475 |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Equity in earnings of
unconsolidated affiliates                                              |                                                    |   |                             |         |        |   |           |          |                |   | (14,072      | )         |              |   |        |        |  |   |  |   |  |   | (14,072   | )        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Interest income                                                                              |                                                    |   |                             |         |        |   |           |          |                |   | (4,524       | )         |              |   | (1,548  | )      |  |   |  |   |  |   | (6,072    | )        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Interest expense                                                                             |                                                    |   | 251                          |         |        |   | 747,501    |          |                |   | 101,847      |           |              |   | 4,054   |        |  |   |  |   |  |   | 853,653   |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Intercompany interest
expense (income)                                                       |                                                    |   | (78,758                      | )       |        |   | (38,253    | )        |                |   | 115,805      |           |              |   | 1,206   |        |  |   |  |   |  |   |          |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Management fees                                                                              |                                                    |   | (5,000                       | )       |        |   |           |          |                |   | 4,301        |           |              |   | 699     |        |  |   |  |   |  |   |          |          
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |         |        |  |   |   |   |  |   |           |          
|                                                                                             | Income (loss) before income
taxes                  |   |                              | 72,662  |        |   |            | (709,248 | )              |   |              | 858,104   |              |   |         | 48,448 |  |   |   |  |  |   |           | 269,966   |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Income tax expense (benefit)                                                                 |                                                    |   | 30,017                       |         |        |   | (280,153   | )        |                |   | 422,485      |           |              |   | 18,485  |        |  |   |  |   |  |   | 190,834   |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Minority interest                                                                            |                                                    |   |                             |         |        |   |           |          |                |   | 3,673        |           |              |   |        |        |  |   |  |   |  |   | 3,673     |          
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |         |        |  |   |   |   |  |   |           |          
|                                                                                             | Income (loss) before
extraordinary loss            |   |                              | 42,645  |        |   |            | (429,095 | )              |   |              | 431,946   |              |   |         | 29,963 |  |   |   |  |  |   |           | 75,459    |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Extraordinary loss, net of
income tax benefit                                                |                                                    |   |                             |         |        |   | 16,973     |          |                |   |             |           |              |   |        |        |  |   |  |   |  |   | 16,973    |          
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |         |        |  |   |   |   |  |   |           |          
|                                                                                             | Net income (loss)                                  |   |                              | 42,645  |        |   |            | (446,068 | )              |   |              | 431,946   |              |   |         | 29,963 |  |   |   |  |  |   |           | 58,486    |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Dividends on preferred stock                                                                 |                                                    |   | 73,012                       |         |        |   |           |          |                |   |             |           |              |   |        |        |  |   |  |   |  |   | 73,012    |          
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |         |        |  |   |   |   |  |   |           |          
|                                                                                             | Net income (loss)
available to common
shareholders |   | $                            | (30,367 | )      |   | $          | (446,068 | )              |   | $            | 431,946   |              |   | $       | 29,963 |  |   | $ |  |  |   | $         | (14,526   | )
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |         |        |  |   |   |   |  |   |           |          

87



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ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)

|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |        |        |  |   |   |   |  |   |           |           | 
|-------------------------------------------------------------------------------------------- | -------------------------------------------------- | - | ---------------------------- | ------- | ------ | - | ---------- | -------- | -------------- | - | ------------ | --------- | ------------ | - | ------ | ------ |  | - | - | - |  | - | --------- | --------- | 
|                                                                                             |                                                    |   | Year Ended December 31, 2000
|                                                                                             |                                                    |   |                             
|                                                                                             |                                                    |   | Parent                       |         | Issuer |   | Guarantors |          | Non-Guarantors |   | Eliminations |           | Consolidated
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |             
|Revenues                                                                                     |                                                    | $ |                             |         |        | $ |           |          |                | $ | 5,631,419    |           |              | $ | 76,066 |        |  | $ |  |   |  | $ | 5,707,485 |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cost of operations excluding acquisition
related and unusual costs                           |                                                    |   |                             |         |        |   |           |          |                |   | 3,229,820    |           |              |   | 50,207 |        |  |   |  |   |  |   | 3,280,027 |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Selling, general and administrative expenses excluding
acquisition related
and unusual costs |                                                    |   | 8,443                        |         |        |   |           |          |                |   | 404,066      |           |              |   | 5,049  |        |  |   |  |   |  |   | 417,558   |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Depreciation and amortization                                                                |                                                    |   |                             |         |        |   |           |          |                |   | 446,229      |           |              |   | 4,565  |        |  |   |  |   |  |   | 450,794   |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Goodwill amortization                                                                        |                                                    |   |                             |         |        |   |           |          |                |   | 220,401      |           |              |   | 2,843  |        |  |   |  |   |  |   | 223,244   |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Acquisition related and unusual costs                                                        |                                                    |   |                             |         |        |   |           |          |                |   | 99,103       |           |              |   | 1,738  |        |  |   |  |   |  |   | 100,841   |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Non-cash loss on asset sale                                                                  |                                                    |   |                             |         |        |   |           |          |                |   | 26,486       |           |              |   |       |        |  |   |  |   |  |   | 26,486    |          
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |        |        |  |   |   |   |  |   |           |          
|                                                                                             | Operating (loss) income                            |   |                              | (8,443  | )      |   |            |         |                |   |              | 1,205,314 |              |   |        | 11,664 |  |   |   |  |  |   |           | 1,208,535 | 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Equity in earnings of unconsolidated
affiliates                                              |                                                    |   |                             |         |        |   |           |          |                |   | (50,788      | )         |              |   |       |        |  |   |  |   |  |   | (50,788   | )        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Interest income                                                                              |                                                    |   |                             |         |        |   |           |          |                |   | (4,143       | )         |              |   | 16     |        |  |   |  |   |  |   | (4,127    | )        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Interest expense                                                                             |                                                    |   |                             |         |        |   | 798,969    |          |                |   | 83,313       |           |              |   |       |        |  |   |  |   |  |   | 882,282   |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Intercompany interest expense (income)                                                       |                                                    |   | (72,528                      | )       |        |   | (42,051    | )        |                |   | 116,462      |           |              |   | (1,883 | )      |  |   |  |   |  |   |          |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Management fees                                                                              |                                                    |   | (5,000                       | )       |        |   |           |          |                |   | 2,384        |           |              |   | 2,616  |        |  |   |  |   |  |   |          |          
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |        |        |  |   |   |   |  |   |           |          
|                                                                                             | Income (loss) before income taxes                  |   |                              | 69,085  |        |   |            | (756,918 | )              |   |              | 1,058,086 |              |   |        | 10,915 |  |   |   |  |  |   |           | 381,168   | 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Income tax expense (benefit)                                                                 |                                                    |   | 28,574                       |         |        |   | (298,983   | )        |                |   | 504,079      |           |              |   | 3,870  |        |  |   |  |   |  |   | 237,540   |          
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Minority interest                                                                            |                                                    |   |                             |         |        |   |           |          |                |   | 5,975        |           |              |   |       |        |  |   |  |   |  |   | 5,975     |          
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |        |        |  |   |   |   |  |   |           |          
|                                                                                             | Income (loss) before extraordinary
loss            |   |                              | 40,511  |        |   |            | (457,935 | )              |   |              | 548,032   |              |   |        | 7,045  |  |   |   |  |  |   |           | 137,653   | 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Extraordinary loss, net of income tax
benefit                                                |                                                    |   |                             |         |        |   | 13,266     |          |                |   |             |           |              |   |       |        |  |   |  |   |  |   | 13,266    |          
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |        |        |  |   |   |   |  |   |           |          
|                                                                                             | Net income (loss)                                  |   |                              | 40,511  |        |   |            | (471,201 | )              |   |              | 548,032   |              |   |        | 7,045  |  |   |   |  |  |   |           | 124,387   | 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Dividends on preferred stock                                                                 |                                                    |   | 68,452                       |         |        |   |           |          |                |   |             |           |              |   |       |        |  |   |  |   |  |   | 68,452    |          
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |        |        |  |   |   |   |  |   |           |          
|                                                                                             | Net income (loss) available to common
shareholders |   | $                            | (27,941 | )      |   | $          | (471,201 | )              |   | $            | 548,032   |              |   | $      | 7,045  |  |   | $ |  |  |   | $         | 55,935    | 
|                                                                                             |                                                    |   |                              |         |        |   |            |          |                |   |              |           |              |   |        |        |  |   |   |   |  |   |           |          

88



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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)

|                                                                                             |                                                                                                 |   |                              |        |        |   |            |          |                |   |              |         |              |   |        |       |   |   |   |   |  |   |           |          |  
|-------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | - | ---------------------------- | ------ | ------ | - | ---------- | -------- | -------------- | - | ------------ | ------- | ------------ | - | ------ | ----- | - | - | - | - |  | - | --------- | -------- | -
|                                                                                             |                                                                                                 |   | Year Ended December 31, 1999
|                                                                                             |                                                                                                 |   |                             
|                                                                                             |                                                                                                 |   | Parent                       |        | Issuer |   | Guarantors |          | Non-Guarantors |   | Eliminations |         | Consolidated
|                                                                                             |                                                                                                 |   |                              |        |        |   |            |          |                |   |              |         |             
|Revenues                                                                                     |                                                                                                 | $ |                             |        |        | $ |           |          |                | $ | 3,310,293    |         |              | $ | 30,778 |       |   | $ |  |   |  | $ | 3,341,071 |         
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cost of operations excluding
acquisition related and unusual costs                           |                                                                                                 |   |                             |        |        |   |           |          |                |   | 1,929,751    |         |              |   | 19,213 |       |   |   |  |   |  |   | 1,948,964 |         
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Selling, general and administrative
expenses excluding acquisition
related and unusual costs |                                                                                                 |   | 3,302                        |        |        |   |           |          |                |   | 226,044      |         |              |   | 2,020  |       |   |   |  |   |  |   | 231,366   |         
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Depreciation and amortization                                                                |                                                                                                 |   |                             |        |        |   |           |          |                |   | 271,247      |         |              |   | 2,121  |       |   |   |  |   |  |   | 273,368   |         
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Goodwill amortization                                                                        |                                                                                                 |   |                             |        |        |   |           |          |                |   | 109,545      |         |              |   | 1,181  |       |   |   |  |   |  |   | 110,726   |         
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Acquisition related and unusual costs                                                        |                                                                                                 |   |                             |        |        |   |           |          |                |   | 588,092      |         |              |   | 763    |       |   |   |  |   |  |   | 588,855   |         
|                                                                                             |                                                                                                 |   |                              |        |        |   |            |          |                |   |              |         |              |   |        |       |   |   |   |   |  |   |           |         
|                                                                                             | Operating (loss) income                                                                         |   |                              | (3,302 | )      |   |            |         |                |   |              | 185,614 |              |   |        | 5,480 |   |   |   |  |  |   |           | 187,792  |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Equity in earnings of unconsolidated
affiliates                                              |                                                                                                 |   |                             |        |        |   |           |          |                |   | (20,785      | )       |              |   |       |       |   |   |  |   |  |   | (20,785   | )       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Interest income                                                                              |                                                                                                 |   | (4,028                       | )      |        |   |           |          |                |   | (3,156       | )       |              |   | (28    | )     |   |   |  |   |  |   | (7,212    | )       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Interest expense                                                                             |                                                                                                 |   |                             |        |        |   | 394,309    |          |                |   | 48,735       |         |              |   |       |       |   |   |  |   |  |   | 443,044   |         
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Intercompany interest expense
(income)                                                       |                                                                                                 |   | (77,329                      | )      |        |   | 330        |          |                |   | 72,948       |         |              |   | 4,051  |       |   |   |  |   |  |   |          |         
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Management fees                                                                              |                                                                                                 |   | (5,000                       | )      |        |   |           |          |                |   | 3,070        |         |              |   | 1,930  |       |   |   |  |   |  |   |          |         
|                                                                                             |                                                                                                 |   |                              |        |        |   |            |          |                |   |              |         |              |   |        |       |   |   |   |   |  |   |           |         
|                                                                                             | Income (loss) before income
taxes                                                               |   |                              | 83,055 |        |   |            | (394,639 | )              |   |              | 84,802  |              |   |        | (473  | ) |   |   |  |  |   |           | (227,255 | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Income tax expense (benefit)                                                                 |                                                                                                 |   | 33,388                       |        |        |   | (155,882   | )        |                |   | 114,010      |         |              |   | (272   | )     |   |   |  |   |  |   | (8,756    | )       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Minority interest                                                                            |                                                                                                 |   |                             |        |        |   |           |          |                |   | 2,751        |         |              |   |       |       |   |   |  |   |  |   | 2,751     |         
|                                                                                             |                                                                                                 |   |                              |        |        |   |            |          |                |   |              |         |              |   |        |       |   |   |   |   |  |   |           |         
|                                                                                             | Income (loss) before extraordinary
loss and cumulative effect of
change in accounting principle |   |                              | 49,667 |        |   |            | (238,757 | )              |   |              | (31,959 | )            |   |        | (201  | ) |   |   |  |  |   |           | (221,250 | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Extraordinary loss, net of income
tax benefit                                                |                                                                                                 |   |                             |        |        |   | 3,223      |          |                |   |             |         |              |   |       |       |   |   |  |   |  |   | 3,223     |         
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cumulative effect of change in
accounting principle, net of income
tax benefit               |                                                                                                 |   |                             |        |        |   |           |          |                |   | 64,255       |         |              |   |       |       |   |   |  |   |  |   | 64,255    |         
|                                                                                             |                                                                                                 |   |                              |        |        |   |            |          |                |   |              |         |              |   |        |       |   |   |   |   |  |   |           |         
|                                                                                             | Net income (loss)                                                                               |   |                              | 49,667 |        |   |            | (241,980 | )              |   |              | (96,214 | )            |   |        | (201  | ) |   |   |  |  |   |           | (288,728 | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Dividends on preferred stock                                                                 |                                                                                                 |   | 27,789                       |        |        |   |           |          |                |   |             |         |              |   |       |       |   |   |  |   |  |   | 27,789    |         
|                                                                                             |                                                                                                 |   |                              |        |        |   |            |          |                |   |              |         |              |   |        |       |   |   |   |   |  |   |           |         
|                                                                                             | Net income (loss) available to
common shareholders                                              |   | $                            | 21,878 |        |   | $          | (241,980 | )              |   | $            | (96,214 | )            |   | $      | (201  | ) |   | $ |  |  |   | $         | (316,517 | )
|                                                                                             |                                                                                                 |   |                              |        |        |   |            |          |                |   |              |         |              |   |        |       |   |   |   |   |  |   |           |         

89



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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)

|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |            |              |   |          |          |   |   |   |   |  |   |          |            |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | - | ---------------------------- | ----- | ------ | - | ---------- | ---------- | -------------- | - | ------------ | ---------- | ------------ | - | -------- | -------- | - | - | - | - |  | - | -------- | ---------- | -
|                                                 |                                                                                   |   | Year Ended December 31, 2001
|                                                 |                                                                                   |   |                             
|                                                 |                                                                                   |   | Parent                       |       | Issuer |   | Guarantors |            | Non-Guarantors |   | Eliminations |            | Consolidated
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |            |             
|Cash (used for) provided by operating activities |                                                                                   | $ | (7,211                       | )     |        | $ | (553,893   | )          |                | $ | 1,431,064    |            |              | $ | 35,254   |          |   | $ |  |   |  | $ | 905,214  |           
|                                                
|                                                
|                                                
|                                                
|Investing activities                            |                                                                                   |   |                              |       |        |   |            |            |                |   |              |            |              |   |          |          |   |   |   |   |  |   |          |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Cost of acquisitions, net of cash acquired                                        |   |                              |      |        |   |            |           |                |   |              | (249,462   | )            |   |          |         |   |   |   |  |  |   |          | (249,462   | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from divestitures, net of cash divested                                  |   |                              |      |        |   |            |           |                |   |              | 359,866    |              |   |          |         |   |   |   |  |  |   |          | 359,866    |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Accruals for acquisition price and severance costs                                |   |                              |      |        |   |            |           |                |   |              | (1,668     | )            |   |          |         |   |   |   |  |  |   |          | (1,668     | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Capital expenditures, excluding acquisitions                                      |   |                              |      |        |   |            |           |                |   |              | (275,232   | )            |   |          | (225,680 | ) |   |   |  |  |   |          | (500,912   | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Capitalized interest                                                              |   |                              |      |        |   |            |           |                |   |              | (45,704    | )            |   |          |         |   |   |   |  |  |   |          | (45,704    | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sale of fixed assets                                                |   |                              |      |        |   |            |           |                |   |              | 30,665     |              |   |          | 214      |   |   |   |  |  |   |          | 30,879     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Other investing activities                                                        |   |                              |      |        |   |            |           |                |   |              | (28,344    | )            |   |          | 1,297    |   |   |   |  |  |   |          | (27,047    | )
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |            |              |   |          |          |   |   |   |   |  |   |          |           
|Cash used for investing activities               |                                                                                   |   |                             |       |        |   |           |            |                |   | (209,879     | )          |              |   | (224,169 | )        |   |   |  |   |  |   | (434,048 | )         
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |            |              |   |          |          |   |   |   |   |  |   |          |           
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |            |              |   |          |          |   |   |   |   |  |   |          |           
|                                                
|                                                
|                                                
|                                                
|Financing activities                            |                                                                                   |   |                              |       |        |   |            |            |                |   |              |            |              |   |          |          |   |   |   |   |  |   |          |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Net proceeds from sale of common stock
and exercise of stock options and warrants |   |                              | 6,401 |        |   |            |           |                |   |              |           |              |   |          |         |   |   |   |  |  |   |          | 6,401      |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from long-term debt, net of issuance
costs                               |   |                              |      |        |   |            | 2,729,053  |                |   |              | (42,224    | )            |   |          | 69,000   |   |   |   |  |  |   |          | 2,755,829  |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayments of long-term debt                                                      |   |                              |      |        |   |            | (3,180,428 | )              |   |              | (13,146    | )            |   |          | (3,075   | ) |   |   |  |  |   |          | (3,196,649 | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Intercompany and capital funding between
issuer and subsidiary                    |   |                              |      |        |   |            | 1,011,450  |                |   |              | (1,167,929 | )            |   |          | 156,479  |   |   |   |  |  |   |          |           |  
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |            |              |   |          |          |   |   |   |   |  |   |          |           
|Cash provided by (used for) financing activities |                                                                                   |   | 6,401                        |       |        |   | 560,075    |            |                |   | (1,223,299   | )          |              |   | 222,404  |          |   |   |  |   |  |   | (434,419 | )         
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |            |              |   |          |          |   |   |   |   |  |   |          |           
|Increase (decrease) in cash and cash equivalents |                                                                                   |   | (810                         | )     |        |   | 6,182      |            |                |   | (2,114       | )          |              |   | 33,489   |          |   |   |  |   |  |   | 36,747   |           
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents, beginning of period   |                                                                                   |   | 959                          |       |        |   | 2,669      |            |                |   | 117,840      |            |              |   | 626      |          |   |   |  |   |  |   | 122,094  |           
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |            |              |   |          |          |   |   |   |   |  |   |          |           
|Cash and cash equivalents, end of period         |                                                                                   | $ | 149                          |       |        | $ | 8,851      |            |                | $ | 115,726      |            |              | $ | 34,115   |          |   | $ |  |   |  | $ | 158,841  |           
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |            |              |   |          |          |   |   |   |   |  |   |          |           

|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |            |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | - | ---------------------------- | ----- | ------ | - | ---------- | ---------- | -------------- | - | ------------ | --------- | ------------ | - | ------- | ------- | - | - | - | - |  | - | -------- | ---------- | -
|                                                 |                                                                                   |   | Year Ended December 31, 2000
|                                                 |                                                                                   |   |                             
|                                                 |                                                                                   |   | Parent                       |       | Issuer |   | Guarantors |            | Non-Guarantors |   | Eliminations |           | Consolidated
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |             
|Cash (used for) provided by operating activities |                                                                                   | $ | (4,524                       | )     |        | $ | (656,516   | )          |                | $ | 1,494,100    |           |              | $ | (29,744 | )       |   | $ |  |   |  | $ | 803,316  |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |           
|                                                
|                                                
|                                                
|                                                
|Investing activities                            |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Cost of acquisitions, net of cash acquired                                        |   |                              |      |        |   |            |           |                |   |              | (802,876  | )            |   |         |        |   |   |   |  |  |   |          | (802,876   | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from divestitures, net of cash divested                                  |   |                              |      |        |   |            |           |                |   |              | 1,039,182 |              |   |         |        |   |   |   |  |  |   |          | 1,039,182  |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Accruals for acquisition price and severance
costs                                |   |                              |      |        |   |            |           |                |   |              | (27,820   | )            |   |         |        |   |   |   |  |  |   |          | (27,820    | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Capital expenditures, excluding acquisitions                                      |   |                              |      |        |   |            |           |                |   |              | (388,064  | )            |   |         | (1,854  | ) |   |   |  |  |   |          | (389,918   | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Capitalized interest                                                              |   |                              |      |        |   |            |           |                |   |              | (45,352   | )            |   |         |        |   |   |   |  |  |   |          | (45,352    | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sale of fixed assets                                                |   |                              |      |        |   |            |           |                |   |              | 42,842    |              |   |         | 32      |   |   |   |  |  |   |          | 42,874     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Other investing activities                                                        |   |                              |      |        |   |            |           |                |   |              | (73,756   | )            |   |         | 47,715  |   |   |   |  |  |   |          | (26,041    | )
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |           
|Cash (used for) provided by investing activities |                                                                                   |   |                             |       |        |   |           |            |                |   | (255,844     | )         |              |   | 45,893  |         |   |   |  |   |  |   | (209,951 | )         
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |           
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |           
|                                                
|                                                
|                                                
|                                                
|Financing activities                            |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Net proceeds from sale of common stock
and exercise of stock options and warrants |   |                              | 1,724 |        |   |            |           |                |   |              |          |              |   |         |        |   |   |   |  |  |   |          | 1,724      |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from long-term debt, net of issuance
costs                               |   |                              |      |        |   |            | 2,202,000  |                |   |              |          |              |   |         |        |   |   |   |  |  |   |          | 2,202,000  |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayments of long-term debt                                                      |   |                              |      |        |   |            | (2,506,496 | )              |   |              | (289,904  | )            |   |         |        |   |   |   |  |  |   |          | (2,796,400 | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Intercompany between issuer and subsidiaries                                      |   |                              |      |        |   |            | 963,681    |                |   |              | (950,645  | )            |   |         | (13,036 | ) |   |   |  |  |   |          |           |  
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |           
|Cash provided by (used in) financing activities  |                                                                                   |   | 1,724                        |       |        |   | 659,185    |            |                |   | (1,240,549   | )         |              |   | (13,036 | )       |   |   |  |   |  |   | (592,676 | )         
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |           
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |           
|                                                
|                                                
|                                                
|                                                
|Increase (decrease) in cash and cash equivalents |                                                                                   |   | (2,800                       | )     |        |   | 2,669      |            |                |   | (2,293       | )         |              |   | 3,113   |         |   |   |  |   |  |   | 689      |           
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents, beginning of period   |                                                                                   |   | 3,759                        |       |        |   |           |            |                |   | 120,133      |           |              |   | (2,487  | )       |   |   |  |   |  |   | 121,405  |           
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |           
|Cash and cash equivalents, end of period         |                                                                                   | $ | 959                          |       |        | $ | 2,669      |            |                | $ | 117,840      |           |              | $ | 626     |         |   | $ |  |   |  | $ | 122,094  |           
|                                                 |                                                                                   |   |                              |       |        |   |            |            |                |   |              |           |              |   |         |         |   |   |   |   |  |   |          |           

90



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##### Table of Contents



ALLIED WASTE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)

|                                                 |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |            |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | - | ---------------------------- | ------- | ------ | - | ---------- | ---------- | -------------- | - | ------------ | ---------- | ------------ | - | ------ | ------ | - | - | - | - |  | - | ---------- | ---------- | -
|                                                 |                                                                                   |   | Year Ended December 31, 1999
|                                                 |                                                                                   |   |                             
|                                                 |                                                                                   |   | Parent                       |         | Issuer |   | Guarantors |            | Non-Guarantors |   | Eliminations |            | Consolidated
|                                                 |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |             
|Cash (used for) provided by operating activities |                                                                                   | $ | (981,443                     | )       |        | $ | (574,877   | )          |                | $ | 2,044,069    |            |              | $ | 1,262  |        |   | $ |  |   |  | $ | 489,011    |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |           
|                                                
|                                                
|                                                
|                                                
|Investing activities                            |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Cost of acquisitions, net of cash acquired                                        |   |                              |        |        |   |            |           |                |   |              | (7,589,597 | )            |   |        |       |   |   |   |  |  |   |            | (7,589,597 | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from divestitures, net of cash divested                                  |   |                              |        |        |   |            |           |                |   |              | 468,880    |              |   |        |       |   |   |   |  |  |   |            | 468,880    |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Accruals for acquisition price and severance
costs                                |   |                              |        |        |   |            |           |                |   |              | 15,171     |              |   |        |       |   |   |   |  |  |   |            | 15,171     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Capital expenditures, excluding acquisitions                                      |   |                              |        |        |   |            |           |                |   |              | (335,922   | )            |   |        | (3,270 | ) |   |   |  |  |   |            | (339,192   | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Capitalized interest                                                              |   |                              |        |        |   |            |           |                |   |              | (25,474    | )            |   |        |       |   |   |   |  |  |   |            | (25,474    | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sale of fixed assets                                                |   |                              |        |        |   |            |           |                |   |              | 53,246     |              |   |        |       |   |   |   |  |  |   |            | 53,246     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Other investing activities                                                        |   |                              |        |        |   |            |           |                |   |              | (45,566    | )            |   |        |       |   |   |   |  |  |   |            | (45,566    | )
|                                                 |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |           
|Cash used for investing activities               |                                                                                   |   |                             |         |        |   |           |            |                |   | (7,459,262   | )          |              |   | (3,270 | )      |   |   |  |   |  |   | (7,462,532 | )         
|                                                 |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |           
|                                                 |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |           
|                                                
|                                                
|                                                
|                                                
|Financing activities                            |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Net proceeds from sale of common stock
and exercise of stock options and warrants |   |                              |        |        |   |            |           |                |   |              | 10,198     |              |   |        |       |   |   |   |  |  |   |            | 10,198     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from preferred stock                                                     |   |                              | 973,881 |        |   |            |           |                |   |              |           |              |   |        |       |   |   |   |  |  |   |            | 973,881    |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from long-term debt, net of issuance
costs                               |   |                              | 10,189  |        |   |            | 8,929,272  |                |   |              | (267,166   | )            |   |        |       |   |   |   |  |  |   |            | 8,672,295  |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Repayments of long-term debt                                                      |   |                              |        |        |   |            | (2,056,893 | )              |   |              | (544,297   | )            |   |        |       |   |   |   |  |  |   |            | (2,601,190 | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Intercompany between issuer and subsidiaries                                      |   |                              |        |        |   |            | (6,296,680 | )              |   |              | 6,298,079  |              |   |        | (1,399 | ) |   |   |  |  |   |            |           |  
|                                                 |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |           
|Cash provided by (used in) financing activities  |                                                                                   |   | 984,070                      |         |        |   | 575,699    |            |                |   | 5,496,814    |            |              |   | (1,399 | )      |   |   |  |   |  |   | 7,055,184  |           
|                                                 |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |           
|                                                 |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |           
|                                                
|                                                
|                                                
|                                                
|Increase (decrease) in cash and cash equivalents |                                                                                   |   | 2,627                        |         |        |   | 822        |            |                |   | 81,621       |            |              |   | (3,407 | )      |   |   |  |   |  |   | 81,663     |           
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents, beginning of period   |                                                                                   |   | 1,132                        |         |        |   | (822       | )          |                |   | 38,512       |            |              |   | 920    |        |   |   |  |   |  |   | 39,742     |           
|                                                 |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |           
|Cash and cash equivalents, end of period         |                                                                                   | $ | 3,759                        |         |        | $ |           |            |                | $ | 120,133      |            |              | $ | (2,487 | )      |   | $ |  |   |  | $ | 121,405    |           
|                                                 |                                                                                   |   |                              |         |        |   |            |            |                |   |              |            |              |   |        |        |   |   |   |   |  |   |            |           

91



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##### Table of Contents






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

Not applicable.




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 2002
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 2002
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 heading Other Information  Principal Stockholders in the Proxy
Statement for the 2002 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 2002 Annual Meeting of Stockholders.




PART IV




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

Financial Statement Schedules -

Schedule II  Valuation and Qualifying Accounts

|                                |  |            |        |            |  |          |        |            |  |             |        |            |  |   |        |  |  |   |         |   |  |   |        | 
|------------------------------- |  | ---------- | ------ | ---------- |  | -------- | ------ | ---------- |  | ----------- | ------ | ---------- |  | - | ------ |  |  | - | ------- | - |  | - | ------ | 
|                                |  |            |        |            |  |          |        |            |  | Additions   |        |            |  |   |        |  |  |   |         |   |  |  
|                                |  | Balance at |        | Charges to |  | through  |        | Other      |  | Write-offs/ |        | Balance at
|                                |  | 12/31/98   |        | Expense    |  | Goodwill |        | Charges(1) |  | Payments    |        | 12/31/99  
|                                |  |            |        |            |  |          |        |            |  |             |        |           
|Allowance for doubtful accounts |  | $          | 13,907 |            |  | $        | 10,305 |            |  | $           |       |            |  | $ | 51,341 |  |  | $ | (16,063 | ) |  | $ | 59,490 | 
|                               
|                               
|                               
|                               
|Severance and termination costs |  |            | 10,126 |            |  |          | 499    |            |  |             | 52,254 |            |  |   |       |  |  |   | (31,456 | ) |  |   | 31,423 | 
|                               
|                               
|                               
|                               
|Restructuring costs             |  |            | 7,630  |            |  |          | 565    |            |  |             | 1,426  |            |  |   |       |  |  |   | (7,117  | ) |  |   | 2,504  | 

|                                |  |            |        |            |  |          |        |            |  |             |   |            |  |   |       |  |  |   |         |   |  |   |        | 
|------------------------------- |  | ---------- | ------ | ---------- |  | -------- | ------ | ---------- |  | ----------- | - | ---------- |  | - | ----- |  |  | - | ------- | - |  | - | ------ | 
|                                |  |            |        |            |  |          |        |            |  | Additions   |   |            |  |   |       |  |  |   |         |   |  |  
|                                |  | Balance at |        | Charges to |  | through  |        | Other      |  | Write-offs/ |   | Balance at
|                                |  | 12/31/99   |        | Expense    |  | Goodwill |        | Charges(1) |  | Payments    |   | 12/31/00  
|                                |  |            |        |            |  |          |        |            |  |             |   |           
|Allowance for doubtful accounts |  | $          | 59,490 |            |  | $        | 19,463 |            |  | $           |  |            |  | $ | 6,421 |  |  | $ | (42,275 | ) |  | $ | 43,099 | 
|                               
|                               
|                               
|                               
|Severance and termination costs |  |            | 31,423 |            |  |          |       |            |  |             |  |            |  |   |      |  |  |   | (27,041 | ) |  |   | 4,382  | 
|                               
|                               
|                               
|                               
|Restructuring costs             |  |            | 2,504  |            |  |          | 6,074  |            |  |             |  |            |  |   |      |  |  |   | (2,630  | ) |  |   | 5,948  | 

|                                |  |            |        |            |  |          |        |            |  |             |   |            |  |   |       |  |  |   |         |   |  |   |        | 
|------------------------------- |  | ---------- | ------ | ---------- |  | -------- | ------ | ---------- |  | ----------- | - | ---------- |  | - | ----- |  |  | - | ------- | - |  | - | ------ | 
|                                |  |            |        |            |  |          |        |            |  | Additions   |   |            |  |   |       |  |  |   |         |   |  |  
|                                |  | Balance at |        | Charges to |  | through  |        | Other      |  | Write-offs/ |   | Balance at
|                                |  | 12/31/00   |        | Expense    |  | Goodwill |        | Charges(1) |  | Payments    |   | 12/31/01  
|                                |  |            |        |            |  |          |        |            |  |             |   |           
|Allowance for doubtful accounts |  | $          | 43,099 |            |  | $        | 23,937 |            |  | $           |  |            |  | $ | 2,372 |  |  | $ | (37,532 | ) |  | $ | 31,876 | 
|                               
|                               
|                               
|                               
|Severance and termination costs |  |            | 4,382  |            |  |          | 3,816  |            |  |             |  |            |  |   | 120   |  |  |   | (4,163  | ) |  |   | 4,155  | 
|                               
|                               
|                               
|                               
|Restructuring costs             |  |            | 5,948  |            |  |          | 7,994  |            |  |             |  |            |  |   | 2,210 |  |  |   | (2,889  | ) |  |   | 13,263 | 



---

|(1) |  | Amounts primarily relate to acquired companies.
|--- |  | -----------------------------------------------

Valuation and qualifying accounts not included above have been shown in Notes 1 and 7 of our financial statements included in Part II Item 8 of this Form 10-K.

92



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##### Table of Contents



Financial Statements of Browning-Ferris Industries, Inc.



| |  | Report of Independent Public Accountants.                                                                                                                                                                             
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Consolidated Balance Sheets as of December 31, 2001 and 2000.                                                                                                                                                         
|
| |  | Consolidated Statements of Operations for the Two Years
Ended December 31, 2001, For the Five Months Ended December
31, 1999 and For the Ten Months Ended July 30, 1999.                                              
|
| |  | Consolidated Statements of Stockholders Equity for the Two
Years Ended December 31, 2001, For the Five Months Ended
December 31, 1999 and For the Ten Months Ended July 30,
1999.                                    
|
| |  | Consolidated Statements of Cash Flows for the Two Years
Ended December 31, 2001, For the Five Months Ended December
31, 1999 and For the Ten Months Ended July 30, 1999.
 
Notes to Consolidated Financial Statements.

93



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##### Table of Contents



Report of Independent Public Accountants

To Allied Waste Industries, Inc.:

We have audited the accompanying consolidated balance sheets of Browning-Ferris
Industries, Inc. and subsidiaries (a wholly owned subsidiary of Allied Waste
Industries, Inc.) as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders equity and cash flows for
the fiscal years ended December 31, 2001, 2000 and the five months ended
December 31, 1999. We have also audited the accompanying consolidated
statements of operations, stockholders equity and cash flows of the Companys
predecessor and its subsidiaries (the Predecessor) for the ten months ended
July 30, 1999. 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 auditing standards generally
accepted in the United States. 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.

On July 30, 1999, the Company acquired the Predecessor. As more fully
described in Note 1 to the consolidated financial statements, the acquisition
was accounted for as a purchase, and a new basis of accounting was established
by allocating the purchase price to the assets acquired and the liabilities
assumed. The consolidated financial statements of the Company are presented on
the new basis, and accordingly, are not comparable to those of the Predecessor.

As explained in Note 1 to the financial statements, effective January 1, 2001,
the Company changed its method for accounting for derivatives.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Browning-Ferris Industries,
Inc. and subsidiaries as of December 31, 2001 and 2000, the results of their
operations and their cash flows for the years ended December 31, 2001 and 2000,
the five months ended December 31, 1999 and the consolidated results of the
operations and the cash flows of the Predecessor for the ten months ended July
30, 1999, in conformity with accounting principles generally accepted in the
United States.

ARTHUR ANDERSEN LLP

Phoenix, Arizona
February 8, 2002

94



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##### Table of Contents



BROWNING-FERRIS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                             |                                             |   |              |           |      |   |           |            |  
|------------------------------------------------------------ | ------------------------------------------- | - | ------------ | --------- | ---- | - | --------- | ---------- | -
|                                                             |                                             |   | December 31,
|                                                             |                                             |   |             
|                                                             |                                             |   | 2001         |           | 2000
|                                                             |                                             |   |              |           |     
|ASSETS                                                       |                                             |   |              |           |      |   |           |           
|                                                            
|                                                            
|                                                            
|                                                            
|Current Assets                                             
|Cash and cash equivalents                                    |                                             | $ | 18,536       |           |      | $ | 28,486    |           
|                                                            
|                                                            
|                                                            
|                                                            
|Accounts receivable, net of allowance of $18,401 and $30,400 |                                             |   | 448,180      |           |      |   | 480,124   |           
|                                                            
|                                                            
|                                                            
|                                                            
|Prepaid and other current assets                             |                                             |   | 61,004       |           |      |   | 52,672    |           
|                                                             |                                             |   |              |           |      |   |           |           
|                                                             | Total current assets                        |   |              | 527,720   |      |   |           | 561,282    |  
|                                                            
|                                                            
|                                                            
|                                                            
|Property and equipment, net                                  |                                             |   | 1,600,023    |           |      |   | 1,722,691 |           
|                                                            
|                                                            
|                                                            
|                                                            
|Goodwill, net                                                |                                             |   | 6,694,179    |           |      |   | 6,874,717 |           
|                                                            
|                                                            
|                                                            
|                                                            
|Other assets, net                                            |                                             |   | 455,283      |           |      |   | 507,009   |           
|                                                             |                                             |   |              |           |      |   |           |           
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Total assets                                |   | $            | 9,277,205 |      |   | $         | 9,665,699  |  
|                                                             |                                             |   |              |           |      |   |           |           
|LIABILITIES AND STOCKHOLDERS DEFICIT                        |                                             |   |              |           |      |   |           |           
|                                                            
|                                                            
|                                                            
|                                                            
|Current Liabilities                                         |                                             |   |              |           |      |   |           |           
|                                                            
|                                                            
|                                                            
|                                                            
|Current portion of long-term debt                            |                                             | $ | 1,689        |           |      | $ | 4,854     |           
|                                                            
|                                                            
|                                                            
|                                                            
|Accounts payable                                             |                                             |   | 167,081      |           |      |   | 196,254   |           
|                                                            
|                                                            
|                                                            
|                                                            
|Accrued closure, post-closure and environmental costs        |                                             |   | 81,672       |           |      |   | 114,727   |           
|                                                            
|                                                            
|                                                            
|                                                            
|Accrued interest                                             |                                             |   | 122,421      |           |      |   | 100,329   |           
|                                                            
|                                                            
|                                                            
|                                                            
|Other accrued liabilities                                    |                                             |   | 225,307      |           |      |   | 307,691   |           
|                                                            
|                                                            
|                                                            
|                                                            
|Unearned revenue                                             |                                             |   | 154,447      |           |      |   | 151,949   |           
|                                                             |                                             |   |              |           |      |   |           |           
|                                                             | Total current liabilities                   |   |              | 752,617   |      |   |           | 875,804    |  
|                                                            
|                                                            
|                                                            
|                                                            
|Long-term debt, less current portion                         |                                             |   | 7,398,843    |           |      |   | 7,843,584 |           
|                                                            
|                                                            
|                                                            
|                                                            
|Accrued closure, post-closure and environmental costs        |                                             |   | 651,483      |           |      |   | 655,122   |           
|                                                            
|                                                            
|                                                            
|                                                            
|Other long-term obligations                                  |                                             |   | 375,642      |           |      |   | 218,568   |           
|                                                            
|                                                            
|                                                            
|                                                            
|Due to parent                                                |                                             |   | 652,542      |           |      |   | 450,617   |           
|                                                             |                                             |   |              |           |      |   |           |           
|                                                             | Total liabilities                           |   |              | 9,831,127 |      |   |           | 10,043,695 |  
|                                                             |                                             |   |              |           |      |   |           |           
|
|                                                            
|Commitments and contingencies                                |                                             |   |              |           |      |   |           |           
|                                                            
|                                                            
|                                                            
|                                                            
|Stockholders Deficit                                       |                                             |   |              |           |      |   |           |           
|                                                            
|                                                            
|                                                            
|                                                            
|Common stock                                                 |                                             |   |             |           |      |   |          |           
|                                                            
|                                                            
|                                                            
|                                                            
|Additional paid-in capital                                   |                                             |   |             |           |      |   |          |           
|                                                            
|                                                            
|                                                            
|                                                            
|Accumulated other comprehensive loss                         |                                             |   | (85,120      | )         |      |   |          |           
|                                                            
|                                                            
|                                                            
|                                                            
|Retained deficit                                             |                                             |   | (468,802     | )         |      |   | (377,996  | )         
|                                                             |                                             |   |              |           |      |   |           |           
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Total stockholders deficit                 |   |              | (553,922  | )    |   |           | (377,996   | )
|                                                             |                                             |   |              |           |      |   |           |           
|                                                             | Total liabilities and stockholders deficit |   | $            | 9,277,205 |      |   | $         | 9,665,699  |  
|                                                             |                                             |   |              |           |      |   |           |           

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

95



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##### Table of Contents



BROWNING-FERRIS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)

|                                                                                             |                                   |   |              |         |              |   |              |         |              |   |           |          |   |   |           |         | 
|-------------------------------------------------------------------------------------------- | --------------------------------- | - | ------------ | ------- | ------------ | - | ------------ | ------- | ------------ | - | --------- | -------- | - | - | --------- | ------- | 
|                                                                                             |                                   |   | BFI          |         | Predecessor 
|                                                                                             |                                   |   |              |         |             
|                                                                                             |                                   |   | For the Year |         | For the Year |   | For the Five |         | For the Ten 
|                                                                                             |                                   |   | Ended        |         | Ended        |   | Months Ended |         | Months Ended
|                                                                                             |                                   |   | December 31, |         | December 31, |   | December 31, |         | July 30,    
|                                                                                             |                                   |   | 2001         |         | 2000         |   | 1999         |         | 1999        
|                                                                                             |                                   |   |              |         |              |   |              |         |             
|Revenues                                                                                     |                                   | $ | 3,358,105    |         |              | $ | 3,500,897    |         |              | $ | 1,484,857 |          |   | $ | 3,538,163 |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cost of operations excluding acquisition related and unusual
costs                           |                                   |   | 1,948,750    |         |              |   | 1,994,334    |         |              |   | 877,602   |          |   |   | 2,285,384 |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Selling, general and administrative expenses excluding
acquisition related and unusual costs |                                   |   | 248,857      |         |              |   | 262,387      |         |              |   | 85,975    |          |   |   | 447,215   |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Depreciation and amortization                                                                |                                   |   | 242,597      |         |              |   | 244,777      |         |              |   | 107,259   |          |   |   | 334,321   |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Goodwill amortization                                                                        |                                   |   | 177,881      |         |              |   | 173,026      |         |              |   | 71,538    |          |   |   | 14,477    |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Acquisition related and unusual costs (gains)                                                |                                   |   | 28,065       |         |              |   | 105,395      |         |              |   | 491,089   |          |   |   | (56,880   | )      
|                                                                                             |                                   |   |              |         |              |   |              |         |              |   |           |          |   |   |           |        
|                                                                                             | Operating income (loss)           |   |              | 711,955 |              |   |              | 720,978 |              |   |           | (148,606 | ) |   |           | 513,646 | 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Equity in earnings of unconsolidated affiliates                                              |                                   |   | (39,070      | )       |              |   | (50,788      | )       |              |   | (20,785   | )        |   |   | (41,454   | )      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Interest expense, net                                                                        |                                   |   | 744,527      |         |              |   | 759,069      |         |              |   | 316,076   |          |   |   | 99,111    |        
|                                                                                             |                                   |   |              |         |              |   |              |         |              |   |           |          |   |   |           |        
|                                                                                             | Income (loss) before income taxes |   |              | 6,498   |              |   |              | 12,697  |              |   |           | (443,897 | ) |   |           | 455,989 | 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Income tax expense (benefit)                                                                 |                                   |   | 77,645       |         |              |   | 67,224       |         |              |   | (140,534  | )        |   |   | 184,114   |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Minority interest                                                                            |                                   |   | 2,686        |         |              |   | 4,997        |         |              |   | 1,843     |          |   |   | 4,003     |        
|                                                                                             |                                   |   |              |         |              |   |              |         |              |   |           |          |   |   |           |        
|Income (loss) before extraordinary losses                                                    |                                   |   | (73,833      | )       |              |   | (59,524      | )       |              |   | (305,206  | )        |   |   | 267,872   |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Extraordinary losses, net of income tax benefit                                              |                                   |   | 16,973       |         |              |   | 13,266       |         |              |   |          |          |   |   |          |        
|                                                                                             |                                   |   |              |         |              |   |              |         |              |   |           |          |   |   |           |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Net income (loss)                 |   | $            | (90,806 | )            |   | $            | (72,790 | )            |   | $         | (305,206 | ) |   | $         | 267,872 | 
|                                                                                             |                                   |   |              |         |              |   |              |         |              |   |           |          |   |   |           |        

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

96



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BROWNING-FERRIS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)

|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |          |         | 
|------------------------------------------- | -------------------------------------------------------------- | ---------- | ------- | ------ | - | ------- | ---------- | ---------- | - | ------------- | ---------- | -------- | ------- | ------------- | ------- | ------------- | - | ----- | ---------- | -------- | - | - | ---------- | -------- | ------- |  | -------- | -------- | ------- | 
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         | Accumulated   |   |       |            |          |   |   |            |          |         |  |          |         
|                                            |                                                                |            |         |        |   |         |            | Additional |   | Retained      |            | Other    |         |               |         |               |   | Total |            |          |   |  
|                                            |                                                                |            |         | Common |   | Paid-In |            | Earnings   |   | Comprehensive |            | Treasury |         | Stockholder's |         | Comprehensive
|                                            |                                                                |            |         | Stock  |   | Capital |            | (Deficit)  |   | Loss          |            | Stock    |         | Equity        |         | Loss         
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |              
|Predecessor                                |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |         
|                                           
|                                           
|                                           
|                                           
|Balance
as of October 1,
1998               |                                                                | $          | 34,725  |        |   | $       | 1,631,236  |            |   | $             | 1,368,485  |          |         | $             |        |               |   | $     | (1,620,988 | )        |   | $ | 1,413,458  |          |         |  |          |         
|                                           
|                                           
|                                           
|                                           
|                                            | Common
stock issued,
net                                       |            |         | 150    |   |         |            | 29,694     |   |               |            |         |         |               |         |              |   |       |            | (179,247 | ) |   |            | (149,403 | )       |  |          |          |        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                | Net income |         |        |  |         |            |            |  |               |            |          | 267,872 |               |         |               |  |       |            |          |  |   |            |          | 267,872 |  |          |          | 267,872 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Foreign
currency
translation                                   |            |         |       |   |         |            |           |   |               |            |         |         |               |         | (26,242       | ) |       |            |         |   |   |            | (26,242  | )       |  |          | (26,242  | )      
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |          |         | 
|Pre-acquisition as of
July 30, 1999         |                                                                |            | 34,875  |        |   |         | 1,660,930  |            |   |               | 1,636,357  |          |         |               | (26,242 | )             |   |       | (1,800,235 | )        |   |   | 1,505,685  |          |         |  | 241,630  |         
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |          |         | 
|Cancellation of
predecessor equity          |                                                                |            | (34,875 | )      |   |         | (1,660,930 | )          |   |               | (1,636,357 | )        |         |               | 26,242  |               |   |       | 1,800,235  |          |   |   | (1,505,685 | )        |         |  | (241,630 | )       
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |          |         | 
|Balance at July 30, 1999
(post-acquisition) |                                                                |            |        |        |   |         |           |            |   |               |           |          |         |               |        |               |   |       |           |          |   |   |           |          |         |  |         |         
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |          |         | 
|BFI                                        |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |         
|                                           
|                                           
|                                           
|                                           
|Balance as of July 31, 1999                 |                                                                |            |        |        |   |         |           |            |   |               |           |          |         |               |        |               |   |       |           |          |   |   |           |          |         |  |         |         
|                                           
|                                           
|                                           
|                                           
|                                            | Net loss                                                       |            |         |       |   |         |            |           |   |               |            | (305,206 | )       |               |         |              |   |       |            |         |   |   |            | (305,206 | )       |  |          | (305,206 | )      
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |          |         | 
|Balance as of
December 31, 1999             |                                                                |            |        |        |   |         |           |            |   |               | (305,206   | )        |         |               |        |               |   |       |           |          |   |   | (305,206   | )        |         |  | (305,206 | )       
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |          |         | 
|                                            | Net loss                                                       |            |         |       |   |         |            |           |   |               |            | (72,790  | )       |               |         |              |   |       |            |         |   |   |            | (72,790  | )       |  |          | (72,790  | )      
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |          |         | 
|Balance as of
December 31, 2000             |                                                                |            |        |        |   |         |           |            |   |               | (377,996   | )        |         |               |        |               |   |       |           |          |   |   | (377,996   | )        |         |  | (72,790  | )       
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |          |         | 
|                                            | Net loss                                                       |            |         |       |   |         |            |           |   |               |            | (90,806  | )       |               |         |              |   |       |            |         |   |   |            | (90,806  | )       |  |          | (90,806  | )      
|                                           
|                                           
|                                           
|                                           
|Other comprehensive
loss, net of tax:       |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |         
|                                           
|                                           
|                                           
|                                           
|                                            | Cumulative effect of
change in accounting
principle            |            |         |       |   |         |            |           |   |               |            |         |         |               |         | (45,193       | ) |       |            |         |   |   |            | (45,193  | )       |  | $        | (45,193  | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Net loss deferred on
hedging derivatives                       |            |         |       |   |         |            |           |   |               |            |         |         |               |         | (89,194       | ) |       |            |         |   |   |            | (89,194  | )       |  |          | (89,194  | )      
|                                           
|                                           
|                                           
|                                           
|                                            | Less: Net loss on
hedging derivatives
reclassified to earnings |            |         |       |   |         |            |           |   |               |            |         |         |               |         | 49,267        |   |       |            |         |   |   |            | 49,267   |         |  |          | 49,267   |        
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |          |         | 
|                                            | Balance as of
December 31, 2001                                |            | $       |       |   |         | $          |           |   |               | $          | (468,802 | )       |               | $       | (85,120       | ) |       | $          |         |   |   | $          | (553,922 | )       |  | $        | (175,926 | )      
|                                            |                                                                |            |         |        |   |         |            |            |   |               |            |          |         |               |         |               |   |       |            |          |   |   |            |          |         |  |          |          |         | 

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

97



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##### Table of Contents



BROWNING-FERRIS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                                                                                                  |                                                                                      |   |          |              |   |              |          |              |   |          |            |              |   |             |           |          |   | 
|--------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | - | -------- | ------------ | - | ------------ | -------- | ------------ | - | -------- | ---------- | ------------ | - | ----------- | --------- | -------- | - | 
|                                                                                                                                  |                                                                                      |   |          |              |   |              |          | BFI          |   |          |            |              |   | Predecessor
|                                                                                                                                  |                                                                                      |   |          |              |   |             
|                                                                                                                                  |                                                                                      |   |          |              |   |              |          |              |   |          |            | For the Five |   | For the Ten
|                                                                                                                                  |                                                                                      |   |          | For the      |   | For the      |          | Months       |   | Months  
|                                                                                                                                  |                                                                                      |   |          | Year Ended   |   | Year Ended   |          | Ended        |   | Ended   
|                                                                                                                                  |                                                                                      |   |          | December 31, |   | December 31, |          | December 31, |   | July 30,
|                                                                                                                                  |                                                                                      |   |          | 2001         |   | 2000         |          | 1999         |   | 1999    
|                                                                                                                                  |                                                                                      |   |          |              |   |              |          |              |   |         
|Operating
activities
Net income (loss)                                                                                           |                                                                                      | $ | (90,806  | )            |   | $            | (72,790  | )            |   | $        | (305,206   | )            |   | $           | 267,872   |         
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|Adjustments
to reconcile net income (loss) to cash provided
by operating activities
Provisions for:Depreciation and amortization |                                                                                      |   | 420,478  |              |   |              | 417,803  |              |   |          | 178,797    |              |   |             | 348,798   |         
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Non-cash acquisition related and unusual costs (gains)                               |   |          | 6,537        |   |              |          |             |   |          |            |             |   |             |           | (56,880  | )
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Undistributed earnings of equity investment in unconsolidated
affiliates             |   |          | (39,070      | ) |              |          | (38,190      | ) |          |            | 13,217       |   |             |           | (2,366   | )
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Doubtful accounts                                                                    |   |          | 14,237       |   |              |          | 7,665        |   |          |            | 3,348        |   |             |           | 15,029   |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Accretion of debt and amortization of debt issuance costs
and other                  |   |          | 35,875       |   |              |          | 37,167       |   |          |            | 15,999       |   |             |           | (2,014   | )
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Deferred income tax provision (benefit)                                              |   |          | 53,441       |   |              |          | 34,013       |   |          |            | (152,549     | ) |             |           | 214,564  |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Gain on sale of assets                                                               |   |          | (11,122      | ) |              |          | (7,486       | ) |          |            | (2,021       | ) |             |           | (4,632   | )
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Extraordinary losses due to early extinguishments of debt,
net of income tax benefit |   |          | 12,348       |   |              |          | 13,266       |   |          |            |             |   |             |           |         |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|Change in operating assets and liabilities, excluding the effects
of purchase acquisitions                                       |                                                                                      |   |          |              |   |              |          |              |   |          |            |              |   |             |           |         
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Accounts receivable, prepaid expenses, inventories and other                         |   |          | (32,957      | ) |              |          | 140,914      |   |          |            | (66,629      | ) |             |           | 320,834  |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Accounts payable, accrued liabilities, unearned income and
other                     |   |          | (10,123      | ) |              |          | (130,903     | ) |          |            | (60,170      | ) |             |           | (77,397  | )
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Expenditures against non-recurring acquisition accruals                              |   |          | (103,418     | ) |              |          | (167,542     | ) |          |            | 382,643      |   |             |           |         |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Closure and post-closure provision                                                   |   |          | 41,966       |   |              |          |             |   |          |            |             |   |             |           |         |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Closure, post-closure and environmental expenditures                                 |   |          | (55,089      | ) |              |          |             |   |          |            |             |   |             |           |         |  
|                                                                                                                                  |                                                                                      |   |          |              |   |              |          |              |   |          |            |              |   |             |           |         
|Cash provided by operating activities                                                                                             |                                                                                      |   | 242,297  |              |   |              | 233,917  |              |   |          | 7,429      |              |   |             | 1,023,808 |         
|                                                                                                                                  |                                                                                      |   |          |              |   |              |          |              |   |          |            |              |   |             |           |         
|Investing
activities 
Cost of acquisitions, net of cash acquired                                                                 |                                                                                      |   | (97,921  | )            |   |              | (222,554 | )            |   |          | (7,287,628 | )            |   |             | (118,653  | )       
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Proceeds from divestitures, net of cash divested                                     |   |          | 143,738      |   |              |          | 926,397      |   |          |            | 445,880      |   |             |           | 118,915  |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Accruals for acquisition price and severance costs                                   |   |          | (1,667       | ) |              |          | (27,820      | ) |          |            | 15,171       |   |             |           |          |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Net distributions from (contributions to) unconsolidated
affiliates                  |   |          |             |   |              |          | 15,372       |   |          |            | (17,011      | ) |             |           | (3,790   | )
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Capital expenditures, excluding acquisitions                                         |   |          | (137,500     | ) |              |          | (221,014     | ) |          |            | (34,072      | ) |             |           | (449,394 | )
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Capitalized interest                                                                 |   |          | (19,624      | ) |              |          | (21,040      | ) |          |            | (8,401       | ) |             |           |         |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Proceeds from sale of fixed assets                                                   |   |          | 14,462       |   |              |          | 37,027       |   |          |            | 2,331        |   |             |           | 17,775   |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Purchases of short-term investments                                                  |   |          |             |   |              |          |             |   |          |            |             |   |             |           | (98,014  | )
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Change in deferred acquisition costs and notes receivable                            |   |          | (10,873      | ) |              |          |             |   |          |            |             |   |             |           |          |  
|                                                                                                                                  |                                                                                      |   |          |              |   |              |          |              |   |          |            |              |   |             |           |         
|Cash provided by (used for) investing activities                                                                                  |                                                                                      |   | (109,385 | )            |   |              | 486,368  |              |   |          | (6,883,730 | )            |   |             | (533,161  | )       
|                                                                                                                                  |                                                                                      |   |          |              |   |              |          |              |   |          |            |              |   |             |           |         
|Financing activities                                                                                                             |                                                                                      |   |          |              |   |              |          |              |   |          |            |              |   |             |           |         
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Proceeds from long-term debt, net of issuance costs                                  |   |          | 2,696,719    |   |              |          | 2,202,000    |   |          |            | 7,924,174    |   |             |           | 19,992   |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Repayments of long-term debt                                                         |   |          | (3,185,466   | ) |              |          | (2,764,561   | ) |          |            | (1,501,505   | ) |             |           | 269,390  |  
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Dividends paid                                                                       |   |          |             |   |              |          |             |   |          |            |             |   |             |           | (92,741  | )
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Repurchases of common stock                                                          |   |          |             |   |              |          |             |   |          |            |             |   |             |           | (91,133  | )
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                  | Change in due to parent                                                              |   |          | 345,885      |   |              |          | (163,543     | ) |          |            | 487,937      |   |             |           | (180,814 | )
|                                                                                                                                  |                                                                                      |   |          |              |   |              |          |              |   |          |            |              |   |             |           |         
|Cash provided by (used for) financing activities                                                                                  |                                                                                      |   | (142,862 | )            |   |              | (726,104 | )            |   |          | 6,910,606  |              |   |             | (75,306   | )       
|                                                                                                                                  |                                                                                      |   |          |              |   |              |          |              |   |          |            |              |   |             |           |         
|Increase (decrease) in cash and cash equivalents                                                                                  |                                                                                      |   | (9,950   | )            |   |              | (5,819   | )            |   |          | 34,305     |              |   |             | 415,341   |         
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|Cash and cash equivalents, beginning of period                                                                                    |                                                                                      |   | 28,486   |              |   |              | 34,305   |              |   |          |           |              |   |             | 89,893    |         
|                                                                                                                                  |                                                                                      |   |          |              |   |              |          |              |   |          |            |              |   |             |           |         
|Cash and cash equivalents, end of period                                                                                          |                                                                                      | $ | 18,536   |              |   | $            | 28,486   |              |   | $        | 34,305     |              |   | $           | 505,234   |         
|                                                                                                                                  |                                                                                      |   |          |              |   |              |          |              |   |          |            |              |   |             |           |         

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

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Browning-Ferris Industries, Inc. (BFI, we or the Company) is a wholly owned subsidiary of Allied Waste Industries, Inc., (Allied or Parent), a
Delaware corporation. Allied is the second largest, non-hazardous solid waste management company in the United States, as measured by revenues. We provide
non-hazardous waste collection, transfer, recycling and disposal services in 39 states geographically identified as the Atlantic, Central, Great Lakes, Midwest,
Northeast, Southeast, Southwest and West regions of the United States.

On July 30, 1999, Allied completed the acquisition of the predecessor of BFI (Predecessor) for approximately $7.7 billion of cash and the assumption of
approximately $1.9 billion of Predecessor debt. Allied raised the cash to acquire the Predecessor through debt and the issuance of convertible preferred stock.
Prior to the acquisition, the Predecessor was the second largest non-hazardous solid waste company in North America and provided integrated solid waste
management services, including residential, commercial and industrial collection, transfer, disposal and recycling.

Principles of consolidation and presentation 

The Consolidated Financial Statements include the accounts of BFI and its subsidiaries. All significant intercompany accounts and transactions are eliminated in
consolidation. Our financial statements prior to July 30, 1999, represent the activities of the Predecessor and the judgments and estimates of the Predecessors
management. The acquisition of the Predecessor was recorded under the
purchase method of accounting. At the date of acquisition of the Predecessor, all assets and
liabilities acquired were adjusted to estimated fair market value. Because of the application of purchase accounting, the Consolidated Financial Statements of
the Predecessor for the period ended before July 30, 1999 are not comparable to the financial statements for periods of BFI subsequent to the acquisition.
Upon acquisition, Allied fully integrated BFI into its operations. BFI is not a registrant with the Securities and Exchange Commission (the SEC) and is not
subject to the SECs periodic reporting requirements, except as may be required by Rule 3-16 of Regulation S-X. Certain estimates have been made to provide
financial information for SEC reporting purposes as if BFI were a registrant. We believe that the presentations and disclosures herein are adequate to make the
information not misleading. In the opinion of management, all adjustments necessary to fairly state the financial statements have been reflected.

Cash and cash equivalents 

The Company utilizes a cash management system under which a book balance cash overdraft exists for the Companys primary disbursement accounts. This overdraft
represents uncleared checks in excess of cash balances in bank accounts. The Companys funds are transferred on an as-needed basis to pay for clearing checks.
At December 31, 2001, cash overdrafts of $4.4 million were included in accounts payable. The Company considers any liquid investments with an original maturity
of three months or less to be cash equivalents. Amounts are stated at quoted market prices.

Concentration of credit risk 

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents and trade receivables. We place our cash
and cash equivalents with high quality financial institutions and manage the amount of credit exposure with any one financial institution.

We provide services to residential, commercial and industrial customers throughout the United States. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising our customer base. We perform ongoing credit evaluations of our customers, but do not
require collateral to support customer receivables. We establish an allowance for doubtful accounts based on payment performance factors, historical trends and
other information.

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill

Goodwill is the cost in excess of fair value of identifiable assets in business combinations accounted for using the purchase method of accounting has been
amortized on a straight-line basis over 40 years. Beginning January 1, 2002, we no longer amortize any goodwill in accordance with the adoption of Statement of
Financial Accounting Standards No. 142, (SFAS 142), Goodwill and Other Intangible Assets. See recently issued accounting pronouncements. We have allocated
goodwill when appropriate, to the operating assets based on a percentage of acquired assets earnings before interest, taxes, depreciation and amortization
(EBITDA) to the total acquired EBITDA. We review goodwill for impairment whenever events or changes in circumstances indicate that the remaining estimated
useful life of goodwill might warrant revision or that the balance may not be recoverable. We evaluate possible impairment by comparing estimated future cash
flows, before interest expense and on an undiscounted basis, to the net book value of assets including goodwill. If undiscounted cash flows are insufficient to
recover assets, further analysis is performed in order to determine the amount of the impairment. We record an impairment loss equal to the amount by which the
carrying amount of the assets exceeds their fair market value. Fair market value is usually determined based on the present value of estimated expected future
cash flows using a discount rate commensurate with the risks involved. In instances where goodwill is identified with assets that are subject to an impairment
loss, the carrying amount of the identified goodwill is reduced before making any reduction to the carrying amounts of impaired tangible long-lived assets.
Goodwill amortization of $177.9 million, $173.0 million, $71.5 million and $14.5 million was recorded for the year ended December 31, 2001, for the year ended
December 31, 2000, for the five months ended December 31, 1999, and for the ten months ended July 30, 1999, respectively. Accumulated goodwill amortization was
$425.9 million and $243.6 million at December 31, 2001 and 2000, respectively.

Other assets 

Other assets include notes receivable, landfill closure deposits, deferred charges, investments in unconsolidated affiliates, prepaid pension costs and
miscellaneous non-current assets. Deferred finance and deferred contract charges include costs incurred to obtain financing and to acquire businesses. Upon
funding of debt offerings, deferred financing costs are capitalized as debt issuance costs and amortized using the effective interest method over the life of
the related debt. Direct costs related to acquisitions under evaluation are capitalized and reviewed for realization on a periodic basis. Miscellaneous assets
include consulting and non-competition agreements, which are amortized in accordance with the terms of the respective agreements and contracts, generally not
exceeding five years.

Accrued closure and post-closure costs 

Accrued closure and post-closure costs represent an estimate of the present value of the future obligation associated with closure and post-closure monitoring
of non-hazardous solid waste landfills we currently own and/or operate or have retained upon divestiture. Site specific closure and post-closure engineering
cost estimates are prepared annually for landfills owned and/or operated by us for which we are responsible for closure and post-closure. For active landfills,
the impact of changes determined to be changes in estimates, based on the annual update, are accounted for on a prospective basis except for instances where the
cost expenditure will occur within 12 months. The present value of estimated future costs are accrued on a per unit basis as landfill disposal capacity is
consumed. Discounting of future costs is applied where we believe that both the amounts and timing of related payments are reliably determinable. Changes in
estimates for closed landfill sites are recognized when determined.

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Environmental costs 

We accrue for costs associated with environmental remediation obligations when such costs are probable and reasonably estimable. 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, as the timing of cash payments is not reliably determinable. Recoveries of environmental remediation costs from other parties are recorded when their
receipts are deemed probable. Environmental liabilities and apportionment of responsibility among potentially responsible parties are accounted for in
accordance with the guidance provided by the American Institute of Certified Public Accountants Statement of Position 96-1 (SOP 96-1) Environmental
Remediation Liabilities.

Self-Insurance 

We are partially self-insured for general liability, automobile and workers compensation insurance with varying loss thresholds up to $1 million and fully
self-insured for employee group health claims. The liability for unpaid claims and associated expenses, including claims incurred but not reported, is
determined using actuarial valuations provided by independent companies. We use a third party to track and evaluate actual claims experience for consistency of
data used in the annual actuarial valuation. At December 31,
2001 and 2000, we had self-insurance totaling $59.8 million and
$14.8 million, respectively.

Other long-term obligations 

Other long-term obligations include the non-current portions of insurance accruals, legal accruals, loss contract and acquisition-related accruals, derivative
liabilities for interest rate swaps contracts, the minority interest in consolidated subsidiaries and other obligations not expected to be paid within the
following year.

Revenue 

Our revenues result primarily from fees charged to customers for waste collection, transfer, recycling and disposal services. We generally provide collection
services under direct agreements with our customers or pursuant to contracts with municipalities. Commercial and municipal contract terms generally range from
one to five years and commonly have renewal options. Our landfill operations include both company-owned landfills and landfills that we operate on behalf of
municipalities

Advance billings are recorded as unearned revenue, and revenue is recognized when services are provided, usually within 90 days.

Loss contracts

We review our revenue producing contracts in the ordinary course of business to determine if the direct costs, exclusive of any non-variable costs, to service
the contractual arrangements exceed the revenues to be produced by the contract. Any resulting excess direct costs over the life of the contract are expensed at
the time of such determination.

Change in accounting principle  derivatives

Effective January 1, 2001, we changed our method of accounting for derivative financial instruments in accordance with the adoption of SFAS 133, Accounting for
Derivatives Instruments and Hedging Activities, as amended by SFAS 138, Accounting for Certain Derivative Instruments and Hedging Activities. See note 6 on
Derivative Instruments and Hedging Activities.

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Non-recurring acquisition accruals and acquisition related and unusual costs 

At the time of an acquisition accounted for under the purchase method of accounting, we evaluate and adjust existing accruals to represent our estimate of the
future costs to settle the assumed liabilities. Assumed liabilities are considered in the allocation of purchase price and goodwill valuation. Liabilities
related to restructuring and abandonment activities, loss contracts or changes in estimates of environmental, litigation and regulatory compliance costs are
charged to acquisition related and unusual costs in the period in which the acquisition is completed. Any subsequent changes to these estimates are also
charged to acquisition related and unusual costs. At December 31, 2001 and 2000, we had approximately $292.6 million and $362.1 million, respectively, of
non-recurring acquisition accruals remaining on our consolidated balance sheets, consisting primarily of loss contract, litigation, insurance liabilities and
other commitments associated with the acquisition of the Predecessor
by Allied. Expenditures against non-recurring acquisition accruals, including severance costs in 2001 and 2000
were $116.8 million and $195.4 million, respectively.

During 2001, we recorded approximately $28.1 million of acquisition related and unusual costs primarily related to billing system conversions associated with
the acquisition of the Predecessor by Allied. These non-recurring costs are decreasing as transition efforts are substantially complete at December 31, 2001.

During 2000, we recorded approximately $105.4 million of acquisition related and unusual costs primarily associated with the acquisition of the Predecessor by
Allied. These costs are comprised primarily of approximately $75.2 million of transition costs related to transitional employees, duplicative facilities and
operations and billing system conversion, which were expensed as incurred. Additionally we charged $30.2 million related to changes in estimated loss contract
provisions, restructuring and abandonment liabilities, litigation liabilities and environmental related matters.

During the five months ended December 31, 1999, we recorded $491.1 million of acquisition related and unusual costs primarily associated with the $9.6 billion
acquisition of the Predecessor by Allied, which was accounted for as
a purchase by Allied. These costs are primarily comprised of approximately $267.0 million related to
changes in estimates of environmental liabilities as a result of assessments performed by third-party and in-house engineers and legal counsel; $93.5 million
related to changes in estimates of litigation liabilities for employee-related, regulatory and other commercial litigation matters; $77.4 million for costs
related to transitional employees and duplicative facilities and operations; $32.6 million related to future anticipated losses on specifically-identified
contracts; and $20.0 million for changes to self-insurance accruals based upon third-party actuarial reviews.

A net unusual gain of $56.9 million was recorded by the Predecessor for the ten months ended July 30, 1999. Included in this amount was (i) approximately $10.0
million of losses associated with divestiture of certain operations in anticipation of a transaction with Allied, which closed in April 1999, (ii) $9.2 million
of transaction costs associated with the sale of the Predecessor to Allied, and (iii) $76.1 million of a gain previously deferred related to the sale in March 1998 of
substantially all of the Predecessors operations outside North America to SITA, a Paris-based subsidiary of Suez Lyonnaise des Eaux, recorded in July 1999.

Extraordinary losses

In November 2001, we repaid $736.9 million of the tranche A, B and C term loan facility prior to its maturity date, with net proceeds from the issuance of $750
million senior notes. In connection with this repayment, we recognized an extraordinary charge for the early extinguishment of the debt of approximately $12.4
million ($7.5 million, net of income tax benefit) related to the write-off of deferred debt issuance costs.

In January 2001, we repaid $589.5 million of the tranche A, B and C term loan facility prior to its maturity date, with net proceeds from the issuance of $600
million senior notes. In connection with this repayment, we recognized an extraordinary charge for the early extinguishment of the debt of approximately $15.6
million ($9.5 million, net of income tax benefit) related to the write-off of deferred debt issuance costs.

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2000, we repaid the asset sale term loan and tranche D term loan facilities prior to the respective maturity dates. In connection with these repayments,
we recognized extraordinary charges for the early extinguishment of the debt of approximately $21.9 million ($13.3 million, net of income tax benefit) related
to the write-off of deferred debt issuance costs.Statements of cash flows
The supplemental cash flow disclosures and non-cash transactions are as follows (in thousands):

|                           |                                    |                                 |  |              |         |              |  |              |         |          |  |              |           |             |  |         |        | 
|-------------------------- | ---------------------------------- | ------------------------------- |  | ------------ | ------- | ------------ |  | ------------ | ------- | -------- |  | ------------ | --------- | ----------- |  | ------- | ------ | 
|                           |                                    |                                 |  |              |         |              |  |              |         |          |  | For the Five |           | For the Ten
|                           |                                    |                                 |  | For the Year |         | For the Year |  | Months       |         | Months  
|                           |                                    |                                 |  | Ended        |         | Ended        |  | Ended        |         | Ended   
|                           |                                    |                                 |  | December 31, |         | December 31, |  | December 31, |         | July 30,
|                           |                                    |                                 |  | 2001         |         | 2000         |  | 1999         |         | 1999    
|                           |                                    |                                 |  |              |         |              |  |              |         |         
|Supplemental Disclosures - |                                    |                                 |  |              |         |              |  |              |         |          |  |              |           |             |  |        
|                          
|                          
|                          
|                          
|                           | Interest paid (net of amounts      |                                 |  |              |         |              |  |              |         |          |  |              |           |             |  |         |       
|                          
|                          
|                          
|                          
|                           |                                    | capitalized)                    |  | $            | 699,566 |              |  | $            | 741,118 |          |  | $            | 192,725   |             |  | $       | 86,916 | 
|                          
|                          
|                          
|                          
|                           | Income taxes paid                  |                                 |  |             |         |              |  |             |         |          |  |             |           |             |  | 131,157 |       
|                          
|                          
|                          
|                          
|Non-Cash Transactions -    |                                    |                                 |  |              |         |              |  |              |         |          |  |              |           |             |  |        
|                          
|                          
|                          
|                          
|                           | Common stock, preferred stock      |                                 |  |              |         |              |  |              |         |          |  |              |           |             |  |         |       
|                          
|                          
|                          
|                          
|                           |                                    | warrants issued in acquisitions |  |              |         |              |  |              |         |          |  |              |           |             |  |         |        | 
|                          
|                          
|                          
|                          
|                           |                                    | or as commissions               |  | $            |        |              |  | $            |        |          |  | $            |          |             |  | $       | 8,400  | 
|                          
|                          
|                          
|                          
|                           | Debt incurred or assumed in        |                                 |  |              |         |              |  |              |         |          |  |              |           |             |  |         |       
|                          
|                          
|                          
|                          
|                           |                                    | acquisitions                    |  |              |        |              |  |              |        |          |  |              | 1,763,435 |             |  |         |        | 
|                          
|                          
|                          
|                          
|                           | Liabilities incurred or assumed in |                                 |  |              |         |              |  |              |         |          |  |              |           |             |  |         |       
|                          
|                          
|                          
|                          
|                           |                                    | acquisitions                    |  |              | 13,758  |              |  |              | 30,951  |          |  |              | 86        |             |  |         | 30,200 | 

Use of estimates -

The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Final settlement amounts could differ from those estimates.

Fair value of financial instruments 

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS 107, Disclosures About Fair
Value of Financial Instruments,(SFAS 107). Our financial instruments as defined by SFAS 107 include cash, money market funds, accounts receivable, accounts
payable and long-term debt. We have determined the estimated fair value amounts at December 31, 2001 using available market information and valuation
methodologies. 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 (see notes 5 and 6 for fair value of debt and derivative instruments).

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently issued accounting pronouncements

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS
143, Accounting for Asset Retirement Obligations(SFAS 143), which outlines
standards for accounting for an obligation associated with the retirement of a
long-lived tangible asset. This standard will apply to our accounting for
landfill closure and post-closure obligations. We are required to adopt SFAS
143 by January 1, 2003 and are currently assessing the impact, if any, that
this statement will have on our consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS 144), which supercedes SFAS 121. SFAS 144
provides a single accounting model for impairment of long-lived assets held for
use and for long-lived assets that are to be disposed of by sale (including
discontinued operations). SFAS 144 does not cover impairment of goodwill. We
adopted SFAS 144 on January 1, 2002. There was no impact on our consolidated
financial statements.

In July 2001, the FASB issued SFAS 141, Business Combinations(SFAS 141) and
SFAS 142, Goodwill and Other Intangible Assets(SFAS 142).SFAS 141 requires
the purchase method of accounting for business combinations initiated after
June 30, 2001, and eliminates the pooling-of-interest method. Adoption of this
standard did not have a material impact on our consolidated financial
statements. The effective date for SFAS 142 was fiscal years beginning after
December 15, 2001.

SFAS 142, among other things, eliminates the amortization of goodwill and
instead requires an annual assessment of goodwill impairment by applying a fair
value based test. SFAS 142 required that any goodwill recorded in connection
with an acquisition consummated on or after July 1, 2001 not be amortized.
During the years ended December 31, 2001 and 2000, the Company recorded
goodwill amortization of $177.9 million and $173.0 million, respectively. We
have evaluated the impact of this statement and tested our existing goodwill
for realizability and determined that we have no impairment of our goodwill and
therefore no impact upon adoption to our consolidated financial
statements effective January 1, 2002. Total net unamortized goodwill at December
31, 2001 is approximately $6.7 billion, of which approximately $6.5 billion is
not deductible for income tax purposes.

2. Business Combinations

Acquisitions accounted for under the poolings-of-interests method are reflected
in the results of operations as if the acquisition occurred on the first day of
the earliest year presented. Acquisitions accounted for under the purchase
method are reflected in the results of operations since the effective date of
the acquisition. For those acquisitions accounted for using the purchase
method, we allocate the cost of the acquired business to the assets acquired
and liabilities assumed based upon their estimated fair values. These estimates
are revised during the allocation period as necessary when, and if, information
regarding contingencies becomes available to further define and quantify assets
acquired and liabilities assumed. The allocation period generally does not
exceed one year. To the extent contingencies are resolved or settled during the
allocation period, such items are included in the revised allocation of the
purchase price. Purchase accounting adjustments, acquisition related costs and
other possible charges that may arise from the acquisitions may materially
impact our future Consolidated Balance Sheets and Statements of Operations.
Unaudited pro forma consolidated data is not presented because it would not
significantly change our reported results for the periods presented.

104



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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. 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 and
improvements (30-40 years), vehicles and equipment (3-10 years), containers and compactors
(5-15 years) and furniture and office equipment (3-8 years). In accordance with SFAS 121,we
evaluate long-lived assets, such as property and equipment, and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable.

The cost of landfill airspace, including original acquisition cost and incurred and projected
landfill construction costs, is amortized over the capacity of the landfill based on a per unit
basis as landfill airspace is consumed. We periodically review the realizability of our
investment in operating landfills. Should events and circumstances indicate that any of our
landfills be reviewed for possible impairment, such review for recoverability will be made in
accordance with Emerging Issues Task Force Discussion Issue No. 95-23 (EITF 95-23) The
Treatment of Certain Site Restoration/Environmental Exit Costs When Testing a Long-Lived Asset
for Impairment. 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 year ended December 31, 2001, the year ended December 31, 2000,
the five months ended December 31, 1999, and the ten months ended July 30 1999, maintenance and
repair expenses charged to cost of operations were approximately $242.0 million, $268.7
million, $143.9 million and $243.9 million, respectively. When property is retired, the related
cost and accumulated depreciation are removed from the accounts and any resulting gain or loss
is recognized.

Property and equipment at December 31, 2001 and 2000 is as follows (in thousands):

|                                          |  |      |           |      |  |   |           |  
|----------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                          |  | 2001 |           | 2000
|                                          |  |      |           |     
|Land and improvements                     |  | $    | 199,333   |      |  | $ | 204,309   |  
|                                         
|                                         
|                                         
|                                         
|Land held for permitting as landfills(1)  |  |      | 35,459    |      |  |   | 36,768    |  
|                                         
|                                         
|                                         
|                                         
|Landfills                                 |  |      | 734,346   |      |  |   | 613,418   |  
|                                         
|                                         
|                                         
|                                         
|Buildings and improvements                |  |      | 181,548   |      |  |   | 185,424   |  
|                                         
|                                         
|                                         
|                                         
|Vehicles, furniture and equipment         |  |      | 693,611   |      |  |   | 719,099   |  
|                                         
|                                         
|                                         
|                                         
|Containers and compactors                 |  |      | 344,596   |      |  |   | 343,712   |  
|                                          |  |      |           |      |  |   |           |  
|                                          |  |      | 2,188,893 |      |  |   | 2,102,730 |  
|                                         
|                                         
|                                         
|                                         
|Accumulated depreciation and amortization |  |      | (588,870  | )    |  |   | (380,039  | )
|                                          |  |      |           |      |  |   |           |  
|                                          |  | $    | 1,600,023 |      |  | $ | 1,722,691 |  
|                                          |  |      |           |      |  |   |           |  



---

|(1) |  | These properties have been approved for use as landfills, and we are currently in the process of obtaining the
necessary permits.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------

105



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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Investments In Unconsolidated Affiliates

On April 30, 2001, American Ref-Fuel Company LLC, a joint venture of Duke
Energy North America and United American Energy Corporation, acquired our 100%
ownership interest in the Ref-Fuel Chester, Pennsylvania facility; our 50%
interest in the Rochester, Massachusetts facility; and our 51% interest in
Ref-Fuels marketing company. The ownership structure of four remaining
Ref-Fuel facilities located in New York, New Jersey, and Connecticut was
modified to give American Ref-Fuel Company LLC operational control of those
entities. This transaction allowed us to reduce our debt requirements by
approximately $300 million and reduced our letter of credit requirements by
$200 million. In 2000, these operations generated approximate annual revenues,
operating income and equity earnings of $70 million, $15 million, and $50
million, respectively.

In connection with the modification of the
ownership structure of the Ref-Fuel
facilities on April 30, 2001, we retained a minority ownership interest in
these entities. Our equity investment in these entities was approximately $180
million at December 31, 2001 and is included in other assets, net on the
Consolidated Balance Sheets. As part of the ownership modification,
our Parent had an
option to exchange our minority interest in the Ref-Fuel facilities for
Ref-Fuels 99% interest in Allied's equipment purchasing
subsidiaries. The Parent
has exercised this option and this exchange is scheduled to take place in April
2002. After
the exchange, we will no longer have any interest in the Ref-Fuel entities.

106



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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We used the equity method of accounting for investments in unconsolidated subsidiaries over which we exercised control. The Summarized Combined Balance
Sheet Data and the Statement of Operations Data presented in the table below indicate amounts related to the following equity investees in which we
exercised control through a 50% ownership interest at December 31, 2000 and 1999: American Ref-Fuel Company, American Ref-Fuel Company of Hempstead,
American Ref-Fuel Company of Essex, American Ref-Fuel Company of Southeastern Connecticut, American Ref-Fuel Company of Niagara, LP, and American Ref-Fuel
Company of SEMASS, LP (American Ref-Fuel).

Summarized Combined Balance Sheet Data
(in thousands, unaudited)

|                                                        |         |   |              |         |              |   |              |           |  |   |           |           | 
|------------------------------------------------------- | ------- | - | ------------ | ------- | ------------ | - | ------------ | --------- |  | - | --------- | --------- | 
|                                                        |         |   | December 31, |         | December 31, |   | December 31,
|                                                        |         |   | 2001(1)      |         | 2000         |   | 1999        
|                                                        |         |   |              |         |              |   |             
|Current assets                                          |         | $ | 115,768      |         |              | $ | 162,799      |           |  | $ | 147,863   |          
|                                                       
|                                                       
|                                                       
|                                                       
|Property and equipment, net of
accumulated depreciation |         |   | 764,496      |         |              |   | 1,086,470    |           |  |   | 1,116,711 |          
|                                                       
|                                                       
|                                                       
|                                                       
|Other non-current assets                                |         |   | 194,002      |         |              |   | 245,836      |           |  |   | 248,378   |          
|                                                       
|                                                       
|                                                       
|                                                       
|Current liabilities                                     |         |   | 114,848      |         |              |   | 120,964      |           |  |   | 127,989   |          
|                                                       
|                                                       
|                                                       
|                                                       
|Long-term debt, net of current                          |         |   |              |         |              |   |              |           |  |   |           |          
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | portion |   |              | 707,243 |              |   |              | 1,098,605 |  |   |           | 1,123,414 | 
|                                                       
|                                                       
|                                                       
|                                                       
|Other long-term liabilities                             |         |   | 178,246      |         |              |   | 216,597      |           |  |   | 199,828   |          
|                                                       
|                                                       
|                                                       
|                                                       
|Retained earnings                                       |         |   | (13,147      | )       |              |   | 58,939       |           |  |   | 61,721    |          

Summarized Combined Statement of Operations Data
(in thousands, unaudited)

|                 |  |              |         |              |  |              |         |  |  |   |         | 
|---------------- |  | ------------ | ------- | ------------ |  | ------------ | ------- |  |  | - | ------- | 
|                 |  | For the      |         | For the      |  | For the Five
|                 |  | Year Ended   |         | Year Ended   |  | Months Ended
|                 |  | December 31, |         | December 31, |  | December 31,
|                 |  | 2001(1)      |         | 2000         |  | 1999        
|                 |  |              |         |              |  |             
|Total revenue    |  | $            | 250,023 |              |  | $            | 363,719 |  |  | $ | 146,940 | 
|                
|                
|                
|                
|Operating income |  |              | 116,816 |              |  |              | 159,113 |  |  |   | 52,216  | 
|                
|                
|                
|                
|Net income       |  |              | 59,383  |              |  |              | 95,118  |  |  |   | 27,328  | 



---

|(1) |  | These amounts exclude the results of Semass, LP and American Ref-Fuel, for which our ownership interest was divested on April 30, 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

Our investments in and advances to equity investees approximated $240.0 million and $274.7 million at December 31, 2000 and 1999, respectively
consisted of investments in excess of underlying equity of $134.3 million and $170.1 million, a subordinated note and other receivables of $76.2
million and $73.7 million, and our proportional share of net assets of $29.5 million and $30.9 million, respectively.

For years ended December 31, 2001 and 2000, and for the five months ended December 31, 1999, our equity in earnings of equity investees were approximately
$39.1 million, $50.8 million and $20.8 million and dividends received from equity investees were approximately $12.6 million and $34.0 million,
respectively for the year ended December 31, 2000 and for the five months ended December 31, 1999. There were no dividends received during 2001.

Differences between the equity in earnings we reported and our proportionate share of the combined earnings of the related investees result principally from
differences in the recognition of expenses, goodwill amortization and the elimination of intercompany transactions.

107



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##### Table of Contents



BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Long-term Debt

Allied completed the purchase of BFI primarily through the issuance of debt. All of the assets and stock of BFI are pledged as
collateral for this debt and the debt is serviced through cash flows generated by BFI operations. Therefore in accordance with SEC
Staff Accounting Bulletin, Topic 5, the debt, while held at Allied, is presented on our consolidated balance sheet, and related
interest expense and debt issue costs are reflected in our financial statements.

Long-term debt at December 31, 2001 and 2000 consists of the following (in thousands):

|                                                                                      |                                                                                      |   |           |           |      |   |           |           | 
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | - | --------- | --------- | ---- | - | --------- | --------- | 
|                                                                                      |                                                                                      |   | 2001      |           | 2000
|                                                                                      |                                                                                      |   |           |           |     
|Revolving credit facility, effective rate of 10.46%                                   |                                                                                      | $ |          |           |      | $ | 435,000   |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Tranche A term loan facility, effective rate of 9.48% and 9.19%, respectively         |                                                                                      |   | 1,157,785 |           |      |   | 1,675,000 |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Tranche B term loan facility, effective rate of 9.37% and 9.52%, respectively         |                                                                                      |   | 864,018   |           |      |   | 1,250,000 |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Tranche C term loan facility, effective rate of 9.94% and 9.73%, respectively         |                                                                                      |   | 1,036,822 |           |      |   | 1,500,000 |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Senior subordinated notes, interest at 10.00%, effective rate of 10.18%, including    |                                                                                      |   |           |           |      |   |           |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | unamortized premium of $6,425 and $7,272, respectively                               |   |           | 2,006,425 |      |   |           | 2,007,272 | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Senior notes, interest at 8.88%, effective rate of 9.14%                              |                                                                                      |   | 600,000   |           |      |   |          |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Senior notes, interest of 8.50%, effective rate of 8.59%                              |                                                                                      |   | 750,000   |           |      |   |          |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Debentures, interest at 7.40%, effective rate of 10.25%, net of unamortized discount  |                                                                                      |   |           |           |      |   |           |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | of $76,969 and $79,251, respectively                                                 |   |           | 283,031   |      |   |           | 280,749   | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Senior notes, interest at 6.10%, effective rate of 8.54%, net of unamortized discount |                                                                                      |   |           |           |      |   |           |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | of $3,679 and $7,194, respectively                                                   |   |           | 153,010   |      |   |           | 149,495   | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Senior notes, interest at 6.38%, effective rate of 9.52%, net of unamortized discount |                                                                                      |   |           |           |      |   |           |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | of $19,141 and $22,305, respectively                                                 |   |           | 142,059   |      |   |           | 138,895   | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Debentures, interest at 9.25%, effective rate of 9.92%, net of unamortized discount   |                                                                                      |   |           |           |      |   |           |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | of $4,331 and $4,554, respectively                                                   |   |           | 95,169    |      |   |           | 94,946    | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Senior notes, interest at 7.88%, effective rate of 9.05%, net of unamortized discount |                                                                                      |   |           |           |      |   |           |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | of $1,999 and $2,622, respectively                                                   |   |           | 67,502    |      |   |           | 66,879    | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Solid waste revenue bond obligations, weighted average interest rate of 5.00% and     |                                                                                      |   |           |           |      |   |           |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | 6.40%, weighted average effective rate of 7.40% and 6.01%, respectively, net of      |   |           |           |      |   |           |           | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | unamortized discount of $4,491 and $4,810, respectively                              |   |           | 236,822   |      |   |           | 236,500   | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Notes payable to banks, finance companies, and individuals, weighted average          |                                                                                      |   |           |           |      |   |           |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | interest rates of 6.40% and 7.00%, respectively, and principal payable through 2010, |   |           |           |      |   |           |           | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | secured by vehicles, equipment, real estate, accounts receivable or stock of certain |   |           |           |      |   |           |           | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | subsidiaries                                                                         |   |           | 7,889     |      |   |           | 13,702    | 
|                                                                                      |                                                                                      |   |           |           |      |   |           |          
|                                                                                      |                                                                                      |   | 7,400,532 |           |      |   | 7,848,438 |          
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Less: Current portion                                                                 |                                                                                      |   | 1,689     |           |      |   | 4,854     |          
|                                                                                      |                                                                                      |   |           |           |      |   |           |          
|                                                                                      |                                                                                      | $ | 7,398,843 |           |      | $ | 7,843,584 |          
|                                                                                      |                                                                                      |   |           |           |      |   |           |          

108



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##### Table of Contents



BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On November 27, 2001, Allied Waste North America, Inc. (Allied NA; a wholly owned consolidated subsidiary of Allied) issued $750 million of 8.50% Series A senior notes, due 2008 (together with the $600
million 8.875% notes issued January 30, 2001, the 2001 Senior Notes), in a private placement under Rule 144A of the
Securities Act of 1933. These notes were registered within 120 days of the November offering date.
Interest is payable semi-annually on June 1 and September 1. We used the net proceeds of $736.9 million from the
sale of these notes to ratably repay portions of tranches A, B and C of the term loans under the 1999 Credit
Facility. In connection with the issuance of the notes, we further amended our credit facility to revise certain
financial covenants to provide us with greater operating flexibility.

On January 30, 2001, Allied NA issued $600 million of 8.875% senior notes, due 2008 (the 2001 Senior Notes), in a private
placement under Rule 144A of the Securities Act of 1933. In August 2001, these notes were exchanged for
substantially identical notes registered under the Securities Act of 1933. Interest is payable semi-annually on
April 1 and October 1. The net proceeds of $589.5 million from the sale of these notes to ratably repay
portions of tranches A, B and C of the term loans under the 1999 Credit Facility. Coincident with the offering we
amended our 1999 Credit Facility to change certain financial covenants to provide us with greater flexibility and
to reduce the total revolving line by $200 million, from $1.5 billion to $1.3 billion. This reduction in the
revolver was effective as of June 29, 2001.

In connection with the BFI acquisition in July 1999, we entered into a new credit facility (the 1999 Credit
Facility). The 1999 Credit Facility provided a $1.5 billion six-year revolving credit facility, due July 2005,
which was reduced to $1.3 billion effective June 29, 2001, a $556 million two-year asset sale term which was repaid
in full in February 2000, a $1.75 billion six-year Tranche A term due July 2005, a $1.25 billion seven-year Tranche
B term loan due July 2006, a $1.50 billion eight-year Tranche C term loan due July 2007 and a $500 million
eight-year Tranche D term loan. The Tranche D Term Loan was repaid in full in September 2000.

The 1999 Credit Facility bears interest, at (a) an Alternate Base Rate, or (b) a Eurodollar Rate, both terms
defined in the 1999 Credit Facility, plus, in either case, an applicable margin and may be used for working capital
and other general corporate purposes, acquisitions, and the issuance of letters of credit. Of the $1.3 billion
available under the Revolving Credit Facility at December 31, 2001, the entire amount may be used to support the
issuance of letters of credit. As of December 31, 2001, approximately $792 million was available on this facility.

The 1999 Credit Facility is a funded, amortizing senior secured term loan with annual principal payments increasing
from zero in 2002, to $183 million in 2003, and to $450 million in 2004. Principal under the revolving credit
facility is due upon maturity.

We are required to make prepayments on the 1999 Credit Facility upon completion of certain asset sales and
issuances of debt or equity securities. Proceeds from asset sales are to be applied first to reduce borrowings
under the Tranche A, B and C term loans on a pro rata basis. Required prepayments are to be made based on a
percentage of the net proceeds of any debt incurrence or equity issuance.

In July 1999, Allied NA issued
$2.0 billion of senior subordinated notes (the 1999 Notes) in a Rule 144A offering. In January 2000, these notes
were exchanged for substantially identical notes registered under the Securities Exchange Act of 1933. Interest
accrues on the 1999 Notes at an interest rate of 10% per annum, payable semi-annually on May 1 and November 1. We
used the proceeds from the 1999 Notes as partial financing of the acquisition of the Predecessor by Allied.

109



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##### Table of Contents



BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the acquisition of the Predecessor on July 30, 1999, Allied assumed all of the Predecessors
debt securities with the exception of commercial paper that was paid off in connection with the acquisition. The
assumed debt securities were recorded at their fair market values as of the date of the acquisition in accordance
with Emerging Issues Task Force Issue 98-1  Valuation of Debt Assumed in a Purchase Business Combination. The
effect of revaluing the debt securities resulted in an aggregate discount from the historic face amount of $137.0
million. At December 31, 2001, the remaining unamortized discount related to the debt securities assumed from the
Predecessor was $110.6 million.

The 6.10% Senior Notes, 6.375% Senior Notes and 9.25% Debentures are not redeemable prior to maturity and are not
subject to any sinking fund.

The 7.40% Debentures are not subject to any sinking fund and may be redeemed as a whole or in part, at our option
at any time. The redemption price is equal to the greater of (i) the principal amount of the debentures and (ii)
the present value of future principal and interest payments discounted at a rate specified under the terms of the
indenture.

Substantially all of our subsidiaries are jointly and severally liable for the obligations under the 1999 Notes,
the 2001 Senior Notes, and the 1999 Credit Facility through unconditional guarantees issued by current and future
subsidiaries. In addition, the 1999 Credit Facility, the 2001 Senior Notes and certain
of the debt assumed in connection with the acquisition of the Predecessor by Allied are secured by a pledge of the
stock of substantially all of BFI and a security interest in the assets of BFI and its domestic subsidiary.

Future maturities of long term debt

Aggregate future scheduled maturities of long-term debt are as follows (in thousands):

|                |  |              |           |  
|--------------- |  | ------------ | --------- | -
|                |  | As of       
|                |  | December 31,
|Maturity        |  | 2001        
|                |  |             
|2002            |  | $            | 1,689     |  
|               
|               
|               
|               
|2003            |  |              | 342,128   |  
|               
|               
|               
|               
|2004            |  |              | 451,213   |  
|               
|               
|               
|               
|2005            |  |              | 595,308   |  
|               
|               
|               
|               
|2006            |  |              | 868,274   |  
|               
|               
|               
|               
|Thereafter      |  |              | 5,246,105 |  
|                |  |              |           |  
|Gross Principal |  |              | 7,504,717 |  
|               
|               
|               
|               
|Discount, net   |  |              | (104,185  | )
|                |  |              |           |  
|Total Debt      |  | $            | 7,400,532 |  
|                |  |              |           |  

Fair value of debt and interest rate protection agreements

We have interest rate risk relating to long-term variable rate debt. To
manage the potential interest rate volatility, we enter into interest rate
swaps. Interest rate swaps are used to manage the proportion of fixed and
variable rate debt based on market conditions. We do not hold or issue
derivative instruments for trading purposes.

110



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##### Table of Contents



BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of our debt and hedging instruments are subject to change as a result of potential changes in market
rates and prices. The table below provides information about our long-term debt and interest rate hedges by aggregate
principal or notional amounts and weighted average interest rates for instruments that are sensitive to changes in
interest rates. The financial instruments are grouped by market risk exposure category (in thousands, except
percentages).

|                       |                     |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |   |           |  
|---------------------- | ------------------- | --------------------------------- |  | ------------ | --------- | ------------- |  | ------------ | --------- | ------------- |  | - | --------- | - |  | - | --------- | -
|                       |                     |                                   |  | Balance at   |           | Fair Value at |  | Balance at   |           | Fair Value at
|                       |                     |                                   |  | December 31, |           | December 31,  |  | December 31, |           | December 31, 
|                       |                     |                                   |  | 2001         |           | 2001          |  | 2000         |           | 2000         
|                       |                     |                                   |  |              |           |               |  |              |           |              
|Long-Term Debt         |                     |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |  
|                      
|                      
|                      
|                      
|                       | Fixed Rate Debt:    |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |   |          
|                      
|                      
|                      
|                      
|                       |                     | Principal amount                  |  | $            | 4,262,327 |               |  | $            | 4,299,668 |               |  | $ | 2,908,856 |   |  | $ | 2,747,940 |  
|                      
|                      
|                      
|                      
|                       |                     | Weighted average interest rate    |  |              | 9.13      | %             |  |              |           |               |  |   | 8.37      | % |  |   |           |  
|                      
|                      
|                      
|                      
|                       | Variable Rate Debt: |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |   |          
|                      
|                      
|                      
|                      
|                       |                     | Principal amount                  |  | $            | 3,138,205 |               |  | $            | 3,089,215 |               |  | $ | 4,939,582 |   |  | $ | 4,734,918 |  
|                      
|                      
|                      
|                      
|                       |                     | Weighted average interest
rate(1) |  |              | 4.58      | %             |  |              |           |               |  |   | 9.23      | % |  |   |           |  
|                      
|                      
|                      
|                      
|Interest Rate Swaps(2) |                     |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |  
|                      
|                      
|                      
|                      
|                       | Cancelable:         |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |   |          
|                      
|                      
|                      
|                      
|                       |                     | Notional amount                   |  | $            |          |               |  | $            |          |               |  | $ | 450,000   |   |  | $ | (2,170    | )
|                      
|                      
|                      
|                      
|                       |                     | Weighted average interest
rate    |  |              |           |               |  |              |           |               |  |   | 6.37      | % |  |   |           |  
|                      
|                      
|                      
|                      
|                       | Non-Cancelable:     |                                   |  |              |           |               |  |              |           |               |  |   |           |   |  |   |          
|                      
|                      
|                      
|                      
|                       |                     | Notional amount                   |  | $            | 2,886,822 |               |  | $            | (140,693  | )             |  | $ | 3,550,000 |   |  | $ | (72,496   | )
|                      
|                      
|                      
|                      
|                       |                     | Weighted average interest
rate    |  |              | 6.29      | %             |  |              |           |               |  |   | 7.10      | % |  |   |           |  



---

|(1) |  | Reflects the rate in effect as of December 31, 2001 and 2000 before the effects of swaps and includes
all applicable margins. Actual future rates may vary.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | All interest rate swaps enable us to pay a fixed interest rate in exchange for receiving variable
interest rates at LIBOR. (See Note 6.)                   

Debt covenants

The 1999 Credit Facility contains certain financial covenants, including, but not limited to total debt to EBITDA ratio and an interest expense
coverage ratio. Additionally, these covenants limit, among other things, our ability and our subsidiaries ability to incur additional indebtedness and
liens, make acquisitions and purchase fixed assets above certain amounts, pay dividends, make optional prepayments on certain subordinated
indebtedness, make investments, loans or advances, enter into certain transactions with affiliates or consummate a merger, consolidation or sale of all
or substantially all of our assets.

The 1999 Notes and the 2001 Senior Notes contain certain financial and operating covenants and restrictions, which may, in certain circumstances, limit
our ability to complete acquisitions, pay dividends, incur indebtedness, make investments and take certain other corporate actions.

At December 31, 2001, we were in compliance with all applicable covenants.

111



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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Derivative Instruments and Hedging Activities

Consistent with our risk management policy, we enter into fixed to floating
swap agreements for the purpose of hedging variability of interest payments on
our long-term variable rate LIBOR-based bank debt and the corresponding
variability in interest expense. Our strategy is to utilize derivatives when
such transactions will serve to reduce our aggregate exposure. We enter these
contracts solely for the purpose of reducing risk; positions are not taken for
trading purposes. Our derivative activities are subject to the management,
direction and control of our Hedging Committee. Our risk management policy
requires that we evaluate the credit of our counterparties and that we monitor
counterparty exposure. At December 31, 2001, counterparties for 83% of our
interest rate swap portfolio were rated either AA or AA-. The counterparties
for the remaining 17% were rated from A+ to A. Risk management practices,
including the use of financial derivative instruments, are presented to the
Audit Committee of the Board of Directors at least annually.

Upon adoption of SFAS 133, at January 1, 2001, and subsequently throughout the
first three quarters of 2001, business plan assumptions were analyzed and
evaluated in relationship to the future level of anticipated bank debt
outstanding. We analyzed the terms and levels of the bank debt and maintained
a hedge portfolio with terms not to exceed the anticipated maturities or
paydowns of the variable rate bank debt  thereby achieving an effective
hedging relationship with our bank debt and our swap portfolio. We designate
our interest rate swap agreements at inception as hedges of the variability of
interest cash flow debt or as hedges of the fair value of a specific fixed rate
liability attributable to changes in market interest rates. We formally
document all relationships between hedging instruments and hedged items, as
well as the risk management objective and strategy for undertaking various
hedge transactions.

Adoption of these new accounting standards had no effect on net income and
resulted in cumulative pre-tax reductions of $74.7 million on January 1, 2001
to Accumulated Other Comprehensive Income, included as a component of reported
stockholders equity. At December 31, 2001, a liability of $140.7 million is
included in the Consolidated Balance Sheets in other long-term obligations
reflecting the market cost of hypothetical settlement of our swap portfolio on
that date. Correspondingly, at December 31, 2001, an after tax amount of $85.1
million is included in Accumulated Other Comprehensive Income (AOCI). The
liability will fluctuate with market interest rates but will reduce to zero
over the terms of each of our interest rate swap instruments. Approximately
$14.5 million of the liability at December 31, 2001 related to hedges maturing
within 12 months. Fair value variations over the life of the swap contracts
arise from changes in interest rates and the time value of money. Our swap
portfolio stabilizes our incurred and reported interest expense with the
consequence of the balance sheet fluctuations caused by changes in market
interest rates.

112



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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our cash flow interest rate swaps are properly designated as and are effective as
hedges of our variable rate debt. We assume 100% effectiveness in our interest rate
hedges, as the notional amounts, indices, repricing dates, and all other significant
terms of the swap agreements are matched to the provisions and terms of the variable
rate debt being hedged. Accordingly, all changes in market value of our interest
rate swap agreements are reflected in comprehensive income. Expense or income
related to swap settlements are matched against interest expense in earnings for the
related variable rate debt over the term of the agreements. These agreements are
recognized on the balance sheet at their fair value. If significant terms do not
match we will then use the hypothetical swap method to assess any ineffectiveness.
Any ineffectiveness is recorded in interest expense in our income statement. Market
change gains and losses on interest rate swap agreements not designated in a hedging
relationship would be recorded as a gain or loss on derivative instruments in our
income statement. We had no such gains or losses in 2001. When interest rate swap
hedging relationships are de-designated or terminated, any accumulated gains or
losses in AOCI at that time are isolated and amortized over the remaining original
contract term.

Our interest rate swap portfolio continues to fix a significant portion of our
variable rate interest payment obligation, protecting us from cash flow variations
arising from changes in short term interest rates. We believe this is prudent given
our capital structure. At December 31, 2001, the notional value of our interest
rate swap contracts was $2.887 billion with a weighted average of 24 months to
maturity. These contracts expire 15% during 2002, 28% during 2003, 48% during 2004,
and 9% during 2005. Our 1999 Credit Facility requires that 50% of our outstanding
credit facility remain hedged through July 2002, and our corporate policy is that at
least 75% of our total debt must be effectively fixed, either directly or through
interest rate swap agreements. At December 31, 2001, approximately 96% of our debt
was fixed, 64% directly, and 32% through interest rate swap agreements.

Significant portions of the 1999 Credit Facility expire in July 2005. Before its
expiration, we intend to re-finance the 1999 Credit Facility. Due to recent events
that have impacted the capital markets, we now believe that the size of a new credit
facility will be smaller than originally anticipated. We believe that between
December 31, 2001 and the time we refinance the 1999 Credit Facility, we will reduce
its size by about $1.5 billion. The alternatives available to us to allow this
reduction include, cash flow from operating activities, possible asset sales in
excess of acquisitions and potential capital market transactions. Capital market
transactions could involve either new equity capital for our Company or refinancing
short-term maturities for longer-term maturities or some combination of both. This
course of action is subject to ongoing analysis and is dependent on a favorable
economic environment. The exact size, combination or timing of these events has not
yet been determined, and we cannot assume that we will be able to secure a
refinancing on terms we regard as favorable, or at all.

These new events and their timing have been considered with respect to our hedge
contracts expirations. The updated business and financing plan, which is based on
new circumstances not anticipated at the time we entered into the interest rate swap
agreements, contemplates the possibility of refinancing or prepaying variable rate
debt before the expiration of some interest rate swap contracts. The possibility of
these new events occurring changes our prior assertions that the debt would be
outstanding for the duration of all swaps entered into from probable to less
certainty.

Thus, in December 2001, we began contemplating the possibility of refinancing or
prepaying our variable rate debt before the expiration of some interest rate swap
contracts. Effective December 31, 2001, we de-designated $1.5 billion of notional
amount interest rate swap contracts. Because it was possible that future interest
rate payments on the underlying variable rate debt may cease prior to the expiration
of the related hedge contract portfolio.

In determining the amount to de-designate, we considered various business scenarios.
Sensitivity analysis was performed to identify the impact of various alternatives.
We then identified only those swap contracts where we could make a clear
determination, based on new and current circumstances, that future interest payments
were highly probable, left those remaining as designated hedge accounting
transactions, and de-designated the rest. Until the underlying variable rate debt is
paid, the de-designated contracts will remain in force.

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These analyses and results were reviewed and approved by senior management, the
Hedging Committee and the Board of Directors.

For contracts which remain designated as hedges, settlement payments in each period
are included as part of our interest expense. Periodic changes in the market value
of those contracts will remain in shareholders equity in AOCI. For de-designated
contracts, settlement payments and periodic changes in market values of the
contracts will be presented on the face of the Consolidated Statements of Operations
as a gain or loss of derivative contracts.

For contracts de-designated the total amount of loss in AOCI at December 31, 2001
was approximately $65 million ($40 million, net of income tax benefit). The gross
amount will be amortized into interest expense over the remaining terms of the
de-designated contracts. Prospectively, periodic changes in market value for the
contracts will be recorded in the Consolidated Statements of Operations as a gain or
loss on a derivative contract.

7.     Landfill Accounting

We have a network of 73 owned or operated active landfills at December 31, 2001. The
landfills have operating lives ranging from 1 to over 150 years based on available
capacity using current annual volumes. The average life of our landfills
approximates 40 years. We use a life-cycle accounting method for landfills and the
related closure and post-closure liabilities. This method applies the costs
associated with acquiring, developing, closing and monitoring the landfills over the
associated landfill capacity and associated consumption. On an annual basis, we
update the development cost estimates (which include the costs to develop the site
as well as the individual cell construction costs), closure and post-closure cost
estimates and future capacity estimates (sometimes referred as airspace) for each
landfill. The cost estimates are prepared by local company and third-party engineers
based on the applicable local, state and federal regulations and site specific
permit requirements. Future capacity estimates are updated using aerial surveys of
each landfill to estimate utilized disposal capacity and remaining disposal
capacity. These cost and capacity estimates are reviewed and approved by senior
operations management annually.

Landfill assets

We use the units of production method for purposes of calculating the amortization
rate at each landfill. This methodology divides the costs associated with acquiring,
permitting and developing the entire landfill by the total remaining capacity of
that landfill. The resulting per unit amortization rate is applied to each unit
disposed at the landfill and is recorded as expense for that period. We expensed
approximately $66.0 million, $60.6 million and $24.8 million related to landfill
amortization during the years ended December 31, 2001 and 2000 and for the five
months ended December 31, 1999.

Allied and its engineering and legal consultants continually monitor the
progress of obtaining local, state and federal approval for each of its
expansion permits. If it is determined that the expansion no longer meets
our criteria, the disposal capacity is removed from our total available
disposal capacity, the costs to develop that disposal capacity and the
associated closure and post-closure costs are removed from the landfill
amortization base, and rates are adjusted prospectively. In addition, any
value assigned to deemed permitted capacity would be written-off to
expense during the period in which it is determined that the criteria are
no longer met.

The following table reflects the estimated operating lives of our
landfill assets based on available disposal capacity using current annual volumes:

|               |  |                 |    |                  |  |  |     |  
|-------------- |  | --------------- | -- | ---------------- |  |  | --- | -
|               |  | Number of Sites |    | Percent of Total
|               |  |                 |    |                 
|0 to 5 years   |  |                 | 15 |                  |  |  | 21  | %
|              
|              
|              
|              
|6 to 10 years  |  |                 | 10 |                  |  |  | 14  | %
|              
|              
|              
|              
|11 to 20 years |  |                 | 10 |                  |  |  | 14  | %
|              
|              
|              
|              
|21 to 40 years |  |                 | 21 |                  |  |  | 28  | %
|              
|              
|              
|              
|41+ years      |  |                 | 17 |                  |  |  | 23  | %
|               |  |                 |    |                  |  |  |     |  
|Total          |  |                 | 73 |                  |  |  | 100 | %
|               |  |                 |    |                  |  |  |     |  

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Closure and post-closure

As individual areas within each landfill reach capacity, we are required
to cap and close the areas in accordance with the landfill site permit.
Generally, closure requirements include the application of compacted
clay, geosynthetic liners and vegetative soil barriers in addition to the
construction of drainage channels and methane gas collection systems
among other closure activities. After the entire landfill site has
reached capacity and is closed, we are required to maintain and monitor
the site for a post-closure period, which usually extends for 30 years.
Post-closure requirements generally include maintenance of the site and
monitoring the methane gas collection systems and groundwater systems,
among other post-closure activities. Such estimated costs for closure and
post-closure as required under Subtitle D regulations are compiled and
updated annually for each landfill by local and regional company
engineers and reviewed by senior management. The future estimated closure
and post-closure costs are increased at an inflation rate of 2.5%, and
discounted at a risk-free capital rate of 7.0%, per annum, based on the
timing of the amounts to be expended. The following table is a summary of
the closure and post-closure costs (in thousands):

|                                                         |                     |   |                   |           |                   |  |   |           | 
|-------------------------------------------------------- | ------------------- | - | ----------------- | --------- | ----------------- |  | - | --------- | 
|                                                         |                     |   | December 31, 2001 |           | December 31, 2000
|                                                         |                     |   |                   |           |                  
|Discounted Closure and Post-Closure Liability Recorded:  |                     |   |                   |           |                   |  |   |          
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Current Portion     |   | $                 | 57,170    |                   |  | $ | 67,474    | 
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Non-Current Portion |   |                   | 368,971   |                   |  |   | 361,472   | 
|                                                         |                     |   |                   |           |                   |  |   |           | 
|                                                         | Total               |   | $                 | 426,141   |                   |  | $ | 428,946   | 
|                                                        
|                                                        
|                                                        
|                                                        
|Estimated Remaining Closure and Post-Closure Costs to be |                     |   |                   |           |                   |  |   |          
|                                                        
|                                                        
|                                                        
|                                                        
|Expended:                                                |                     |   |                   |           |                   |  |   |          
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Discounted          |   | $                 | 668,369   |                   |  | $ | 724,617   | 
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Undiscounted        |   |                   | 1,541,006 |                   |  |   | 1,572,472 | 
|                                                        
|                                                        
|                                                        
|                                                        
|Estimated Total Future Payments:                         |                     |   |                   |           |                   |  |   |          
|                                                        
|                                                        
|                                                        
|                                                        
|2002                                                     |                     | $ | 59,113            |           |                   |  |   |          
|                                                        
|                                                        
|                                                        
|                                                        
|2003                                                     |                     |   | 44,612            |           |                   |  |   |          
|                                                        
|                                                        
|                                                        
|                                                        
|2004                                                     |                     |   | 39,791            |           |                   |  |   |          
|                                                        
|                                                        
|                                                        
|                                                        
|2005                                                     |                     |   | 42,699            |           |                   |  |   |          
|                                                        
|                                                        
|                                                        
|                                                        
|2006                                                     |                     |   | 52,319            |           |                   |  |   |          
|                                                        
|                                                        
|                                                        
|                                                        
|Thereafter                                               |                     |   | 1,302,472         |           |                   |  |   |          

Our periodic closure and post-closure expense has two components. The first component is the site specific
per unit closure and post-closure expense. The per unit rate is derived by dividing the estimated total
remaining discounted closure and post-closure costs by the remaining disposal capacity at each landfill
(consistent with the disposal capacity used to calculate landfill amortization rates). We use the resulting
site-specific rates to record expense during a given period based upon the consumption of disposal capacity
during that period.

The second component is the accretion expense necessary to increase the accrued closure and post-closure
reserve balance to its future, or undiscounted, value. To accomplish this, we accrete our closure and
post-closure accrual balance using the risk-free capital rate and charge this accretion as an operating
expense in that period.

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Environmental costs 

In connection with the acquisition of companies, we engage independent
environmental consulting firms to assist in conducting an environmental
assessment of companies acquired from third parties. Several contaminated
landfills and other properties were identified during 1999 and 1998 that would
require us to incur costs for incremental closure and post-closure measures,
remediation activities and litigation costs in the future. Based on information
available, we recorded provisions of $3.3 million and $257.6 million for
environmental matters, in 2000 and 1999 Consolidated Statements of Operations,
respectively, and expect these amounts to be disbursed over the next 30 years.

The ultimate amounts for environmental liabilities cannot be precisely
determined and estimates of such liabilities made by us, after consultation
with our 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 we have concluded that our
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 our assessment to date, the
recorded liabilities will be periodically evaluated, as additional information
becomes available to ascertain whether the accrued liabilities are adequate. We
have determined that the recorded liability for environmental matters as of
December 31, 2001 and 2000 of approximately $307.0 million and $340.9 million,
respectively, represents the most probable outcome of these contingent matters.
We do not reduce our estimated obligations for proceeds from other potentially
responsible parties or insurance companies. If receipt is probable, proceeds
are recorded as an offset to environmental expense in operating income. There
were no significant recovery receivables outstanding as of December 31, 2001 or
2000. We do 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 our consolidated liquidity, financial position
or results of operations. However, we believe that it is reasonably possible
the ultimate outcome of environmental matters, excluding closure and
post-closure could result in approximately $15 million of additional liability.

8. Employee Benefit Plans

Defined Benefit Pension Plans 

Effective July 30, 1999, in connection with the acquisition of the Predecessor
by Allied, we assumed two defined benefit retirement plans covering
substantially all BFI employees in the United States, except for certain
employees subject to collective bargaining agreements.

These plans are the BFI Retirement Plan (BFI Pension Plan) and the Pension
Plan of San Mateo County Scavenger Company and Affiliated Divisions of
Browning-Ferris Industries of California, Ind. (San Mateo Pension Plan). The
BFI Pension Plan was amended on July 30, 1999 to freeze future credited
service, but interest credits continue to accrue. Certain union participants
continue to receive 2% annual service credits in addition to interest credits
through the duration of the current collective bargaining agreements. The
benefits not frozen for this plan are based on years of service and the
employees compensation.

The BFI San Mateo Pension Plan covers substantially all employees of this
location. Benefits are based on the employees years of service and
compensation using the average of earnings over the highest five consecutive
calendar years out of the last fifteen years of service.

Our general funding policy for each pension plan is to make annual
contributions to the plans as determined to be required by the plans actuary.
No contributions were required during 2001, 2000, or 1999. No contributions are
anticipated necessary for 2002.

116



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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For both plans, an actuarial valuation report was prepared as of September 30, 2001 and 2000 and used, as
permitted by SFAS 132, Employers Disclosures about Pensions and Other Postretirement Benefits(SFAS 132),
for the following disclosures (in thousands):

|                             |                                            |                    |   |                     |         |                     |   |         |         | 
|---------------------------- | ------------------------------------------ | ------------------ | - | ------------------- | ------- | ------------------- | - | ------- | ------- | 
|                             |                                            |                    |   | For the Period from |         | For the Period from
|                             |                                            |                    |   | September 30, 2000  |         | September 30, 1999 
|                             |                                            |                    |   | through             |         | through            
|Change in Benefit Obligation |                                            | September 30, 2001 |   | September 30, 2000 
|                             |                                            |                    |   |                    
|                             | Benefit obligation at beginning of period  |                    | $ | 236,973             |         |                     | $ | 249,110 |        
|                            
|                            
|                            
|                            
|                             | Service cost                               |                    |   | 771                 |         |                     |   | 1,094   |        
|                            
|                            
|                            
|                            
|                             | Interest cost                              |                    |   | 17,697              |         |                     |   | 17,965  |        
|                            
|                            
|                            
|                            
|                             | Actuarial (gain) loss                      |                    |   | 29,573              |         |                     |   | (10,665 | )      
|                            
|                            
|                            
|                            
|                             | Benefits paid                              |                    |   | (15,425             | )       |                     |   | (20,531 | )      
|                             |                                            |                    |   |                     |         |                     |   |         |        
|                             | Benefit obligation at end of period        |                    | $ | 269,589             |         |                     | $ | 236,973 |        
|                            
|                            
|                            
|                            
|Change in Plan Assets        |                                            |                    |   |                     |         |                     |   |        
|                            
|                            
|                            
|                            
|                             | Fair value of plan assets at beginning of  |                    |   |                     |         |                     |   |         |        
|                            
|                            
|                            
|                            
|                             |                                            | period             |   | $                   | 354,207 |                     |   | $       | 304,274 | 
|                            
|                            
|                            
|                            
|                             | Actual return on plan assets               |                    |   | (33,358             | )       |                     |   | 70,464  |        
|                            
|                            
|                            
|                            
|                             | Benefits paid                              |                    |   | (15,425             | )       |                     |   | (20,531 | )      
|                             |                                            |                    |   |                     |         |                     |   |         |        
|                             | Fair value of plan assets at end of period |                    |   | 305,424             |         |                     |   | 354,207 |        
|                            
|                             | Funded Status                              |                    |   | 35,835              |         |                     |   | 117,234 |        
|                            
|                            
|                            
|                            
|                             | Unrecognized net actuarial (gain) loss     |                    |   | 64,225              |         |                     |   | (34,333 | )      
|                             |                                            |                    |   |                     |         |                     |   |         |        
|                             | Prepaid benefit cost                       |                    | $ | 100,060             |         |                     | $ | 82,901  |        
|                             |                                            |                    |   |                     |         |                     |   |         |        

Amounts Recognized in the Consolidated Balance Sheets

|                     |  |                   |         |                   |  |   |        | 
|-------------------- |  | ----------------- | ------- | ----------------- |  | - | ------ | 
|                     |  | December 31, 2001 |         | December 31, 2000
|                     |  |                   |         |                  
|Prepaid benefit cost |  | $                 | 100,060 |                   |  | $ | 82,901 | 

|                                        |                                       |                   |                    |                   |                    |                           |                             |         |   |  |   |         |  
|--------------------------------------- | ------------------------------------- | ----------------- | ------------------ | ----------------- | ------------------ | ------------------------- | --------------------------- | ------- | - |  | - | ------- | -
|                                        |                                       |                   | For the Year Ended |                   | For the Year Ended |                           | For the Period from July 30
|Components of Net Periodic Benefit Cost |                                       | December 31, 2001 |                    | December 31, 2000 |                    | through December 31, 1999
|                                        |                                       |                   |                    |                   |                    |                          
|                                        | Service cost                          |                   | $                  | 771               |                    |                           | $                           | 1,094   |   |  | $ | 496     |  
|                                       
|                                       
|                                       
|                                       
|                                        | Interest cost                         |                   |                    | 17,697            |                    |                           |                             | 17,965  |   |  |   | 7,945   |  
|                                       
|                                       
|                                       
|                                       
|                                        | Expected return on plan assets        |                   |                    | (35,422           | )                  |                           |                             | (34,630 | ) |  |   | (13,155 | )
|                                       
|                                       
|                                       
|                                       
|                                        | Recognized net actuarial gain         |                   |                    | (205              | )                  |                           |                             | (1,398  | ) |  |   |        |  
|                                        |                                       |                   |                    |                   |                    |                           |                             |         |   |  |   |         |  
|                                        | Net periodic benefit cost             |                   | $                  | (17,159           | )                  |                           | $                           | (16,969 | ) |  | $ | (4,714  | )
|                                        |                                       |                   |                    |                   |                    |                           |                             |         |   |  |   |         |  
|Weighted-Average Assumptions at         |                                       |                   |                    |                   |                    |                           |                             |         |   |  |   |        
|                                       
|                                       
|                                       
|                                       
|                                        | September 30, 2001 and 2000           |                   |                    |                   |                    |                           |                             |         |   |  |   |         |  
|                                       
|                                       
|                                       
|                                       
|                                        | Discount rate                         |                   |                    | 7.25              | %                  |                           |                             | 7.75    | % |  |   | 7.75    | %
|                                       
|                                       
|                                       
|                                       
|                                        | Expected return on plan assets        |                   |                    | 9.75              | %                  |                           |                             | 10.25   | % |  |   | 10.25   | %
|                                       
|                                       
|                                       
|                                       
|                                        | Average rate of compensation increase |                   |                    | 4.00              | %                  |                           |                             | 4.00    | % |  |   | 4.00    | %

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

401k Plan 

Allied sponsors the Allied Waste Industries, Inc. 401(k) Plan (401(k) Plan) a defined contribution plan, which is available to
all eligible employees except those represented by collective bargaining agreements. Eligible employees may contribute up to 15%
(25% effective February 1, 2002) of their annual compensation on a pre-tax basis. Participants contributions are subject to
certain restrictions as set forth in the Internal Revenue Code. Allied matches 50% of employee contributions, up to the first 5%
of the employees compensation which is deferred. Participants contributions vest immediately and the employer contributions
vest in increments of 20% based upon years of service. Allieds matching contributions totaled $9.5 million, $7.2 million, and
$1.0 million for fiscal years 2001, 2000, and 1999, respectively.

Effective July 30, 1999, in connection with the acquisition of the Predecessor, Allied assumed the BFI Employee Stock Ownership
and Savings Plan (BFI 401(k)), which covers substantially all BFI employees in the United States, except for certain employees
subject to collective bargaining agreements. The BFI 401(k) was amended on April 1, 2000 to freeze contributions in anticipation
of the merger of the BFI 401(k) Plan into the Allied 401(k) Plan. The Board of Directors of Allied approved the merger,
effective January 1, 2001 merging assets totaling $382.1 million to the Allied 401(k) Plan.

9. Stockholders Equity

Our authorized, issued and outstanding shares of common stock are as follows (in thousands, except per share data):

|                            |  |            |       |      |  |                        |       |  |  |  |       | 
|--------------------------- |  | ---------- | ----- | ---- |  | ---------------------- | ----- |  |  |  | ----- | 
|                            |  |            |       |      |  | Issued and Outstanding
|                            |  |            |       |      |  | At December 31,       
|                            |  |            |       |      |  |                       
|                            |  | Authorized |       |      |  |                        |       |  |  | 
|                            |  | Shares     |       | 2001 |  | 2000                  
|                            |  |            |       |      |  |                       
|Common stock, $0.16 2/3 par |  |            | 1,000 |      |  |                        | 1,000 |  |  |  | 1,000 | 

118



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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Income Taxes

Operating results of BFI are included in the consolidated federal income tax return of Allied for the periods ended December 31, 1999, 2000 and 2001. We filed
our own separate consolidated return with our subsidiaries for the ten months ended July 30, 1999. For purposes of determining state income tax liabilities, we
file either a combined or separate return based on the filing regulations required by each state. We do not make payments to Allied specifically for income
taxes.

For periods after July 30, 1999, the allocation of consolidated taxes of Allied to BFI is determined as if we prepared a separate tax return, in accordance with
the provisions of the SFAS No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities (including any valuation allowance) are recognized and
maintained on a corporate-wide basis by Allied. These balances include items established relating to the acquisition of BFI that were based on certain
assumptions that could possibly change based on the ultimate outcome of certain tax matters. As these tax accounts were established in purchase accounting, any
future changes relating to these amounts will result in balance sheet reclassifications, which may include an adjustment to the goodwill relating to the
acquisition of the Predecessor. Allieds valuation allowance at December 31, 2001 includes approximately $74 million related to the Predecessor acquisition, the
subsequent reduction of which would result in an adjustment to goodwill. BFI was allocated a portion of Allieds valuation allowance based on specific
identification to its deferred tax assets.

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

|                             |           |   |              |        |              |   |              |        |              |   |          |        |  |   |         |         |  
|---------------------------- | --------- | - | ------------ | ------ | ------------ | - | ------------ | ------ | ------------ | - | -------- | ------ |  | - | ------- | ------- | -
|                             |           |   | For the      |        | For the      |   | For the Five |        | For the Ten 
|                             |           |   | Year Ended   |        | Year Ended   |   | Months Ended |        | Months Ended
|                             |           |   | December 31, |        | December 31, |   | December 31, |        | July 30,    
|                             |           |   | 2001         |        | 2000         |   | 1999         |        | 1999        
|                             |           |   |              |        |              |   |              |        |             
|Current tax provision        |           |   |              |        |              |   |              |        |              |   |          |        |  |   |         |        
|                            
|                            
|                            
|                            
|                             | (benefit) |   | $            | 24,204 |              |   | $            | 33,211 |              |   | $        | 12,015 |  |   | $       | (30,450 | )
|                            
|                            
|                            
|                            
|Deferred provision (benefit) |           |   | 53,441       |        |              |   | 34,013       |        |              |   | (152,549 | )      |  |   | 214,564 |        
|                             |           |   |              |        |              |   |              |        |              |   |          |        |  |   |         |         |  
|Total                        |           | $ | 77,645       |        |              | $ | 67,224       |        |              | $ | (140,534 | )      |  | $ | 184,114 |        
|                             |           |   |              |        |              |   |              |        |              |   |          |        |  |   |         |         |  

The reconciliation of our income tax provision (benefit) at the federal statutory tax rate to our effective tax rate is as follows (in thousands):

|                             |                        |   |              |       |              |   |              |       |              |   |          |         |   |   |         |        | 
|---------------------------- | ---------------------- | - | ------------ | ----- | ------------ | - | ------------ | ----- | ------------ | - | -------- | ------- | - | - | ------- | ------ | 
|                             |                        |   | For the      |       | For the      |   | For the Five |       | For the Ten 
|                             |                        |   | Year Ended   |       | Year Ended   |   | Months Ended |       | Months Ended
|                             |                        |   | December 31, |       | December 31, |   | December 31, |       | July 30,    
|                             |                        |   | 2001         |       | 2000         |   | 1999         |       | 1999        
|                             |                        |   |              |       |              |   |              |       |             
|Federal statutory tax rate   |                        | $ | 1,334        |       |              | $ | 2,695        |       |              | $ | (156,009 | )       |   | $ | 158,195 |       
|                            
|                            
|                            
|                            
|Consolidated state taxes,    |                        |   |              |       |              |   |              |       |              |   |          |         |   |   |         |       
|                            
|                            
|                            
|                            
|                             | net of federal benefit |   |              | 8,846 |              |   |              | 7,658 |              |   |          | (16,010 | ) |   |         | 16,384 | 
|                            
|                            
|                            
|                            
|Amortization of goodwill     |                        |   | 56,577       |       |              |   | 56,234       |       |              |   | 23,678   |         |   |   | 6,230   |       
|                            
|                            
|                            
|                            
|Non-deductible write-off of  |                        |   |              |       |              |   |              |       |              |   |          |         |   |   |         |       
|                            
|                            
|                            
|                            
|                             | goodwill and business  |   |              |       |              |   |              |       |              |   |          |         |   |   |         |        | 
|                            
|                            
|                            
|                            
|                             | combination costs      |   |              | 1,771 |              |   |              |      |              |   |          | 5,885   |   |   |         | 1,068  | 
|                            
|                            
|                            
|                            
|Effect of foreign operations |                        |   | 2,975        |       |              |   |             |       |              |   |         |         |   |   |        |       
|                            
|                            
|                            
|                            
|Other permanent              |                        |   |              |       |              |   |              |       |              |   |          |         |   |   |         |       
|                            
|                            
|                            
|                            
|                             | differences            |   |              | 6,142 |              |   |              | 637   |              |   |          | 1,922   |   |   |         | 2,237  | 
|                             |                        |   |              |       |              |   |              |       |              |   |          |         |   |   |         |       
|Effective tax rate           |                        | $ | 77,645       |       |              | $ | 67,224       |       |              | $ | (140,534 | )       |   | $ | 184,114 |       
|                             |                        |   |              |       |              |   |              |       |              |   |          |         |   |   |         |       

The tax benefit for the extraordinary items in 2001 and 2000 were based on our ordinary combined federal and state rates of 39.5%.

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                       |                                                      |   |              |          |      |   |          |          |  
|---------------------------------------------------------------------- | ---------------------------------------------------- | - | ------------ | -------- | ---- | - | -------- | -------- | -
|                                                                       |                                                      |   | December 31,
|                                                                       |                                                      |   |             
|                                                                       |                                                      |   | 2001         |          | 2000
|                                                                       |                                                      |   |              |          |     
|Cumulative Tax-Effected Temporary Differences:                         |                                                      |   |              |          |      |   |          |         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Relating primarily to property consisting of landfill and fixed assets |                                                      |   |              |          |      |   |          |         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | and contingencies related to other basis differences |   | $            | (578,819 | )    |   | $        | (602,560 | )
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Environmental, closure and post-closure reserves                       |                                                      |   | 362,839      |          |      |   | 315,345  |         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Other reserves                                                         |                                                      |   | 113,393      |          |      |   | 91,953   |         
|                                                                       |                                                      |   |              |          |      |   |          |          |  
|Total                                                                  |                                                      | $ | (102,587     | )        |      | $ | (195,262 | )       
|                                                                       |                                                      |   |              |          |      |   |          |          |  
|Tax-Effected capital loss, foreign tax credit and state                |                                                      |   |              |          |      |   |          |         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | net operating loss carryforwards                     |   | $            | 90,856   |      |   | $        | 102,624  |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Valuation allowance                                                    |                                                      |   | (73,677      | )        |      |   | (73,114  | )       
|                                                                       |                                                      |   |              |          |      |   |          |          |  
|Net carryforwards                                                      |                                                      | $ | 17,179       |          |      | $ | 29,510   |         
|                                                                       |                                                      |   |              |          |      |   |          |          |  

Had BFI filed a hypothetical federal income tax return for the years ended
December 31, 2001 and December 31, 2000, its federal net operating loss
carryforward would have been approximately $219 million and $154 million,
respectively.

Deferred income taxes have not been provided as of December 31, 2001 and 2000 on
approximately $37 million and $36 million, respectively, of undistributed earnings
of Puerto Rican affiliates, which are considered to be permanently reinvested.

We are currently under examination by various state and federal taxing authorities
for certain tax years. An audit for BFI tax years ended September 30, 1996
through July 30, 1999 is ongoing. Although no adjustment has been proposed, the IRS may
seek to disallow some or all of a capital loss included in BFIs July 30, 1999 tax
return. The disallowance of this loss could have a tax effect of up to $360
million. However, our position is well supported and we would vigorously contest
any such disallowance. If the IRS were to disallow some or all of the capital
loss claimed, it is likely and anticipated that any resolution of this matter
would entail efforts to resolve it favorably including administrative appeals and
litigation extending over several years. An unfavorable result could require
future cash expenditures but would have minimal, if any, impact on our
consolidated results of operations.

11. Commitments and Contingencies

We are subject to extensive and evolving laws and regulations and have implemented our own environmental safeguards to
respond to regulatory requirements. In the normal course of conducting our operations, we may become involved in certain
legal and administrative proceedings. Some of these actions may result in fines, penalties or judgments against us, which
may have an impact on earnings for a particular period. We accrue for litigation and regulatory compliance contingencies
when such costs are probable and reasonably estimable. We expect that matters in process at December 31, 2001, which have
not been accrued in the Consolidated Balance Sheets, will not have a material adverse effect on our consolidated liquidity,
financial position or results from operations.

In connection with certain acquisitions, we have entered into agreements to pay royalties based on waste tonnage disposed
at specified landfills. The payments are generally payable quarterly and amounts earned, but not paid, are accrued in the
accompanying Consolidated Balance Sheets.

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We have 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, 2001
|           |  |                  
|2002       |  | $                 | 7,496 | 
|          
|          
|          
|          
|2003       |  |                   | 6,867 | 
|          
|          
|          
|          
|2004       |  |                   | 5,448 | 
|          
|          
|          
|          
|2005       |  |                   | 4,495 | 
|          
|          
|          
|          
|2006       |  |                   | 3,374 | 
|          
|          
|          
|          
|Thereafter |  |                   | 8,404 | 

Rental expense under such operating leases was
approximately $8.2 million, $7.8 million, $2.8
million and $80.9 million for the year ended
December 31, 2001, for the year ended December 31,
2000, for the five months ended December 31, 1999,
and for the ten months ended July 30, 1999,
respectively.

We carry a broad range of insurance coverage for
protection of our assets and operations from certain
risks, including environmental impairment liability
insurance for certain landfills.

We are also required to provide financial assurances
to governmental agencies under applicable
environmental regulations relating to our landfill
operations and collection contracts. These financial
assurance requirements are satisfied by us issuing
performance bonds, letters of credit, insurance
policies or trust deposits to secure our obligations
as they relate to landfill closure and post-closure
costs and performance under certain collection
contracts. At December 31, 2001, we had outstanding
approximately $905 million in financial assurance
instruments relating to our landfill operations,
represented by $155 million of surety bonds, $644
million of insurance policies, $47 million of trust
deposits and $59 million of letters of credit.
During calendar year 2002, we expect no material
increase in financial assurance obligations relating
to our landfill operations and collection contracts
although the mix of financial assurance instruments
may change in the future. Additionally we have
approximately $252 million in operational
performance bonds with various municipalities and
approximately $80 million of financial guarantee
bonds for self insurance.

We have issued bank letters of credit in the
aggregate amount of approximately $244 million at
December 31, 2001, including approximately $79
million relating to financial assurances to
government agencies. These financial instruments are
issued in the normal course of business and are not
reflected in the accompanying Consolidated Balance
Sheets. The underlying obligations of the financial
instruments are valued based on the likelihood of
performance being required. We do not expect any
material losses to result from these off balance
sheet instruments based on historical results.

12. Related Party Transactions

All treasury functions are maintained at the Parent.
The amount due to parent represents proceeds Allied
received from the issuance of Series A Senior
Convertible Preferred Stock and certain debt issued in connection
with the financing of the BFI acquisition, in
addition to the net advances to parent in excess of
obligations paid by the parent on behalf of BFI.

Subsequent to the acquisition of BFI by Allied, we
are charged for management, financial and other
administrative services provided during the year by
Allied, including allocations for overhead. Related
charges for the year ended December 31, 2001 and
2000 were approximately $34.8 million and
$60.9 million, respectively, recorded in selling,
general and administrative expenses. There were no
charges applied for the five months ended December 31, 1999.

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BROWNING-FERRIS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Segment Reporting

For the Years Ended December 31, 2001 and 2000 and the Five Months Ended December 31, 1999 

Subsequent to the acquisition of the operations of the Predecessor by Allied, BFI was fully
integrated into Allieds existing operations. Additionally, all of the foreign operations of
the Predecessor were identified as operations to be divested. We completed the divestitures
during 2000. Management analyzes stand-alone BFI financial statements for the sole purpose
of quantifying the value of the assets and stock that collateralize outstanding debt. As a
result, after July 30, 1999, our operations are derived primarily from one reporting segment,
which includes the collection, transfer, recycling and disposal of non-hazardous solid waste.

Geographic information relating to the Predecessors operations for the ten months ended July
30, 1999 is not available.

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|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2.1         |  |   |  | Amended and Restated Agreement and Plan of Reorganization between Allied Waste Industries, Inc. and Rabanco Acquisition Company, Rabanco
Acquisition Company Two, Rabanco Acquisition Company Three, Rabanco Acquisition Company Four, Rabanco Acquisition Company Five, Rabanco
Acquisition Company Six, Rabanco Acquisition Company Seven, Rabanco Acquisition Company Eight, Rabanco Acquisition Company Nine, Rabanco
Acquisition Company Ten, Rabanco Acquisition Company Eleven, and Rabanco Acquisition Company Twelve. Exhibit 2.4 to Allieds Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998 is incorporated herein by reference.
|           
|           
|           
|           
|2.2         |  |   |  | Agreement and Plan of Merger dated as of August 10, 1998 by and among Allied Waste Industries, Inc., AWIN II Acquisition Corporation and
American Disposal Services, Inc. Exhibit 2 to Allieds Current Report on Form 8-K filed August 21, 1998 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                        
|           
|           
|           
|           
|2.3         |  |   |  | Agreement and Plan of Merger dated as of March 7, 1999 by and among Allied Waste Industries, Inc., AWIN I Acquisition Corporation and
Browning-Ferris Industries, Inc. Exhibit 2 to Allieds Current Report on Form 8-K filed March 16, 1999 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                            
|           
|           
|           
|           
|3.1         |  |   |  | Amended Certificate of Incorporation of Allied (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         |  |   |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|           
|           
|           
|           
|3.2(i)      |  |   |  | Amendment to the Bylaws of the Company, effective June 30, 1999. Exhibit 3.2 to Allieds Report on Form 10-K for the year ended December 31,
1999 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|           
|           
|           
|           
|3.3         |  |   |  | Amendment to Amended Certificate of Incorporation of Allied dated October 15, 1998. Exhibit 3.4 to the Companys Report on Form 10-Q for the
quarter ended September 30, 1998 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|           
|           
|           
|           
|4.1         |  |   |  | Eighth Supplemental Indenture relating to the 8-1/2% Senior Notes due 2008, dated November 27, 2001, among Allied NA, certain guarantors
signature thereto, and U.S. Bank National Association, formerly U.S. Bank Trust National Association, as Trustee.                                                                                                                                                                                                                                                                                                                                                                                                   
|           
|           
|           
|           
|4.2         |  |   |  | Form of 8-1/2%
Senior Notes due 2008 (included in Exhibit 4.1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|           
|           
|           
|           
|4.3         |  |   |  | Registration Rights Agreement, dated as of November 27, 2001, by and among the Company, the Guarantors and the initial purchasers, relating
to the $750 million 8-1/2% Senior Notes due 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|           
|           
|           
|           
|4.4         |  |   |  | Sixth Supplemental Indenture relating to the 8-7/8% Senior Notes 2008, dated January 30, 2001, among Allied NA, certain guarantors signatory
thereto, and U.S. Bank Trust National Association, as Trustee. Exhibit 4.1 to Allieds Report on Form 10-Q for the quarter ended March 31,
2001 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                            
|           
|           
|           
|           
|4.5         |  |   |  | Amendment No. 1 to Sixth Supplemental Indenture relating to the 8-7/8% Senior Notes due 2008, dated as of June 29, 2001, among Allied NA,
certain guarantors signatory thereto, and U.S. Bank Trust National Association, as Trustee. Exhibit 4.2 to Allieds Registration Statement
on Form S-4 (No. 333-61744) is incorporated herein by reference.                                                                                                                                                                                                                                                                                                        
|           
|           
|           
|           
|4.6         |  |   |  | Form 8-7/8% Senior Notes due 2008. Exhibit 4.3 to Allieds Registration Statement on Form S-4 (No. 333-61744) is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|           
|           
|           
|           
|4.7         |  |   |  | 1991 Incentive Stock Plan of Allied. Exhibit 10.T to Allieds Form 10 dated May 14, 1991, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|           
|           
|           
|           
|4.8         |  |   |  | 1991 Non-Employee Director Stock Plan of Allied. Exhibit 10.U to Allieds Form 10 dated May 14, 1991, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|           
|           
|           
|           
|4.9         |  |   |  | 1993 Incentive Stock Plan of Allied. Exhibit 10.3 to Allieds Registration Statement on Form S-1 (No. 33-73110) is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|           
|           
|           
|           
|4.10        |  |   |  | 1994 Amended and Restated Non-Employee Director Stock Option Plan of Allied. Exhibit B to Allieds Definitive Proxy Statement in accordance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|           
|           
|           
|           
|4.11        |  |   |  | with Schedule 14A dated April 28, 1994, is incorporated herein by reference.
Amendment to the 1994 Amended and Restated Non-Employee Director Stock Option Plan. Exhibit 10.2 to Allieds Quarterly Report on Form 10-Q
dated August 10, 1995, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                          
|           
|           
|           
|           
|4.12        |  |   |  | Amended and Restated 1994 Incentive Stock Plan. Exhibit 10.1 to Allieds Quarterly Report on Form 10-Q dated May 31, 1996, is incorporated
herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|           
|           
|           
|           
|4.13        |  |   |  | Amended and Restated 1991 Incentive Stock Plan. Exhibit 3 to Allieds Definitive Proxy Statement in accordance with Schedule 14A dated April
18, 2001, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|           
|           
|           
|           
|4.14        |  | * |  | Amendment No. 1 to the 1991 Incentive Stock Plan dated August 8, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|----------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |  |  | Description                                                                                                                                                                                                                                                                                                                                                   
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|           
|           
|           
|           
|4.15        |  |  |  | Senior Indenture relating to the 1998 Senior Notes dated as of December 23, 1998, by and among Allied NA and U.S. Bank Trust National
Association, as Trustee, with respect to the 1998 Senior Notes and Exchange Notes. Exhibit 4.1 to Allieds Registration Statement on Form S-4
(No. 333-70709) is incorporated herein by reference.                      
|           
|           
|           
|           
|4.16        |  |  |  | Five Year Series Supplemental Indenture relating to the 1998 Five Year Notes, dated December 23, 1998, among Allied NA, the Guarantors and
the Trustee. Exhibit 4.2 to Allieds Registration Statement on Form S-4 (No. 333-70709) is incorporated herein by reference.                                                                                       
|           
|           
|           
|           
|4.17        |  |  |  | Form of Series B Five Year Notes (included in Exhibit 4.21). Exhibit 4.3 to Allieds Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.                                                                                                                                                                                  
|           
|           
|           
|           
|4.18        |  |  |  | Seven Year Series Supplemental Indenture relating to the 1998 Seven Year Notes, dated December 23, 1998, among Allied NA, the Guarantors and
the Trustee. Exhibit 4.4 to Allieds Registration Statement on Form S-4 (No. 333-70709) is incorporated herein by reference.                                                                                     
|           
|           
|           
|           
|4.19        |  |  |  | Form of Series B Seven Year Notes (included in Exhibit 4.25). Exhibit 4.5 to Allieds Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.                                                                                                                                                                                 
|           
|           
|           
|           
|4.20        |  |  |  | Ten Year Series Supplemental Indenture relating to the 1998 Ten Year Notes, dated December 23, 1998, among Allied NA, the Guarantors and the
Trustee. Exhibit 4.6 to Allieds Registration Statement on Form S-4 (No. 333-70709) is incorporated herein by reference.                                                                                         
|           
|           
|           
|           
|4.21        |  |  |  | Form of Series B Ten Year Notes. Exhibit 4.7 to Allieds Registration Statement on Form S-4 (No. 333-70709) is incorporated herein by
reference.                                                                                                                                                                                                              
|           
|           
|           
|           
|4.22        |  |  |  | Fourth Supplemental Indenture relating to the 1998 Senior Notes, dated as of July 30, 1999, among Allied NA, certain guarantors signatory
thereto, and U.S. Bank Trust National Association, as Trustee. Exhibit 4.26 to Allieds Report on Form 10-Q for the quarter ended June 30,
2000, is incorporated herein by reference.                               
|           
|           
|           
|           
|4.23        |  |  |  | Fifth Supplemental Indenture relating to the 1998 Senior Notes, dated as of December 29, 1999, among Allied NA, certain guarantors signatory
thereto, and U.S. Bank Trust National Association, as Trustee. Exhibit 4.27 to Allieds Report on Form 10-Q for the quarter ended June 30,
2000, is incorporated herein by reference.                            
|           
|           
|           
|           
|4.24        |  |  |  | Seventh Supplemental Indenture relating to the 1998 Senior Notes and the 8-7/8% Senior Notes due 2008, dated as of June 29, 2001, among
Allied NA, certain guarantors signatory thereto and U.S. Bank Trust National Association, as Trustee. Exhibit 4.21 to Allieds Registration
Statement on Form S-4 (no. 333-61744) is incorporated herein by reference.
|           
|           
|           
|           
|4.25        |  |  |  | Restated Indenture relating to debt issued by Browning-Ferris Industries, Inc., dated September 1, 1991, among BFI and First City,
Texas-Houston, National Association, as Trustee Exhibit 4.22 to Allieds Registration Statement on Form S-4 (No. 333-61744) is incorporated
herein by reference.                                                           
|           
|           
|           
|           
|4.26        |  |  |  | First Supplemental Indenture relating to the debt issued by Browning-Ferris Industries, Inc., dated July 30, 1999, among Allied, Allied NA,
Browning-Ferris Industries, Inc. and Chase Bank of Texas, National Association, as Trustee, Exhibit 4.23 to Allieds Registration Statement
on Form S-4 (No. 333-61744) is incorporated herein by reference.      
|           
|           
|           
|           
|4.27        |  |  |  | Collateral Trust Agreement, dated July 30, 1999, among Allied NA, certain of its subsidiaries, and The Chase Manhattan Bank, as Collateral
Trustee, is incorporated herein by reference.                                                                                                                                                                      
|           
|           
|           
|           
|4.28        |  |  |  | Amendment to the Collateral Trust Agreement, dated January 25, 2001, among Allied NA, certain of its subsidiaries, and The Chase Manhattan
Bank, as Collateral Trustee, Exhibit 4.5 to Allieds Report on Form 10-Q for the quarter ended March 31, 2001 is incorporated herein by
reference.                                                                 
|           
|           
|           
|           
|4.29        |  |  |  | Shared Collateral Pledge Agreement, dated July 30, 1999, among Allied NA, certain of its subsidiaries, and The Chase Manhattan Bank, as
Collateral Trustee, is incorporated herein by reference.                                                                                                                                                              
|           
|           
|           
|           
|4.30        |  |  |  | Amendment to the Shared Collateral Pledge Agreement, dated January 25, 2001, among Allied NA, certain of its subsidiaries, and The Chase
Manhattan Bank, as Collateral Trustee. Exhibit 4.7 to Allieds Report on Form 10-Q for the quarter ended March 31, 2001 is incorporated
herein by reference.                                                         
|           
|           
|           
|           
|4.31        |  |  |  | Shared Collateral Security Agreement, dated July 30, 1999, among Allied NA, certain of its subsidiaries, and The Chase Manhattan Bank, as
Collateral Trustee, is incorporated herein by reference.                                                                                                                                                            
|           
|           
|           
|           
|4.32        |  |  |  | Amendment to the Shared Collateral Security Agreement, dated January 25, 2001, among Allied NA, certain of its subsidiaries, and The Chase
Manhattan Bank, as Collateral Trustee. Exhibit 4.9 to Allieds Report on Form 10-Q for the quarter ended March 31, 2001 is incorporated
herein by reference.                                                       

124



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##### Table of Contents



|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|           
|           
|           
|           
|4.33        |  |  |  | Certificate of Designation for Series A Senior Convertible Preferred Stock. Exhibit 4.1 to Allieds current report on Form 8-K dated August
10, 1999, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                   
|           
|           
|           
|           
|4.34        |  |  |  | Certificate of Designation for Series B Junior Preferred Stock. Exhibit 4.2 to Allieds current report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                               
|           
|           
|           
|           
|4.35        |  |  |  | Subordinated Indenture, dated July 30, 1999, among Allied NA, certain guarantors signatory thereto, and U.S. Bank Trust National Association,
as Trustee, regarding the 10% Senior Subordinated Notes due 2009 of Allied NA. Exhibit 4.1 to Allieds Registration Statement on Form S-4
(No. 333-91539), is incorporated herein by reference.                                                                                                                                                                                                
|           
|           
|           
|           
|4.36        |  |  |  | First Supplemental Indenture, dated July 30, 1999 among Allied NA, certain subsidiaries of Allied NA and U.S. Bank Trust, National
Association, as Trustee, regarding 10% Senior Subordinated Notes due 2009 of Allied NA. Exhibit 4.3 to Allieds current report on Form 8-K
dated August 10, 1999, is incorporated herein by reference.                                                                                                                                                                                                    
|           
|           
|           
|           
|4.37        |  |  |  | Second Supplemental Subordinated Indenture relating to the 10% Senior Subordinated Notes due 2009 of Allied NA, dated December 29, 1999,
among Allied NA, certain guarantors signatory thereto, and U.S. Bank Trust National Association, as Trustee. Exhibit 4.2 to Allieds
Registration Statement on Form S-4 (No. 333-91539), is incorporated herein by reference.                                                                                                                                                                       
|           
|           
|           
|           
|4.38        |  |  |  | Form of 10% Series B Senior Subordinated Notes due 2009 (included in Exhibit 4.25), is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                     
|           
|           
|           
|           
|4.39        |  |  |  | Rights Agreement, dated as of May 25, 2000, between Allied and American Stock Transfer & Trust Company, as Rights Agent. Exhibit 1 to
Allieds Registration Statement on Form 8-A filed May 31, 2000, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                   
|           
|           
|           
|           
|10.1        |  |  |  | Purchase Agreement dated November 15, 2001, by and along the Company, the Guarantors and the initial purchases, with respect to the $750
million 8-1/2% Senior Notes due 2008.                                                                                                                                                                                                                                                                                                                                                               
|           
|           
|           
|           
|10.2        |  |  |  | Purchase Agreement dated January 25, 2001, by and among the Company, the Guarantors and the initial purchasers, with respect to the $600
million 8-7/8% Senior Notes due 2008. Exhibit 10.1 to Allieds Report on Form 10-Q for the quarter ended March 31, 2001 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, Inc. Exhibit
10.1 to Allieds Report on Form 10-Q for the quarter ended March 31, 1997, is incorporated herein by reference.
|           
|           
|           
|           
|10.4        |  |  |  | Consulting Agreement between Allied and Larry D. Henk dated November
1, 2001. Exhibit 10.2 to Allieds Report on Form 10-Q for the
quarter ended September 30, 2001 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                     
|           
|           
|           
|           
|10.5        |  |  |  | Executive Employment Agreement between Allied and with Thomas H. Van
Weelden dated January 1, 1999. Exhibit 10.9 to Allieds Report on
Form 10-Q for the quarter ended March 31, 1999, is incorporated
herein by reference.                                                                                                                                                                                                                                                                                                                  
|           
|           
|           
|           
|10.6        |  |  |  | Executive Employment Agreement between Allied and with Steven M. Helm
dated June 6, 1997. Exhibit 10.5 to Allieds Report on Form 10-Q for
the quarter ended June 30, 1997, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                             
|           
|           
|           
|           
|10.7        |  |  |  | Executive Employment Agreement between Allied and with Donald W.
Slager dated January 1, 1999. Exhibit 10.12 to Allieds Report on
Form 10-Q for the quarter ended March 31, 1999, is incorporated
herein by reference.                                                                                                                                                                                                                                                                                                                      
|           
|           
|           
|           
|10.8        |  |  |  | Executive Employment Agreement between Allied and with Peter S.
Hathaway dated June 6, 1997. Exhibit 10.14 to Allieds Report on Form
10-K for the year ended December 31, 1997, is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                        
|           
|           
|           
|           
|10.9        |  |  |  | Executive Employment Agreement between Allied and with Michael G.
Hannon dated June 6, 1997. Exhibit 10.15 to Allieds Report on Form
10-K for the year ended December 31, 1997, is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                        
|           
|           
|           
|           
|10.10       |  |  |  | Executive Employment Agreement between Allied and with Thomas W. Ryan
dated August 1, 2000. Exhibit 10 to Allieds Report on Form 10-Q for
the quarter ended June 30, 2000 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                              
|           
|           
|           
|           
|10.11       |  |  |  | Registration Rights Agreement, dated as of January 30, 2001, by and
among the Company, the Guarantors and the initial purchasers,
relating to the $600 million 8-7/8% Senior Notes due 2008. Exhibit
4-3 to Allieds Report on Form 10-Q for the quarter ended March 31,
2001 is incorporated herein by reference.                                                                                                                                                                                                                           

125



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##### Table of Contents



|            |  |   |  |                                                                                                                                                                                                                                                                                                                 
|----------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                                                                                                     
|            |  |   |  |                                                                                                                                                                                                                                                                                                                 
|           
|           
|           
|           
|10.12       |  |   |  | Registration Rights Agreement, dated as of July 30, 1999, by and
among Allied, the Guarantors and the initial purchasers, relating to
the $2,000,000,000 10% Senior Subordinated Notes due 2009. Exhibit
10.3 to Allieds Current Report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.
|           
|           
|           
|           
|10.13       |  |   |  | Purchase Agreement dated July 27, 1999, by and among Allied, the
Guarantors and the initial purchasers, with respect to the
$2,000,000,000 10% Senior Subordinated Notes due 2009. Exhibit 10.4
to Allieds Current Report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.              
|           
|           
|           
|           
|10.14       |  |   |  | Credit Facility dated as of July 21, 1999. Exhibit 10.1 to Allieds
current report on Form 8-K dated August 10, 1999, is incorporated
herein by reference.                                                                                                                                                      
|           
|           
|           
|           
|10.15       |  |   |  | Amendment to the Credit Facility dated as of January 25, 2001.
Exhibit 10.1 to Allieds Report on Form 10-Q for the quarter ended
September 30, 2001 is incorporated herein by reference.                                                                                                                       
|           
|           
|           
|           
|10.16       |  |   |  | Second Amendment to the Credit Facility dated as of November 20, 2001.                                                                                                                                                                                                                                          
|           
|           
|           
|           
|10.17       |  |   |  | Non-Shared Collateral Security Agreement, dated July 30, 1999, among
Allied, Allied NA, certain of its subsidiaries, and The Chase
Manhattan Bank, as Collateral Agent, Exhibit 10.2 to Allieds Report
on Form 10-Q for the quarter ended March 31, 2001 is incorporated
herein by reference.                  
|           
|           
|           
|           
|10.18       |  |   |  | Non-Shared Collateral Pledge Agreement, dated July 30, 1999, among
Allied, Allied NA, certain of its subsidiaries, and The Chase
Manhattan Bank, as Collateral Agent, Exhibit 10.3 to Allieds Report
on Form 10-Q for the quarter ended March 31, 2001 is incorporated
herein by reference.                    
|           
|           
|           
|           
|10.19       |  |   |  | Second Amended and Restated Shareholders Agreement, dated as of July
30, 1999, between Allied and the purchasers of the Series A Senior
Convertible Preferred Stock and related parties. Exhibit 10.2 to
Allieds current report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.        
|           
|           
|           
|           
|10.20       |  |   |  | Amended and Restated Registration Rights Agreement dated as of July
30, 1999, between Allied and the purchasers of the Series A Senior
Convertible Preferred Stock and related parties. Exhibit 10.3 to
Allieds current report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.         
|           
|           
|           
|           
|12.1        |  | * |  | Ratio of earnings to fixed charges and preferred stock dividends.                                                                                                                                                                                                                                               
|           
|           
|           
|           
|21          |  | * |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                 
|           
|           
|           
|           
|23.1        |  | * |  | Consent of Arthur Andersen LLP.                                                                                                                                                                                                                                                                                 
|           
|           
|           
|           
|99          |  | * |  | Representations
regarding Arthur Andersens Audit work.                                                                                                                                                                                                                                                         
|           
|           
|           
|           
|            |  | * |  | Filed herewith                                                                                                                                                                                                                                                                                                  

Reports on Form 8-K during the Quarter Ended December 31, 2001

|                  |  |                                                                                                                      
|----------------- |  | ---------------------------------------------------------------------------------------------------------------------
|October 30, 2001  |  | Our Current Report on Form 8-K reports that President and Chief Operating Officer resigns to pursue other interests. 
|                 
|                 
|                 
|                 
|November 7, 2001  |  | Our Current Report on Form 8-K reports the financial results for the third quarter of 2001.                          
|                 
|                 
|                 
|                 
|November 13, 2001 |  | Our Current Report on Form 8-K reports the intention to offer $500 million in Senior Notes.                          
|                 
|                 
|                 
|                 
|November 29, 2001 |  | Our Current Report on Form 8-K reports the completion of its offering of $750 million of 8.50% Senior Notes due 2008.

126



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##### Table of Contents






Signatures

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|             |  |                                                                                                                                    
|------------ |  | -----------------------------------------------------------------------------------------------------------------------------------
|             |  | ALLIED WASTE INDUSTRIES, INC.                                                                                                      
|            
|Date:3/20/02 |  | By:/s/ Thomas W.
Ryan
                                    Thomas W. Ryan
      Executive Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

|                                                |  |                                                                                                        |  |        
|----------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | -------
|Signature                                       |  | Title                                                                                                  |  | Date   
|                                                |  |                                                                                                        |  |        
|/s/ Thomas H. Van
Weelden
Thomas H. Van Weelden |  | Director, Chairman of the Board of
Directors and Chief Executive
Officer
(Principal Executive officer) |  | 3/20/02
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|/s/ Thomas W. Ryan
Thomas W. Ryan               |  | Executive Vice President and Chief
Financial Officer                                                   |  | 3/20/02
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|/s/ James E. Gray
James E. Gray                 |  | Vice President, Controller, Chief
Accounting Officer
(Principal Accounting Officer)                    |  | 3/20/02
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|Michael Gross                                   |  | Director                                                                                               |  |        
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|/s/ Dennis Hendrix
Dennis Hendrix               |  | Director                                                                                               |  | 3/20/02
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|Leon D. Black                                   |  | Director                                                                                               |  |        
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|/s/ Nolan Lehmann
Nolan Lehmann                 |  | Director                                                                                               |  | 3/20/02
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|/s/ Howard A. Lipson
Howard A. Lipson           |  | Director                                                                                               |  | 3/21/02
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|/s/ Roger A. Ramsey
Roger A. Ramsey             |  | Director                                                                                               |  | 3/20/02
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|/s/ Antony P. Ressler
Antony P. Ressler         |  | Director                                                                                               |  | 3/20/02
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|Warren B. Rudman                                |  | Director                                                                                               |  |        
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|/s/ Vincent Tese
Vincent Tese                   |  | Director                                                                                               |  | 3/21/02
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|/s/ J. Tomilson Hill
J. Tomilson Hill           |  | Director                                                                                               |  | 3/21/02
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                                        |  |        
|                                               
|                                               
|                                               
|                                               
|Robert Agate                                    |  | Director                                                                                               |  |        

127



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##### Table of Contents



EXHIBIT INDEX

|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2.1         |  |   |  | Amended and Restated Agreement and Plan of Reorganization between Allied Waste Industries, Inc. and Rabanco Acquisition Company, Rabanco
Acquisition Company Two, Rabanco Acquisition Company Three, Rabanco Acquisition Company Four, Rabanco Acquisition Company Five, Rabanco
Acquisition Company Six, Rabanco Acquisition Company Seven, Rabanco Acquisition Company Eight, Rabanco Acquisition Company Nine, Rabanco
Acquisition Company Ten, Rabanco Acquisition Company Eleven, and Rabanco Acquisition Company Twelve. Exhibit 2.4 to Allieds Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998 is incorporated herein by reference.
|           
|           
|           
|           
|2.2         |  |   |  | Agreement and Plan of Merger dated as of August 10, 1998 by and among Allied Waste Industries, Inc., AWIN II Acquisition Corporation and
American Disposal Services, Inc. Exhibit 2 to Allieds Current Report on Form 8-K filed August 21, 1998 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                        
|           
|           
|           
|           
|2.3         |  |   |  | Agreement and Plan of Merger dated as of March 7, 1999 by and among Allied Waste Industries, Inc., AWIN I Acquisition Corporation and
Browning-Ferris Industries, Inc. Exhibit 2 to Allieds Current Report on Form 8-K filed March 16, 1999 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                            
|           
|           
|           
|           
|3.1         |  |   |  | Amended Certificate of Incorporation of Allied (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         |  |   |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|           
|           
|           
|           
|3.2(i)      |  |   |  | Amendment to the Bylaws of the Company, effective June 30, 1999. Exhibit 3.2 to Allieds Report on Form 10-K for the year ended December 31,
1999 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|           
|           
|           
|           
|3.3         |  |   |  | Amendment to Amended Certificate of Incorporation of Allied dated October 15, 1998. Exhibit 3.4 to the Companys Report on Form 10-Q for the
quarter ended September 30, 1998 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|           
|           
|           
|           
|4.1         |  |   |  | Eighth Supplemental Indenture relating to the 8-1/2% Senior Notes due 2008, dated November 27, 2001, among Allied NA, certain guarantors
signature thereto, and U.S. Bank National Association, formerly U.S. Bank Trust National Association, as Trustee.                                                                                                                                                                                                                                                                                                                                                                                                   
|           
|           
|           
|           
|4.2         |  |   |  | Form of 8-1/2%
Senior Notes due 2008 (included in Exhibit 4.1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|           
|           
|           
|           
|4.3         |  |   |  | Registration Rights Agreement, dated as of November 27, 2001, by and among the Company, the Guarantors and the initial purchasers, relating
to the $750 million 8-1/2% Senior Notes due 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|           
|           
|           
|           
|4.4         |  |   |  | Sixth Supplemental Indenture relating to the 8-7/8% Senior Notes 2008, dated January 30, 2001, among Allied NA, certain guarantors signatory
thereto, and U.S. Bank Trust National Association, as Trustee. Exhibit 4.1 to Allieds Report on Form 10-Q for the quarter ended March 31,
2001 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                            
|           
|           
|           
|           
|4.5         |  |   |  | Amendment No. 1 to Sixth Supplemental Indenture relating to the 8-7/8% Senior Notes due 2008, dated as of June 29, 2001, among Allied NA,
certain guarantors signatory thereto, and U.S. Bank Trust National Association, as Trustee. Exhibit 4.2 to Allieds Registration Statement
on Form S-4 (No. 333-61744) is incorporated herein by reference.                                                                                                                                                                                                                                                                                                        
|           
|           
|           
|           
|4.6         |  |   |  | Form 8-7/8% Senior Notes due 2008. Exhibit 4.3 to Allieds Registration Statement on Form S-4 (No. 333-61744) is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|           
|           
|           
|           
|4.7         |  |   |  | 1991 Incentive Stock Plan of Allied. Exhibit 10.T to Allieds Form 10 dated May 14, 1991, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|           
|           
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|4.8         |  |   |  | 1991 Non-Employee Director Stock Plan of Allied. Exhibit 10.U to Allieds Form 10 dated May 14, 1991, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
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|           
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|           
|4.9         |  |   |  | 1993 Incentive Stock Plan of Allied. Exhibit 10.3 to Allieds Registration Statement on Form S-1 (No. 33-73110) is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
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|           
|           
|           
|4.10        |  |   |  | 1994 Amended and Restated Non-Employee Director Stock Option Plan of Allied. Exhibit B to Allieds Definitive Proxy Statement in accordance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
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|           
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|4.11        |  |   |  | with Schedule 14A dated April 28, 1994, is incorporated herein by reference.
Amendment to the 1994 Amended and Restated Non-Employee Director Stock Option Plan. Exhibit 10.2 to Allieds Quarterly Report on Form 10-Q
dated August 10, 1995, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                          
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|           
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|4.12        |  |   |  | Amended and Restated 1994 Incentive Stock Plan. Exhibit 10.1 to Allieds Quarterly Report on Form 10-Q dated May 31, 1996, is incorporated
herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
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|           
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|4.13        |  |   |  | Amended and Restated 1991 Incentive Stock Plan. Exhibit 3 to Allieds Definitive Proxy Statement in accordance with Schedule 14A dated April
18, 2001, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
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|4.14        |  | * |  | Amendment No. 1 to the 1991 Incentive Stock Plan dated August 8, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       





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##### Table of Contents



|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
|----------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |  |  | Description                                                                                                                                                                                                                                                                                                                                                   
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                               
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|4.15        |  |  |  | Senior Indenture relating to the 1998 Senior Notes dated as of December 23, 1998, by and among Allied NA and U.S. Bank Trust National
Association, as Trustee, with respect to the 1998 Senior Notes and Exchange Notes. Exhibit 4.1 to Allieds Registration Statement on Form S-4
(No. 333-70709) is incorporated herein by reference.                      
|           
|           
|           
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|4.16        |  |  |  | Five Year Series Supplemental Indenture relating to the 1998 Five Year Notes, dated December 23, 1998, among Allied NA, the Guarantors and
the Trustee. Exhibit 4.2 to Allieds Registration Statement on Form S-4 (No. 333-70709) is incorporated herein by reference.                                                                                       
|           
|           
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|4.17        |  |  |  | Form of Series B Five Year Notes (included in Exhibit 4.21). Exhibit 4.3 to Allieds Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.                                                                                                                                                                                  
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|4.18        |  |  |  | Seven Year Series Supplemental Indenture relating to the 1998 Seven Year Notes, dated December 23, 1998, among Allied NA, the Guarantors and
the Trustee. Exhibit 4.4 to Allieds Registration Statement on Form S-4 (No. 333-70709) is incorporated herein by reference.                                                                                     
|           
|           
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|4.19        |  |  |  | Form of Series B Seven Year Notes (included in Exhibit 4.25). Exhibit 4.5 to Allieds Registration Statement on Form S-4 (No. 333-70709) is
incorporated herein by reference.                                                                                                                                                                                 
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|4.20        |  |  |  | Ten Year Series Supplemental Indenture relating to the 1998 Ten Year Notes, dated December 23, 1998, among Allied NA, the Guarantors and the
Trustee. Exhibit 4.6 to Allieds Registration Statement on Form S-4 (No. 333-70709) is incorporated herein by reference.                                                                                         
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|4.21        |  |  |  | Form of Series B Ten Year Notes. Exhibit 4.7 to Allieds Registration Statement on Form S-4 (No. 333-70709) is incorporated herein by
reference.                                                                                                                                                                                                              
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|4.22        |  |  |  | Fourth Supplemental Indenture relating to the 1998 Senior Notes, dated as of July 30, 1999, among Allied NA, certain guarantors signatory
thereto, and U.S. Bank Trust National Association, as Trustee. Exhibit 4.26 to Allieds Report on Form 10-Q for the quarter ended June 30,
2000, is incorporated herein by reference.                               
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|4.23        |  |  |  | Fifth Supplemental Indenture relating to the 1998 Senior Notes, dated as of December 29, 1999, among Allied NA, certain guarantors signatory
thereto, and U.S. Bank Trust National Association, as Trustee. Exhibit 4.27 to Allieds Report on Form 10-Q for the quarter ended June 30,
2000, is incorporated herein by reference.                            
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|           
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|4.24        |  |  |  | Seventh Supplemental Indenture relating to the 1998 Senior Notes and the 8-7/8% Senior Notes due 2008, dated as of June 29, 2001, among
Allied NA, certain guarantors signatory thereto and U.S. Bank Trust National Association, as Trustee. Exhibit 4.21 to Allieds Registration
Statement on Form S-4 (no. 333-61744) is incorporated herein by reference.
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|4.25        |  |  |  | Restated Indenture relating to debt issued by Browning-Ferris Industries, Inc., dated September 1, 1991, among BFI and First City,
Texas-Houston, National Association, as Trustee Exhibit 4.22 to Allieds Registration Statement on Form S-4 (No. 333-61744) is incorporated
herein by reference.                                                           
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|4.26        |  |  |  | First Supplemental Indenture relating to the debt issued by Browning-Ferris Industries, Inc., dated July 30, 1999, among Allied, Allied NA,
Browning-Ferris Industries, Inc. and Chase Bank of Texas, National Association, as Trustee, Exhibit 4.23 to Allieds Registration Statement
on Form S-4 (No. 333-61744) is incorporated herein by reference.      
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|4.27        |  |  |  | Collateral Trust Agreement, dated July 30, 1999, among Allied NA, certain of its subsidiaries, and The Chase Manhattan Bank, as Collateral
Trustee, is incorporated herein by reference.                                                                                                                                                                      
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|4.28        |  |  |  | Amendment to the Collateral Trust Agreement, dated January 25, 2001, among Allied NA, certain of its subsidiaries, and The Chase Manhattan
Bank, as Collateral Trustee, Exhibit 4.5 to Allieds Report on Form 10-Q for the quarter ended March 31, 2001 is incorporated herein by
reference.                                                                 
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|4.29        |  |  |  | Shared Collateral Pledge Agreement, dated July 30, 1999, among Allied NA, certain of its subsidiaries, and The Chase Manhattan Bank, as
Collateral Trustee, is incorporated herein by reference.                                                                                                                                                              
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|4.30        |  |  |  | Amendment to the Shared Collateral Pledge Agreement, dated January 25, 2001, among Allied NA, certain of its subsidiaries, and The Chase
Manhattan Bank, as Collateral Trustee. Exhibit 4.7 to Allieds Report on Form 10-Q for the quarter ended March 31, 2001 is incorporated
herein by reference.                                                         
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|4.31        |  |  |  | Shared Collateral Security Agreement, dated July 30, 1999, among Allied NA, certain of its subsidiaries, and The Chase Manhattan Bank, as
Collateral Trustee, is incorporated herein by reference.                                                                                                                                                            
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|4.32        |  |  |  | Amendment to the Shared Collateral Security Agreement, dated January 25, 2001, among Allied NA, certain of its subsidiaries, and The Chase
Manhattan Bank, as Collateral Trustee. Exhibit 4.9 to Allieds Report on Form 10-Q for the quarter ended March 31, 2001 is incorporated
herein by reference.                                                       





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##### Table of Contents



|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
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|4.33        |  |  |  | Certificate of Designation for Series A Senior Convertible Preferred Stock. Exhibit 4.1 to Allieds current report on Form 8-K dated August
10, 1999, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                   
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|4.34        |  |  |  | Certificate of Designation for Series B Junior Preferred Stock. Exhibit 4.2 to Allieds current report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                               
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|4.35        |  |  |  | Subordinated Indenture, dated July 30, 1999, among Allied NA, certain guarantors signatory thereto, and U.S. Bank Trust National Association,
as Trustee, regarding the 10% Senior Subordinated Notes due 2009 of Allied NA. Exhibit 4.1 to Allieds Registration Statement on Form S-4
(No. 333-91539), is incorporated herein by reference.                                                                                                                                                                                                
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|4.36        |  |  |  | First Supplemental Indenture, dated July 30, 1999 among Allied NA, certain subsidiaries of Allied NA and U.S. Bank Trust, National
Association, as Trustee, regarding 10% Senior Subordinated Notes due 2009 of Allied NA. Exhibit 4.3 to Allieds current report on Form 8-K
dated August 10, 1999, is incorporated herein by reference.                                                                                                                                                                                                    
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|4.37        |  |  |  | Second Supplemental Subordinated Indenture relating to the 10% Senior Subordinated Notes due 2009 of Allied NA, dated December 29, 1999,
among Allied NA, certain guarantors signatory thereto, and U.S. Bank Trust National Association, as Trustee. Exhibit 4.2 to Allieds
Registration Statement on Form S-4 (No. 333-91539), is incorporated herein by reference.                                                                                                                                                                       
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|4.38        |  |  |  | Form of 10% Series B Senior Subordinated Notes due 2009 (included in Exhibit 4.25), is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                     
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|4.39        |  |  |  | Rights Agreement, dated as of May 25, 2000, between Allied and American Stock Transfer & Trust Company, as Rights Agent. Exhibit 1 to
Allieds Registration Statement on Form 8-A filed May 31, 2000, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                   
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|10.1        |  |  |  | Purchase Agreement dated November 15, 2001, by and along the Company, the Guarantors and the initial purchases, with respect to the $750
million 8-1/2% Senior Notes due 2008.                                                                                                                                                                                                                                                                                                                                                               
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|10.2        |  |  |  | Purchase Agreement dated January 25, 2001, by and among the Company, the Guarantors and the initial purchasers, with respect to the $600
million 8-7/8% Senior Notes due 2008. Exhibit 10.1 to Allieds Report on Form 10-Q for the quarter ended March 31, 2001 is incorporated
herein by reference.                                                                                                                                                                                                                                        
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|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, Inc. Exhibit
10.1 to Allieds Report on Form 10-Q for the quarter ended March 31, 1997, is incorporated herein by reference.
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|10.4        |  |  |  | Consulting Agreement between Allied and Larry D. Henk dated November
1, 2001. Exhibit 10.2 to Allieds Report on Form 10-Q for the
quarter ended September 30, 2001 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                     
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|10.5        |  |  |  | Executive Employment Agreement between Allied and with Thomas H. Van
Weelden dated January 1, 1999. Exhibit 10.9 to Allieds Report on
Form 10-Q for the quarter ended March 31, 1999, is incorporated
herein by reference.                                                                                                                                                                                                                                                                                                                  
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|10.6        |  |  |  | Executive Employment Agreement between Allied and with Steven M. Helm
dated June 6, 1997. Exhibit 10.5 to Allieds Report on Form 10-Q for
the quarter ended June 30, 1997, is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                             
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|10.7        |  |  |  | Executive Employment Agreement between Allied and with Donald W.
Slager dated January 1, 1999. Exhibit 10.12 to Allieds Report on
Form 10-Q for the quarter ended March 31, 1999, is incorporated
herein by reference.                                                                                                                                                                                                                                                                                                                      
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|10.8        |  |  |  | Executive Employment Agreement between Allied and with Peter S.
Hathaway dated June 6, 1997. Exhibit 10.14 to Allieds Report on Form
10-K for the year ended December 31, 1997, is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                        
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|           
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|10.9        |  |  |  | Executive Employment Agreement between Allied and with Michael G.
Hannon dated June 6, 1997. Exhibit 10.15 to Allieds Report on Form
10-K for the year ended December 31, 1997, is incorporated herein by
reference.                                                                                                                                                                                                                                                                                                                        
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|           
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|10.10       |  |  |  | Executive Employment Agreement between Allied and with Thomas W. Ryan
dated August 1, 2000. Exhibit 10 to Allieds Report on Form 10-Q for
the quarter ended June 30, 2000 is incorporated herein by reference.                                                                                                                                                                                                                                                                                                                              
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|10.11       |  |  |  | Registration Rights Agreement, dated as of January 30, 2001, by and
among the Company, the Guarantors and the initial purchasers,
relating to the $600 million 8-7/8% Senior Notes due 2008. Exhibit
4-3 to Allieds Report on Form 10-Q for the quarter ended March 31,
2001 is incorporated herein by reference.                                                                                                                                                                                                                           





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##### Table of Contents



|            |  |   |  |                                                                                                                                                                                                                                                                                                                 
|----------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                                                                                                     
|            |  |   |  |                                                                                                                                                                                                                                                                                                                 
|           
|           
|           
|           
|10.12       |  |   |  | Registration Rights Agreement, dated as of July 30, 1999, by and
among Allied, the Guarantors and the initial purchasers, relating to
the $2,000,000,000 10% Senior Subordinated Notes due 2009. Exhibit
10.3 to Allieds Current Report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.
|           
|           
|           
|           
|10.13       |  |   |  | Purchase Agreement dated July 27, 1999, by and among Allied, the
Guarantors and the initial purchasers, with respect to the
$2,000,000,000 10% Senior Subordinated Notes due 2009. Exhibit 10.4
to Allieds Current Report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.              
|           
|           
|           
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|10.14       |  |   |  | Credit Facility dated as of July 21, 1999. Exhibit 10.1 to Allieds
current report on Form 8-K dated August 10, 1999, is incorporated
herein by reference.                                                                                                                                                      
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|           
|           
|           
|10.15       |  |   |  | Amendment to the Credit Facility dated as of January 25, 2001.
Exhibit 10.1 to Allieds Report on Form 10-Q for the quarter ended
September 30, 2001 is incorporated herein by reference.                                                                                                                       
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|           
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|           
|10.16       |  |   |  | Second Amendment to the Credit Facility dated as of November 20, 2001.                                                                                                                                                                                                                                          
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|10.17       |  |   |  | Non-Shared Collateral Security Agreement, dated July 30, 1999, among
Allied, Allied NA, certain of its subsidiaries, and The Chase
Manhattan Bank, as Collateral Agent, Exhibit 10.2 to Allieds Report
on Form 10-Q for the quarter ended March 31, 2001 is incorporated
herein by reference.                  
|           
|           
|           
|           
|10.18       |  |   |  | Non-Shared Collateral Pledge Agreement, dated July 30, 1999, among
Allied, Allied NA, certain of its subsidiaries, and The Chase
Manhattan Bank, as Collateral Agent, Exhibit 10.3 to Allieds Report
on Form 10-Q for the quarter ended March 31, 2001 is incorporated
herein by reference.                    
|           
|           
|           
|           
|10.19       |  |   |  | Second Amended and Restated Shareholders Agreement, dated as of July
30, 1999, between Allied and the purchasers of the Series A Senior
Convertible Preferred Stock and related parties. Exhibit 10.2 to
Allieds current report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.        
|           
|           
|           
|           
|10.20       |  |   |  | Amended and Restated Registration Rights Agreement dated as of July
30, 1999, between Allied and the purchasers of the Series A Senior
Convertible Preferred Stock and related parties. Exhibit 10.3 to
Allieds current report on Form 8-K dated August 10, 1999, is
incorporated herein by reference.         
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|12.1        |  | * |  | Ratio of earnings to fixed charges and preferred stock dividends.                                                                                                                                                                                                                                               
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|21          |  | * |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                 
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|23.1        |  | * |  | Consent of Arthur Andersen LLP.                                                                                                                                                                                                                                                                                 
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|99          |  | * |  | Representations
regarding Arthur Andersen's audit work.                                                                                                                                                                                                                                                         
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|            |  | * |  | Filed herewith